Wednesday, February 19, 2014

Bund Shows Signs of Reversing January Outsized Gains

The March Bund Future (RXH4) has pulled back from earlier session highs and currently presents a ‘bearish shooting star’ pattern similar to that seen when RXH last attempted to overcome resistance toward 144.30 on February 5th.   A ‘shooting star’ is a warning for lower prices.  It has not been confirmed.  It would be confirmed with a lower settlement tomorrow, especially below Tuesday’s opening level of 143.50.   Much of the value of the shooting star is the proximity to the current high and the indication of inability to hold session gains.  Also important in the shooting star is the relatively small differential between opening and closing level as indication of indecision.  Of course, in a bullish trend, we charge the indecision against the bullish contingency. 

The rolling front Bund future chart enclosed indicates that back in mid July of 2013, the front contract had difficulty moving above 144.35.  The two attempts at that resistance this month follow a very strong January performance where the contract rose more than 5.19 points.  This was the strongest monthly gain since December 2011 where the front contract rose 5.37 points. 

Over the last 24 years, there were only three monthly gains in the Bund that exceeded what was seen last month.  On two of the occasions, Nov ’08 and Dec ’11, the market the bund continued to move higher.  In Aug ’10, the Bund fell nearly 15 points over the next 8 months. 

Bottom Line: The Bund is in jeopardy of reversing much of January’s gains.  The indecisive nature of trade coupled with the proximity of inabilities to hold to session gains signals disquiet in the bullish camp.  Should a confirmation with lower price action holding tomorrow, one should be relatively comfortable that a strong resistance level has been again marked at 144.30 and the risk is that a substantial pull-back of the January gains is in order. 

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