Tuesday, December 16, 2014

It's taken the Bond futures a couple of months to eat through the overhang created when Treasurys spiked wildly on October 15, but they now appear poised for a shot at new record highs. If so, long-term rates are about to test the lows of 2012, with unpredictable effects on a mortgage market that may already have peaked.  Check out the March T-Bond tout and the chart that accompanies it for a precise rally target.  Click here for a free two-week trial to Rick's Picks if you don't subscribe and would like a free peek.

I hadn't imagined the selloff would be so powerful when we got short near the all-time high last week. In retrospect, it was  short-sighted of me for me to have suggested covering the position for a modest profit, since the importance of the target itself implied the possibility of a powerful selloff.  There's no sense in looking back though, and I'm encouraged to think that some subscribers may have kept a piece of the original position, For your information, and to help you manage the risk of any positions still held, the stock tripped another sell signal yesterday at 59.18 that points to 57.66.  Use this target however it may suit you, whether it be bottom-fishing or shorting with-the-trend.  It holds promise as well for traders who would attempt to leg into vertical call spreads. _______ UPDATE (5:16 p.m.): Yesterday's hysteria muddied the picture, but you could still use a new Hidden Pivot support at 57.16 to fish for a temporary bottom. On the 60-minute chart, this swing price can be found using these coordinates: A=60.81 on 12/15; B= 58.11 on 12/16; and C=59.86, also on 12/16. Be aware that any slippage below 57.16 would portend more weakness to as low as 55.91, a Hidden Pivot support that will be less risky to bottom-fish than the one at 57.16. There's also a small chance of a reversal from 57.89, give or take two cents.

It's taken two months for the futures to eat through the overhang created by the mid-October spike. It was prompted, as you may recall, by Japan's announcement that the BOJ would attempt what Max Keiser wryly dubbed 'QE9'. It's too early to predict how much more consolidation the March contract will need at the 145^04 midpoint pivot, but the so-far small breach of this resistance is a bullish sign. Assuming the rally unfolds as projected, eventually hitting 151^12, we can infer that long-term interest rates are headed beneath their 2012 lows. For now, you should position from the long side, preferably via camouflage, since the midpoint resistance has become theoretical support.  If you're uncertain about how to do this, just ask in the chat room. _______ UPDATE (5:10 p.m.): The futures pushed energetically past the 145^04 midpoint pivot, turning it into likely support. This suggests the move to 151^12 could unfold more quickly than I had initially imagined. The next promising rally target is 146^28, a Hidden Pivot resistance extrapolated from the following coordinates on the hourly chart: A=140^30 on 12/8; B=144^14 on 12/11; and C=143^11, also on 12/11.

The weekly chart for the March contract makes a strong visual case that December's selloff will hit 1955.00 before buyers find good traction. That's the Hidden Pivot midpoint of the large pattern shown, with a D rally target well above, at 2105.00, that's equivalent to the 2115.50 target we used for the December contract. There's an implied 32-point selloff, worth as much as $1600 per contract, but getting short is likely to be difficult because the mature downtrend will have attracted the interest of more than a few bears.  Bottom-fishing the 1955.00 pivot is another matter, and it's possible we'll be able to find a hook for camouflage if and when it the futures get there, since the midpoint is not on every trader's radar. Stay tuned to the chat room for further guidance if the target is closely approached.

Tax selling in this vehicle could produce a climactic bottom in the weeks ahead, but the range of possible targeted lows is quite wide, depending on how fierce the washout is. There are at least two logical hidden supports where we might look for an important turn: at 20.83 (daily chart, A=54.56 on 8/24/13); or at 17.30 (see inset). Bottom-fishing the higher Hidden Pivot poses relatively little risk, since we can use a very tight stop-loss, and because a bounce from that price that is at least tradable, if not sustainable, looks quite likely.  I'm going to back up the truck myself -- buying at either number or both, tightly stopped -- and would do so not as a long-term play, but as a high-odds trade. Please note that although the 20.83 pivot has the potential to produce an important low, I've selected a chart that shows the alternative target at 17.30 so that you can judge for yourself how compelling it looks.  One further note:  Because yesterday's plunge exceeded the previous bear-market low at 22.34 recorded on 11/5, it should have stopped out enough bulls to produce a spirited rally over the next day or two.  Under the circumstances, if such a rally fails to materialize, it would portend yet another wave of selling ahead.