Using a three-tick stop-loss, we shorted T-bond futures yesterday a hair off their intraday high. That was just before they plunged nearly a full point to reverse a deceptively strong opening. It’s been a while since we traded this vehicle, and in retrospect it’s clear that the only way we could have profited would have been to short option straddles and strangles each and every month since September. That’s when the rally that kicked off four months earlier started to go flat.

Now, though, as I mentioned in my commentary, the edge may be shifting in favor of shorts. Not that we’ve been bearish. Based purely on technical factors – we have never claimed to know why T-bond prices have been so buoyant -- Rick’s Picks has been predicting sunny days for T-bonds since last summer. We are still bullish, but with certain caveats that did not apply until recently. For one, we are skeptical that bond prices will be able to hurdle the three multi-year peaks recorded since early 2002. They range from around 117^16 to 120^00 and are shown in the graph just below. And for two – and the reason we went short yesterday for a swing-trade – is that the March T-bond contract has been creeping up on two hidden-pivot resistances, either of which looks solid enough to cap a rally of at least intermediate degree (i.e., of four to six weeks’ duration).

(Click on image to enlarge)

As it happened, the bonds dove yesterday after making a gap-up high on the opening that lay just a single tick above the hidden pivot where our short was offered. We took partial profits intraday and let the other half of the position run, tied to a tight trailing stop. There is one more important hidden-pivot above the price at which we sold short, and like Wednesday’s target it has the potential to mark an important top. But that’s assuming it’s reached at all, since it’s possible that yesterday’s high could come to mark the onset of a bear market. Let me also mention that, under the best of circumstances, a rally over the next 3-4 months to as high as 122^30 cannot be ruled out.