USM09

On the June T-Bond’s daily chart, the clean lines of the downtrend strongly imply another leg down before sellers might conceivably be washed out. To be precise, the unachieved target lies at 112^09, a quite nasty fall from yesterday’s settlement price of 115^02.  The bearish outlook is corroborated by the ease with which sellers punched through the midpoint sibling of the target, 118^00.  Another negative is that downside targets derived from two lower point ‘A’ alternatives — labeled A1 and A2 here —  have already been exceeded. We’ll want to attempt bottom-fishing if and when the target is approached, but that looks like it could still be a week or two  away. We should also leave room for a surprise in the form of a bullish reversal. However, it would take a print at 116^24 to signal that today. _______ UPDATE:  During this morning’s briefing, I provided targets for the September contract. A Hidden Pivot at 110^07 is equivalent to 112^09, but there is another at 111^07 that warrants scrutiny, since it could engender an important turn.  The latter number is my minimum downside projection, and my confidence is high that it  will be reached or exceeded before Bonds can turn around. Both targets can be bottom-fished with a stop-loss as tight as 4 ticks.

We’ve been using a HiddenPivot at 112^09 as a minimum downside objective, but I’m going to lower it to 111^21, a Hidden Pivot that comes from the hourly chart  (where A=123^10, on May 21).  The midpoint sibling of that target, 115^15, was breached by a full point on Friday, increasing the likelihood that the target itself will be reached, although a two-day close above 115^15 would hint of a reversal. We’ll switch over to the September contract tomorrow, but for your information,  the equivalent targets lie respectively at 114^01.5 and  110^07.5.

Bulls looked powerless yesterday to reverse a downtrend that has been alleviated only by short covering for a day-and-a-half earlier in the week. The futures would need to push above 118^16 by week’s end to suggest the Plunge Protection Team is doing its job, but otherwise they’ll have their hands full just trying to keep this barge afloat.

The bearish pattern shown in the chart projects to 112^09, an implied disaster that would send yields soaring well above the levels that triggered scare headlines earlier in the week. For its part, Wall Street seemed not the least bit scared, since the broad averages have remained mixed. But if June Bonds are about to plummet to our target, that could put an end to the complacency that has contributed to, among other things, the powerful short-squeeze rally in bank stocks.

I’ve been tracking and forecasting the bonds higher since last Friday, when they turned from a low near an important  Hidden Pivot support at 119^10.  Now, having exceeded the first rally target subsequently given, 121^28, they are about to encounter another not far above at 123^15.  If that resistance gets bulldozed within an hour of first being touch, it would lend weight  to our hunch that this could be as good a rally as the bonds will see in 2009. I’ve reproduced an hourly chart that shows the ABC pattern, which, though somewhat unintuitive, looks technically appealing to me.

From just above a predicted low  at 119^10, the futures have now rallied to within a whisker of our first important rally target, 121^28.  Someone in the chat room reported booking a $400 profit on a long position taken near the lows, but it would have required daring, not to mention cunning, to have  extracted much more than that. The 121^28 target is no longer significant from a trading standpont, but we’ll be focused on it nonetheless, since an easy breach would shorten the odds of another leg up.

The futures have taken a tentative bounce from within five points of the 119^10 Hidden Pivot support that I’d flagged last week as a potentially important low. The minor uptrend that has ensued so far projects to 121^28, but the June contract would first need to get by its midpoint sibling at 121^04 to challenge the higher resistance. The less delicately this scenario unfolds, assuming it does so at all, the greater the likelihood that we are witnessing the beginning of an intermediate-term rally with a lifespan of perhaps three to six weeks. This criterion would be fulfilled decisively if, within two or three days of reaching the 121^28 target, the futures were to close above it. _______ UPDATE (3:00 p.m. EDT):  This prediction worked nicely, since the futures are up sharply today, hitting a so-far high at 121^24.5 that fell just a few ticks shy of our target.  A trader in the chat room says he reaped $400+ from the move, but he was the only one I heard from — perhaps because getting long took aggressiveness and initiative that went beyond my analysis.

The futures are within a day’s weakness of a potentially very important Hidden Pivot support at 119^10. I have my doubts that it will end the bear market, but it could engender the kind of bounce that will make shorts doubt, at least for a short while, that the U.S. Government is indeed bankrupt.  The enormous rally in mid-March that dominates the accompanying chart was the only feel-good day the bonds have enjoyed the whole way down. Some may recall that it coincided with an announcement that the Fed would buy whatever quantities of bonds were required to hold interest rates down. One could reasonably infer that the underlying purpose of the bank bailout has been to allow them to unwind the foolishness of that day.