Wednesday, March 2, 2016

Marty, Why Are Treasury Bears Chicken to Position??

“Marty, Treasury futures open interest fell in yesterday’s declining price action. Is that an indication the shorts were not willing to participate in the decline by adding to their positions?”

Good question! One area of trend strength I follow is the addition (subtraction) to open interest during a trending market. Normally, increasing open interest in a trending market demonstrates a capacity for trend continuation. We ‘reward’ the trend architects for their unwavering commitment as the market moves in a path beneficial to their interests.

Attention to open interest gains in the advancing Treasury prices through January left little question as to the conviction of the bullish contingent and warned would-be shorts against fighting this trend.

If we were to consider the Treasury price trend as having earlier turned bearish, we might fault the bearish contingency for not adding to positions yesterday. However, it is fairly clear that the bullish contingent is instead the clear winner of the two months and as such is ‘charged’ for not having a willingness to support prices and instead removed positions, thus exacerbating their own situation.

This is in part why I was more comfortable indicating late yesterday that we should not expect the bullish contingency to support prices as they had in January and early February, going forward. Had open interest increased markedly in Treasuries and despite this, the contracts suffered strong losses as it did, we would need to recognize the ineptitude of the effort by the bulls.

Instead, having had a fantastic run, the bullish contingency appears ready to take some profits and move closer toward neutral positioning. While this is understandable that the longs would want to reward themselves for their earlier efforts, their recent activities do not support prices or suggest that there is a nearby price recovery forthcoming.  

Price action on Tuesday of last week, when the Jan 11th, 12 month low yield level (TSY 5’s & 10’s) was tested, indicated that the bullish contingency was losing its conviction (control). It has further indicated such in developments over the last 48 hours. 

Generic 10yr Treasury Yield


Bearish Candlestick Technical Formations

Bullish Contingent Relinquishes Control

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