Monday, May 11, 2015

What if Bund Just Being Temperamental

Our first reaction to the bullish trade on Thursday, May 7th,  with the stunning ‘bullish hammer’ formed following 7 consecutive new session lows was rather instinctive (see ‘Bund 10 Minute Chart; High Volume at Bullish Engulfing’ and ‘Bund; If I had a Hammer…’) and centered around immediate bullish prospects.  There had been a very impressive decline in Bunds since cash yields neared zero percent and where the futures offered a bearish reversal pattern (See ‘Bund Taking U-Turn at Zero Yield?’). 


While we are glad to have been able to advise early of a forthcoming Bund advance and recovery, we are not so convinced that the bigger picture from near zero yields has changed.  Instead of only viewing last Thursday’s bullish reverse in the context of the recent price slide, we might consider its volatile performance as further indication of an unsettled condition near a extreme value level and following a protracted bullish trend.   The ‘double doji’ of April 17-20 indicated a great deal of uncertainty and that we should expect heightened volatility forthcoming.  We certainly go that.  More volatility is likely still.  Higher yields (lower futures prices) are also the likely product of disquiet following a long bullish advance. 


Drilling down to the most immediate trade, we would note that the possible bullish confirmation on Friday of Thursday’s advance could be short-circuited today with a ‘bearish engulfing if RXM5  (June Bund) settles below 154.36.  If that happens, it would discount the bullish implications of Thursday’s advance and increase the prospects for further price declines.   




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