Wednesday, July 22, 2015

Bonds Still Have Friends




In early trade today, Treasuries show short end weakness and the long end higher with a stronger dollar and lower commodities prices.  Light volume attended trade yesterday and open interest declined in Fed Funds, Eurodollars and Ultras (-4K, -28K, -5K) while increasing in FV, TY and US (+18K, +27k, +6k).    

 

Home prices and existing home sales data come today, having shown steady gains in the last months as an outsized contributor to economic performance. 

 

Yesterday I correctly anticipated the initially weaker price action, calling for a decline in Bonds below 151 (Treasury Long End Under Pressure).  Following that decline in early trade, the contract extended gains from the prior session, marking a 5th consecutive new session high and settled higher by 18/32nds, thus discounting the bearish implications of the noted bearish Harami. 

 

Although respectful of the advancing price action in the long end, we are not willing to recommend long positions at this juncture and would instead continue to expect prices to fail.  A settlement at or below 151-30 in USU5 would create a bearish engulfing pattern in bonds and support selling activities.  Otherwise, a settlement above the July 9th bearish engulfing at 154-08 would indicate that the bullish contingency has regained controlling influence.

 

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