Wednesday, March 9, 2016

Treasuries Reject Bull Hope In Yesterday's Advance

Treasury and Eurodollar futures are lower in early trade today, following the strongest session since February 25th.  That late-Feb session, as appears likely for yesterday’s trade, did not mark a renewed bullish trend.  The Treasury yield curve flattened by 3 bps yesterday between 5’s-30’s and by over 15 bps since Feb 25th.   The Eurodollar futures yield curve flattened yesterday by 8 bps over the first 3 years.

Open interest continues to decline.  Losses there were seen in Eurodollars, 2’s, 5’s and 10yr Treasuries.  My analysis continues to indicate that it is the bullish contingent that is leading the effort toward position squaring. 

The enclosed chart of the ten year Treasury (TYM6) shows a developing bearish trend that had, on Monday, briefly recaptured 50% of the price advance registered from late December to February 11th.  On Feb 11th, a significant candlestick pattern was formed.  This ‘bearish shooting star’ left a long ‘upper shadow’ and points toward strong resistance above.  That pattern was repeated on Feb 24th, just before the last best advance. 

Another bearish technical development since Feb 11th is the ‘bearish engulfing of Feb 29-Mar 01, which is a continuation pattern.  Note too that the advance yesterday did not threaten the bearish channel developing since the Feb 11th high.  The upper and lower bounds of this channel are 129-30+ and 127-19.  

One technical development to be watchful for today would be a ‘bearish engulfing’ on TY.  A settle at or below 128-30 or lower would form such a continuation pattern and put to rest any confusion about bullish prospects in the immediate term.  Watch too the 50 day moving average which at 128-23 today has not been touched since the start of the year. 

In short, the intermediate-term bullish trend, described by the strong advance since late December, is giving way to increasing evidence of an emerging bearish trend that has seen longs exit positions and prices retreat toward 50% retrace of the year-beginning 6 week advance.  In time we will need to find the bearish contingent more responsible for trend maintenance than was visible yesterday.  For now, we remain less demanding or more patient for bearish developments to unfold.   


This has been prepared for informational purposes only, is confidential and may not be reproduced.  It is not from the Research Department or a research report.  It is based on information generally publicly available from sources believed reliable.  No representation is made to accuracy, completeness or returns.  Changes to assumptions may have a material impact on returns detailed.  Prices and availability are subject to change without notice.
OPTIONS INVOLVE RISK AND ARE NOT SUITABLE FOR ALL INVESTORS. Please ensure that you have read and understand the current options risk disclosure document before entering into any option transaction. The options disclosure document can be obtained here:

No comments:

Post a Comment