Treasury Bonds Topping?

By: Robert McHugh | Sun, Jan 22, 2006
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A Broadening Top, a.k.a. Megaphone pattern has emerged, calling for Bonds to tank over the intermediate term. A wave 1 bottom will arrive after the final Minuette wave v down. Once Minor Degree wave 2 up corrects the recent decline, a Bearish Head & Shoulders pattern warns a wave 3 down should hurt Bondholders - about the time the Fed stops reporting M-3 in March/April. Perhaps how it will go is, demand for U.S. Dollars (to buy oil) will decline once Iran opens its euro-based oil bourse in March. With too much supply, the Dollar collapses. A collapsing Dollar is tantamount to rising inflation, which should put pressure on Bonds. The Fed may need to monetize this debt, i.e., be the buyer, to support Bond prices, hence the need to hide the only tool at their disposal to accomplish this - M-3.

The Treasury Yield Curve this week is a normal upward sloping curve from the 2 year out to the 20 year, however, from the 2 year to the 10 year is flat on January 20th, 2006. There was very little change from last week.

The U.S. Dollar completed its second wave A up and second B down of a Double Flat/Zigzag corrective intermediate-term rally. The final wave C to a corrective Primary wave (2) top is next.

We can estimate the timing of the start of the Dollar's coming collapse into the 60s (probably even lower) by doubling the time the first A-B-C (a Flat 3-3-5 pattern) took for corrective Primary degree wave (2) up. From the time the U.S. Dollar's Primary (1) bottomed on December 31st at 80.39, to the time the first of what will be two A-B-C patterns topped at C on July 8th at 90.77, was about seven months. Then the dividing wave, X, took the Dollar down to 86.02 on September 2nd. That timing says the start of the decline should arrive coincident with the March/April period when M-3 is hidden and Iran starts selling oil on its bourse in euros.

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"Let no one in any way deceive you, for {the day of the Lord}
will not come unless the apostasy comes first,
and the man of lawlessness is revealed, the son of destruction,
who opposes and exalts himself above every so-called god
or object of worship, so that he takes his seat in the
temple of God, displaying himself as being God.
And you know what restrains him now,
so that in his time he may be revealed.
For the mystery of lawlessness is already at work;
only He who now restrains will do so until He is taken out of the way.
And then that lawless one will be revealed
whom the Lord will slay with the breath of His mouth
and bring to an end by the appearance of His coming."

2nd Thessalonians 2: 3-4, 6-8


Robert McHugh

Author: Robert McHugh

Robert D. McHugh, Jr. Ph.D.
Main Line Investors, Inc.

Robert McHugh

Robert McHugh Ph.D. is President and CEO of Main Line Investors, Inc., a registered investment advisor in the Commonwealth of Pennsylvania, and can be reached at The statements, opinions and analyses presented in this newsletter are provided as a general information and education service only. Opinions, estimates and probabilities expressed herein constitute the judgment of the author as of the date indicated and are subject to change without notice. Nothing contained in this newsletter is intended to be, nor shall it be construed as, investment advice, nor is it to be relied upon in making any investment or other decision. Prior to making any investment decision, you are advised to consult with your broker, investment advisor or other appropriate tax or financial professional to determine the suitability of any investment. Neither Main Line Investors, Inc. nor Robert D. McHugh, Jr., Ph.D. Editor shall be responsible or have any liability for investment decisions based upon, or the results obtained from, the information provided.

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