Monday, August 11, 2014

Verdict Still Out on Treasury Striking Reverse; Chalk-Up to Fed Policy Uncertainty

The rejection of the intra-session high on Friday was striking.  Reviewing historic price action, it had not been since March 2011 that the front TY contract has shown as big an ‘upper shadow’.  Prior to that March ’11 ‘shooting star’ formation, a new 3 month high had been registered only the day before.  Another new high was put in the next day, but 3 weeks later TY had fallen 5 points lower. 

Similarly, last week TYU broke above a 2 month consolidation and cash 10 year yields marked low levels not seen in over a year just before Friday’s ‘shooting star’ formed. 

A shooting star is a bearish reversal that like its namesake suggests prices fall ‘back to earth’.  More than anything, the shooting star indicates indecision.  It had been a real struggle for prices to reach as high as the levels seen up to Friday.  Many geopolitical events as well as weak European, Japanese and China economic data and somewhat mixed data here could certainly have prompted a more vigorous and earlier advance in ten year Treasury prices. 

New highs and reversal patterns thereabout require attention.  We are therefore aware, but would not be too quick to call an end to the bullish advance and rather understand that heightened volatility has been expected to attend the now less certain Federal Reserve policy path.       

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