Fixed Income Markets, Technicals

Treasuries’ Bearish Reversals Losing Momentum

Treasury Note (10-Year)

Short-term Technical Outlook

After two weeks of aggressive declines, bearish momentum seems to have stalled for the benchmark 10-year T-bill. While this is likely more a factor of ebbing market forces (as we have seen the same drop in the US dollar and rally in equities cool), technicals were present to put in a floor on price action. The 50 percent Fib retracement of the June 2007 to December 2008 bull wave at 117-14 has helped to hold the market back; but it is not producing a steadfast stop. The 50-week moving average is further brining up support – and reminding us of the long-term bull trend behind this market.

Long-term Technical Outlook

The 10 year is holding above the 400 week SMA (save for a few days last week) and the series of lower lows and lower highs since early 2006 is intact so there is no reason to alter the bullish outlook.  Favor the upside and anticipate a record high.

UK Gilt (10-Year)

Short-term Technical Outlook

Unlike its US counterpart, the 10-year Gilt has deferred to congestion for more than a month now. The tempered pace of declines in government paper across the globe has helped to dampen week-to-week volatility and solidified frequented support. A floor has been fashioned out of 118 following the 38.2% Fib retracement on the May 2008 to March 2009 advance. However, stops should be set relatively wide, because price action is not reversing immediately upon tests of this level. Medium-term momentum is still bearish, but this is just a retracement in the long-term trend.

Long-term Technical Outlook

Gilt wave structure is clear.  There are 3 waves complete at the 2008 high.  An unorthodox top was made in 2009 in what is probably wave b of a triangle.  If indeed a triangle is unfolding, then wave c completed last week and waves d and e should unfold over the next month + before a thrust higher completes the entire rally from the 2007 low.

German Bund (10-Year)

Short-term Technical Outlook

The break below 121.75 has found follow through – though it has been choppy progression.  Over the past two weeks, however, we have seen high volatility and relatively narrow ranges. This has led to a couple of wide doji candles that have shown respect for support down around 118.50.  This is a level of support defined as a former resistance point through the most of 2008 and more recently as the bottom of a trend channel, a 50-week SMA, and 50% Fib pulled from the June/July 2008 run up all around 118.00/50. Once again, wide stops and aggressive entries are best for those looking for breakouts and reversals

Long-term Technical Outlook

The Bund is similar to the gilt in that I anticipate a new high in a 5th wave within the 5 wave advance from the 2008 low.  Wave 4 may be complete at last week’s low.

Japanese Government Bond (10-Year)

Short-term Technical Outlook

There are few markets that can boast congestion as consistent as what the 10-year JGB futures contract produces. This past week, the market finally took out another horizontal channel. However, unlike the break from the November-March zone, this recent breech is from a pattern only six weeks in the making; and the follow through has immediately dissipated. Support is now stepping in at 136.20, a long-term 50% Fib (a trend across the government bonds) that has little influence beyond this single level. Currently, the band holding back price action between 136.20-60 is too narrow to last. Expect a minor breakout relatively soon.

Long-term Technical Outlook

Commentary has not changed in months…”a 10 year head and shoulders top may be in the works and 142 should remain intact (if the pattern is to play out) as the right shoulder of the formation.  A break below the neckline would likely see a breakdown that carries into long term support levels of 122.50 and 116.41/117.20.”  This is one of the best trade opportunities of the next year +.

Written by: John Kicklighter and Jamie Saettele, Strategists for CFDTrading.com
Questions? Comments? You can send them to jkicklighter@cfdtrading.com