T-Bonds

Yesterday's plunge bottomed a quarter of a point from the 158^14 correction target we've been using since April 22, when the futures were trading nearly six point higher. The Hidden Pivot target has the potential to mark an important low. However, if it gives way and the June contract falls anew, we could infer they are fixing to dive all the way to 150^07, completing a corrective cycle begun from 171^09 on January 30.  A plunge to the target would push rates above 3% from a current 2.6%, hitting levels we haven't seen since last November.  Bottom-fishing was appropriate, but because there were no reports in the chat room of any subscriber having done so, I've established a tracking position in TLT, where there was some action. _______ UPDATE (May 1, 12:03 a.m.): A marginal new low Thursday at 158^08 -- less than a quarter of a point from the crucial midpoint support noted above -- left the futures in precarious shape, poised at the edge of a mile-high cliff.

Treasury bonds got savaged yesterday on news that housing starts had improved. The selling seemed a tad overdone -- not just because it's unlikely the pace of the most turgid economic recovery in U.S. history is about to improve, but also because first-time home buyers have effectively been shut out of the market. Neither factor seemed to be weighing on investors' tiny brains, however, and so, in their frenzy to dump Treasury debt, they acted as though the dreaded Fed tightening would soon be invoked to head off runaway inflation and a too-hot economy. At press time it was impossible determine which month the tightening was thought most likely to occur, although June and September have been popular choices in recent weeks. All that aside, T-Bond futures look like they will need to correct somewhat more before the selling abates. Specifically, I expect the June contract to fall at least to the 158^14 target shown. That's the Hidden Pivot midpoint support of the large pattern, and although the pattern itself is far from textbook perfect, it will do for our purposes.  We've been looking for an opportunity to re-open a bullish position in a corresponding vehicle, TLT, but this task will have to wait, at least for the time being.

I provided only bullish targets in my last update, but the futures will need to achieve the corrective ones first. Most immediately, that would imply more downside to the 158^02 target shown. I expect this Hidden Pivot to provide a tradable bounce, but if not, the next stop on the way down would be 156^28, a target derived by sliding up to the next valid point 'A' (shown here as A2).  Slide one rung higher still, and you would come up with 155^15. ______ UPDATE (March 5, 11:53 p.m.): A swoon in the early going came within two ticks of the 158^02 target identified above.  Is the worst over?  The futures appeared to consolidate for the remainder of the day, but unless they can leap a 159^11 'external' peak recorded on Wednesday, and soon, a relapse down to 156^28 is hardly a longshot. ______ UPDATE (March 6, 10:32 a.m.): Based on strong payroll data out this morning that no one actually believes, and which reflects a strong job market that does not in fact exist, T-Bonds have taken their worst single-day hit in years. The mini-crash has put into play a 153^17 target whose coordinates, on the 60-minute chart, are A= 168^11 (2/5); B=158^30 (2/19); and C=163^07. _______ UPDATE (March 10, 9:21 p.m.) The rally looks promising, but it will need to exceed 159^10 to turn the hourly chart bullishly impulsive. _______ UPDATE (March 15, 11:30 p.m.): The futures spent most of Friday head-butting a midpoint resistance at 160^00, but if they can push above it today, look for more upside over the near term to at least 161^12. (60-min, A=158^01 on 3/11)._______ UPDATE (March 18, 3:53 p.m.): What a blast!  You can use a 164^18 target now, based on (180-minute chart) A=154^27 on 3/6. _______ UPDATE (March 22, 5:47

Although Friday's weakness shifted my targets somewhat lower, the futures ended the day on a buy signal projecting to 162^23, or perhaps 164^13 if any higher. These are the respective midpoint and 'D' pivots of the pattern shown, the first significant rally off mid-February's oversold lows. Although it's too early to judge bulls' vigor, if they are about to power this vehicle to significant new highs the Hidden Pivots identified above should give way easily, meaning within perhaps 2-4 hours after first being touched. A major trend-change would have upside potential to as high as 173^26, a Hidden Pivot subject to midpoint resistance at 166^10. These price points come from the hourly chart, going back to a point 'A' low on December 24 at 156^09.

The fledgling rally looks promising -- somewhat moreso than the corresponding rally in TLT, our favored vehicle for trading the long bond. Minor upthrusts have been clearing external peaks, which is as it should be in a healthy rally. Now, as you can see, the futures have tripped a buy signal for a presumptive ride to 163^09, the midpoint resistance. If the futures can blow past it today, that would make a follow-through to the 164^30 target an odds-on bet. ______ UPDATE (10:08 p.m. EST): Another setback, although it left the promise of Tuesday's sharp rally intact. If the futures rally overnight, exceeding 163^00, a finishing stroke to 164^22 would become an odds-on bet.

Short-term prospects look bearish, since bears appear to have won Friday's 'duel'.  The day began with a promising rally, but by the final bell the futures had relapsed intraday to take out last Thursday's bottom. The result is the downtrending ABC pattern shown, with a 158^01 target. Night owls please take note of the following, however: If the Sunday evening rally exceeds 159^31, this vehicle will become a bull trade. ______ UPDATE (11:03 p.m. EST): The yellow flag is out, since yesterday's outwardly impressive rally narrowly failed to surpass Friday's high, 161^02.

Like TLT, T-Bond futures slightly exceeded a clear and compelling Hidden Pivot target on Friday. If neither goes much higher before correcting, it would suggest that the bull market is beginning to slow down in normal fashion. If not, and both vehicles resume their ascent over the next couple of days, that would indicate buyers are still on a rampage, presumably miles from a major top. In fact, the ability of T-Bonds to make short work of ostensibly important Hidden Pivot resistances has been the hallmark of this bull market. Knowing this should help the timing of our efforts to buy on pullbacks, even as it tempers our enthusiasm for picking intermediate-term tops. _______ UPDATE (8:52 p.m.): The futures fell 1^12 points yesterday after topping at 151^28 -- a moderate correction. If it continues, look for a futher fall to at least 149^27.  _______ UPDATE (Feb 3, 10:07 p.m.): Sellers crushed the 149^27  Hidden Pivot support, implying more downside over the near term to at least 148^09, or perhaps 147^28. ______ UPDATE (Feb 5, 2:21 a.m.):  The futures staged a very powerful rally yesterday after falling to a low at 148^18 that lay nine ticks from the 148^09 target given above.  The so-far high of the bounce is 150^19.

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.

Using call options, we've been trading an ETF proxy for this vehicle, TLT, but have been on the sidelines lately waiting for the correction from mid-October's spike high to run its course. You can just look at the chart and sense not only that recent price action looks like consolidation for an eventual move higher, but also that it could take more time for the process to finish.  Assuming the point 'C' low of the pattern holds -- an outcome which  I do not strongly expect at the moment -- the next major thrust would put the futures on course for a flight into outer space. Specifically, a Hidden Pivot target at 152^27 would be in play, implying new record-lows for long-term interest rates. Traders should approach entry with a bullish bias once 143^13 (green line) is touched, and to be even more aggressive following the breach of the 'midpoint pivot' at 146^18.  Both of those benchmarks could change if the futures head lower first, but that would not alter the very bullish look of the chart unless 140^08 were exceeded to the downside.