T-Bonds

We'll have a better idea of whether the selling of the last two weeks is the beginning of a bear market or merely a correction of the long-term bull if and when the downtrend hits 128^05, a Hidden Pivot that can serve as our minimum downside objective for the near term.  An overshoot of as little as 3-4 ticks would warn of more weakness to come, and a close below the support would be still more bearish. Please note that there is an alternative pivot at 128^17 that could also provide a hidden turning point.

Bond futures now have active downside targets at 130^31 and 128^17.  December bond futures confirmed a new bearish pattern on the daily chart at the opening of today's session.  The pattern will remain in effect so long as its "C" point of 133^12 is not revisited, although the larger bullish trend in the bond market would make that an unsurprising outcome.  Indeed, the larger trend suggests that traders should buy the midpoint pivot of the new pattern at 130^31.  A bid at 131^01 with a stop at 130^28 would risk a hypothetical $156 per contract.  (Posted by Doug McLagan)  _______ UPDATE (2:25 p.m. EDT):  The futures made a low at 131^00, filling our order and then rallying gradually to as high as 131^14 before reversing sharply.  Traders had plenty of time to manage the position profitably.  The reversal broke through the midpoint pivot, suggesting that the "D" target of 128^17 will be reached and will present us with another trading opportunity.

Armed as always with perfect knowledge, the "market" violently reversed Friday's damage yesterday.  Were they reacting to the message that Japan might, sort of...ease?  Who knows?  We can only sympathize with traders who are forced to extract droplets of meaning from such announcements. They should be glad they are not reporters paid to do the same with Paris Hilton's escapades.  Anyway, I'll use this post to reiterate a 140^20 target given earlier for the September contract. Interpolating to December yields an equivalent at 138^27, or 140^16 if any higher.

The Bonds' last two leaps have come within two ticks of their respective Hidden Pivot targets, so you might say this vehicle has been dancing to our tune. Since upside potential over the near term is to as high as 140^20, let's attempt a modest speculation, bottom-fishing just below the 133^27 midpoint support of the pattern shown. It's too bad the midpoint exactly coincides with the too-obvious "structural" support of Sunday night's low, since, if the midpoint were hanging in the middle of nowhere (so to speak), just below the support, the pattern would be a real beauty. We'll bid 133^26, stop, 133^23, risking about $100 theoretical. If the stop is hit, infer more downside is imminent to as low as 133^12, the midpoint support's 'd' sibling. ______ UPDATE (11:07 a.m. EDT): The stop-loss proved too tight when the futures bottomed at 133^22. However, this overshoot of the midpoint support was not sufficient for us to infer that the weakness will continue down to at least 133^12. Moreover, if the futures now print 134^12 without that happening, creating a bullish impulse leg on the hourly chart, it would signal that bulls are off-to-the-races, hell-bent on 140^20.

It's explosive days like yesterday that serve to remind us of Bonds' strong propensity to go against weakness in the broad averages. To the extent I am increasing the drum beat for the "sky-is-falling" argument, I am implicitly saying that a powerful upthrust awaits in this vehicle.  More immediately, and considering the ease with which the 134^09 Hidden Pivot gave way, I'll hang a 135^09 target out as a minimum upside objective for now -- and 140^20 if it fails..  The provenance of the first number is shown in the accompanying chart, but there are any number of other bullish ABCs that I could have used.  Anyway, we are not trying to short this vehicle so much as find explanations for the behavior of other markets that take their cues from it.  Meanwhile, it cannot make anyone feel "safer" that so much of the world's investment capital is pouring into one allegedly "safe" haven.  As Marc Faber has said, people will want to cross the icy river where the greatest number of people are crossing it, but that's hardly the way to ensure one's safety.

Well, at least you don't hear much talk about how this silly rally is a sign of confidence in America's economic future. More like the only game in town now that the U.S. is perceived as being the last too-big-to-fail debtor on the planet.  We shall see.  In any case, a Hidden Pivot at 134^09 looks like a potential rally-stopper, implying there's only a little more upside above yesterday's 134^01 high.  This should correspond to a bottom in yields of 3.64%, my target for TYX, a CBOE proxy for 30-Year  T-Bond rates.

Because T-Bonds have been dancing smoothly with Hidden Pivots lately, we should assume they are on their way up to at least 130^08 now that they've exceeded that Hidden Pivot's sibling midpoint at 128^05 on a closing basis.  Accordingly, traders should position from the long side -- and please note that camouflage opportunities have been cropping up on charts up to the 30-minute level. Use of the single-bar 'C' would have been the key to any such trade that panned out.

The 126^07 Hidden Pivot flagged here yesterday caught the exact low, although the subsequent rally has not yet gone far enough for us to infer confidently that the correction is over. Officially we hold no position, but if you got on board on your own initiative, switch from a break-even fixed stop to a ten-tick trailing stop if and when 127^01 is exceeded to the upside. If you hold a multi-contract position, take profits on half at that price.

The next upthrust has the potential to reach 131^05, so we should look diligently for ways to buy this minor correction.  I'll recommend a 126^08 bid, stop 126^04, but you should be on the lookout for camouflage opportunities arising from any minor ABC rally, since it's possible the futures won't retrace all the way down to the Hidden Pivot support at 126^07. As of around 9:30 p.m. Sunday night, the three-minute chart looked like the best place to scout for the turn. _______ UPDATE (10:45 a.m. EDT): The futures dove sharply to a low at 126^11, three ticks from our bid, before bouncing robustly. Cancel the order, since our odds will never be quite as good when we settle for sloppy seconds. The original target remains theoretically valid nonetheless.  For the record, there was a camouflage entry signal  at 126^17 around 10:06 a.m. EDT that would have gotten you long for a very short ride to as high as 126^26.