Thursday, May 7, 2015

Bund; If I had a Hammer…

The old Pete Seeger song ‘If I had A Hammer’, sung by Peter, Paul and Mary comes to mind when I see today’s Bund Candlestick. 

The June Bund future traded its largest daily range since August of 2011.  Outside of the two sessions of Aug 5 and Aug 8, 2011 there were no other single sessions in the last five years that had as big a range.  Of course the Bund has recovered completely from the early morning low that reached a new low for the year at 151.44.  The session has created a candlestick that screams of a bullish hammer.  The outsized lower shadow (difference between opening and low prices) speaks of seller exhaustion while the relatively small differential between opening and closing levels suggests indecision. 

You may remember that it was the indecisive nature of trade in Bunds shown by the ‘double doji’ back on April 17-20 that first alerted us to the possibility for a big move forthcoming (see ‘Bund Taking U-Turn at Zero Yield?’)  The jump in yields the next day signaled the trend (see ‘German Bund Wrestles with Bearish Reversal Implications’ and ‘Bund; Technicals Suggest A Long Way From Home’).    


Apparently the Bund has run out of weak longs to punish and the recovery today will need to be monitored to determine the implications of this latest development.  We should remember that although the price action today is particularly stunning, the level at which this bullish formation has occurred is quite near to the historic low yield mark.  As such, we may want to pay more attention to the indecision noted in today’s formation than then its bullish implications, per se. 




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