Tuesday, April 21, 2015

Bund Taking U-Turn at Zero Yield?

The German ZEW Assessment of Current Situation printed higher this morning than expected and at 70.2 v. expected 56.5, reaching a level not seen since July of 2011.  Greece has been an opposite pull on the Bund, helping to push the yield to 7 basis points the other day. 

The German Bund is sporting an interesting look and there are enough balls in the air that we might benefit from keeping an eye on the technical situation.  As similarly indicated back in June of last year when Oil was trading at $110 and sporting a topping technical pattern, it is at times too difficult to have confidence in a ‘bottom line’ understanding from a multitude of conflicting economic and geopolitical developments.  Especially in such cases, an eye toward technical developments can offer some guidance.

The Bund had two consecutive very small body days (difference between opening and closing prices) on Friday and Monday.  Generally, this indicates indecision and we consider these events separately as non-trend-friendly.  Strictly speaking, a ‘doji’ is a open and close at the same level.  The 2 and 3 tic difference in Monday and Tuesday’s ‘body’ is consistent with this theory and could be called a ‘double doji’. 

A ‘double doji’ is a candlestick pattern that suggests forthcoming volatile trade, without the suggestion of direction.  It is a somewhat rare technical pattern in contracts that have daily ranges like the Bund.  There were 9 similar ‘double doji’ over the last 5 years in the Bund and price action was somewhat more volatile following these occurrences.   The table below indicates the movements in these markets. 

Next Day +.74

3 Day +1.40
5 Day +1.40
3 Day +1.05

5 Day +1.45
Down then Up

2 Day -.97

4 Day +1.85
2 Day +.79
3 Day + 1.03
3 Day +1.11
4 Day +1.34

As indicated, the Bund tends to move rather aggressively following a ‘double doji’ and we are thus warned to expect strong price action forthcoming.  




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