Logical Market Update: Near Term Outlook for Treasuries

Near Term Outlook for Treasuries – 10 Year Note Continues to Lead Direction

 

Let’s talk about bonds baby…. let’s talk about you and yield…let’s talk about bonds…” – sound like a familiar tune – it should.

 

The rally in treasuries has stalled – paused for thought – needs an additional “goose” only received after hearing additional encouragement from Mr. Bernanke.  The near term picture for the 10-yr note and the 30-yr bond are below – both have been holding well below initial resistance.  Equities cruised to additional new highs on Monday on low unimpressive volumes and volatility.  Tuesday brought the long awaited start of the next correction (another 4th wave within the sub-divided sequence I discussed last week.)  The good news for bulls is that there is still additional upside to come, so I’m not looking for a major drop just yet.  Having said that likely for the next couple of days upside moves will provide good opportunities for day traders both on the long and short side.  Friday is July expiration for options and I would expect additional volatility as the “forces” battle to pin prices around higher strike prices.  Any disappointing earnings surprises could put a dent in upside efforts depending on the company.

 

The market is again waiting on the next statement from Bernanke, which is due out Wednesday morning.  So expect the credit or the blame for market movement to be awarded to Mr. Bernanke’s.  Also, today’s Senate confirmation of the director of the Consumer Financial Protection Bureau, Richard Cordray was a definitive defeat of the financial lobby backed by the who’s who of Wall Street.  How this plays out may throw a curve ball to this sector, particularly if the Volker Rule or any new form of the Glass Stengel Act passes through congress.

 

The opportunities for day trading should continue.   Don’t forget about position sizing.  The use of this remains critical in maintaining a positive P/L.

 

 

 

TREASURIES

 

10 Year Note (click chart to enlarge)

 

The chart below includes Fibonacci support zones below current levels and Fibonacci resistance zones above current levels.  I’ve drawn the zones from the 2004 low and the 2008 low.  The current pattern in progress has equal odds of correcting either of the advances that began off of the lows.

 

Although the FED has held their statements to “not rocking the boat” by cutting back on easing via repurchase policies there remains the inevitable – “unless” inflation starts to rear its ugly head or if unemployment falls below their trigger level.

Ten-Year Note Future (Monthly)

 

 

 

The current pattern in progress will very likely contain another down leg with the support zone at 123’30 to 123’10 being tested.  A solid break below this zone brings the next level at 121’12 to 119’26 into play.  If the FED keeps current policy in place without any of their policy changing points being triggered either of these zones would be the likely candidate for a turning point in the 10-year note.

 

10-Year Note Future (Weekly)

 

 

 

The weekly chart shows that resistance at 126’16 has held thus far.  Expectations though continue to favor the rebound rally moving to next resistance at 127’23 before the next down leg takes over.  Overall though, a more destructive decline reaching beyond support at 121’12 to 119’26 cannot be ruled out.  More apparent though is that the interest rate/debt bubble has begun to burst/deflate whether or not the FED manages to hold rates down for the foreseeable future.

 

30-Year Bond (click chart to enlarge)

 

The chart below (monthly) reveals the next support zone to watch is 129 to 127’24.  The 30-year bond has already touched the 132’10 area, which is where the current rebound rally, began.  Thus far resistance at the 136 level has contained the move, but ultimately (in a perfect world) a test of resistance at 136’28 should not be ruled out.

 

 

 

 

Thirty Year Bond Future (Weekly)

 

 

 

 

I don’t apologize for sounding like a broken record because of the importance of accepting that the status quo is changing please don’t be fooled in to complacency.  Now is the time to keep alert as the trading opportunities will be numerous and present themselves in both directions.

 

But it remains a time when things can seem to change quickly coming as “surprises” to the markets when in fact the recovery advance has been in the “making” for over ten years.

 

It is a time when understanding the underlying reasons for the advances – the huge influx of money into the system by the global Central Banks – will eventually come full circle via the credit/debt – interest rate bubble bursting with such force that the equity markets will not be able to lean on the Central Banks good faith and credit to fix the problems.  It is a matter of when not if.

 

While some position trading will be highly profitable – I am continuing to find ample opportunities in day trading.  Depending on your objectives a combination of day and position trading could prove very rewarding as the current patterns unfold.

 

Diversified Trading System

 

I continue to recommend as the best trading platform available to a broader range of traders from novice to expert.  The Diversified Trading System offers a cost effective product that allows a trader to enter into the “chaos” and trade more effectively.

 

Trade Manager from Indicator Warehouse automatically calculates the correct amount of contracts or shares based on your account size or market volatility.  Automated stop-loss management and position sizing eliminates most of the problems most individual traders have.  Day trading and position trading both require (actually demand) good risk management.  Trade Manager does the job across the board and is an essential trading tool that ensures that you take the maximum profit from all your trades.

 

A newer member of the money management tools available from Indicator Warehouse is the Profit Finder – System Back Tester When implemented it allows the user to:

  • Immediately know the impact of parameter changes.
  • Automatically reads all of your DTS entries and exits
  • Calculates the profit/loss of each trade
  • Performs a wide number of essential intelligence boosting calculations instantly
  • Provides solid details about the effectiveness of your trading strategy/ methodology/ indicators

 

The last two points above are valuable tools to use.  It will show you where some “tweaking” is needed to improve results through the back testing feature.

 

My point on money rotation and sector rotation is similar to that on parabolic moves that they happen with frequency within many time frames.  As traders these types of moves can be a bonus for day trading or position trading so again don’t get caught up in the “what’s the catch.”    Realizing a rotation is occurring within a stock you trade or a sector is a great source of stocks to plug into the Diversified Trading System.  Allowing DTS to cleanly and beautifully capture the moves though any or all three DTS trading platforms.  Our goal remains to assist traders to make greater profits during all types of markets.  Sector and money rotation is another tool.

 

The Diversified Trading System used together with Trade Manager should continue to produce numerous trading signals in the DJIA, YM (mini), S&P 500, ES (mini), RUT, TF (Russell 2000 mini), AAPL, AMZN, GOOG, NFLX, and LNKD, GS, and Tesla Motors (TSLA).    

 

Here is an updated list of the markets where I have found that DTS (all three birds) are producing numerous signals:

  • DJIA future (e-mini available) – highly recommended
  • S&P-500 future (e-mini available) – highly recommended
  • Russell 2000 future (e-mini available) – highly recommended
  • NASDAQ 100 future (e-mini available) very highly recommended
  • US$/Euro futures (e-mini available) – very highly recommended
  • GS (Goldman Sachs) – good two way volume –
  • AAPL (Apple Computer) – highly recommended
  • GOOG (Google) – highly recommended
  • LNKD (LinkedIn) – solid intraday range
  • NFLX (Netflix) – solid intraday range
  • TSLA (Tesla Motors) – highly recommended  
  • 30-yr Treasury Bond future – highly recommended
  • 10-yr Treasury Note future – solid two way trade
  • TLT (Treasury Bond Long ETF) – very active
  • TBT (Treasury Bond Short ETF) – very active (moves inversely to TLT)
  • Gold (futures and ETF – GLD) very active – not suitable for all traders
  • Silver (futures and ETF – SLV) – very active – not suitable for all traders

 

Let’s talk about bonds baby…. let’s talk about you and yield…let’s talk about bonds…” – sound like a familiar tune – it should.

The rally in treasuries has stalled – paused for thought – needs an additional “goose” only received after hearing additional encouragement from Mr. Bernanke.  The near term picture for the 10-yr note and the 30-yr bond are below – both have been holding well below initial resistance.  Equities cruised to additional new highs on Monday on low unimpressive volumes and volatility.  Tuesday brought the long awaited start of the next correction (another 4th wave within the sub-divided sequence I discussed last week.)  The good news for bulls is that there is still additional upside to come, so I’m not looking for a major drop just yet.  Having said that likely for the next couple of days upside moves will provide good opportunities for day traders both on the long and short side.  Friday is July expiration for options and I would expect additional volatility as the “forces” battle to pin prices around higher strike prices.  Any disappointing earnings surprises could put a dent in upside efforts depending on the company. 

 

The market is again waiting on the next statement from Bernanke, which is due out Wednesday morning.  So expect the credit or the blame for market movement to be awarded to Mr. Bernanke’s.  Also, today’s Senate confirmation of the director of the Consumer Financial Protection Bureau, Richard Cordray was a definitive defeat of the financial lobby backed by the who’s who of Wall Street.  How this plays out may throw a curve ball to this sector, particularly if the Volker Rule or any new form of the Glass Stengel Act passes through congress. 

 

The opportunities for day trading should continue.   Don’t forget about position sizing.  The use of this remains critical in maintaining a positive P/L.    

TREASURIES

10 Year Note (click chart to enlarge)

The chart below includes Fibonacci support zones below current levels and Fibonacci resistance zones above current levels.  I’ve drawn the zones from the 2004 low and the 2008 low.  The current pattern in progress has equal odds of correcting either of the advances that began off of the lows. 

 

Although the FED has held their statements to “not rocking the boat” by cutting back on easing via repurchase policies there remains the inevitable – “unless” inflation starts to rear its ugly head or if unemployment falls below their trigger level. 

Ten-Year Note Future (Monthly)

TEN_YEAR_NOTE_MONTHLY_FIBO_2013-07-16-TOS_CHARTS

 

The current pattern in progress will very likely contain another down leg with the support zone at 123’30 to 123’10 being tested.  A solid break below this zone brings the next level at 121’12 to 119’26 into play.  If the FED keeps current policy in place without any of their policy changing points being triggered either of these zones would be the likely candidate for a turning point in the 10-year note. 

 

10-Year Note Future (Weekly)

TEN_YEAR_FIBO_MONTHLY_2013-07-16-TOS_CHARTS

 

 

The weekly chart shows that resistance at 126’16 has held thus far.  Expectations though continue to favor the rebound rally moving to next resistance at 127’23 before the next down leg takes over.  Overall though, a more destructive decline reaching beyond support at 121’12 to 119’26 cannot be ruled out.  More apparent though is that the interest rate/debt bubble has begun to burst/deflate whether or not the FED manages to hold rates down for the foreseeable future. 

 

30-Year Bond (click chart to enlarge)

The chart below (monthly) reveals the next support zone to watch is 129 to 127’24.  The 30-year bond has already touched the 132’10 area, which is where the current rebound rally, began.  Thus far resistance at the 136 level has contained the move, but ultimately (in a perfect world) a test of resistance at 136’28 should not be ruled out. 

30_YEAR_MONTHLY_FIBO_2013-07-16-TOS_CHARTS

 

Thirty Year Bond Future (Weekly)

30_YEAR_WEEKLY_FIBO_2013-07-16-TOS_CHARTS

 

I apologize for sounding like a broken record because of the importance of accepting that the status quo is changing please don’t be fooled in to complacency.  Now is the time to keep alert as the trading opportunities will be numerous and present themselves in both directions. 

 

But it remains a time when things can seem to change quickly coming as “surprises” to the markets when in fact the recovery advance has been in the “making” for over ten years.

 

It is a time when understanding the underlying reasons for the advances – the huge influx of money into the system by the global Central Banks – will eventually come full circle via the credit/debt – interest rate bubble bursting with such force that the equity markets will not be able to lean on the Central Banks good faith and credit to fix the problems.  It is a matter of when not if

 

While some position trading will be highly profitable – I am continuing to find ample opportunities in day trading.  Depending on your objectives a combination of day and position trading could prove very rewarding as the current patterns unfold.

 

Diversified Trading System

 

I continue to recommend as the best trading platform available to a broader range of traders from novice to expert.  The Diversified Trading System offers a cost effective product that allows a trader to enter into the “chaos” and trade more effectively.  

 

Trade Manager from Indicator Warehouse automatically calculates the correct amount of contracts or shares based on your account size or market volatility.  Automated stop-loss management and position sizing eliminates most of the problems most individual traders have.  Day trading and position trading both require (actually demand) good risk management.  Trade Manager does the job across the board and is an essential trading tool that ensures that you take the maximum profit from all your trades. 

 

A newer member of the money management tools available from Indicator Warehouse is the Profit Finder – System Back Tester When implemented it allows the user to:

  • Immediately know the impact of parameter changes. 
  • Automatically reads all of your DTS entries and exits
  • Calculates the profit/loss of each trade
  • Performs a wide number of essential intelligence boosting calculations instantly
  • Provides solid details about the effectiveness of your trading strategy/ methodology/ indicators

 

The last two points above are valuable tools to use.  It will show you where some “tweaking” is needed to improve results through the back testing feature. 

 

My point on money rotation and sector rotation is similar to that on parabolic moves that they happen with frequency within many time frames.  As traders these types of moves can be a bonus for day trading or position trading so again don’t get caught up in the “what’s the catch.”    Realizing a rotation is occurring within a stock you trade or a sector is a great source of stocks to plug into the Diversified Trading System.  Allowing DTS to cleanly and beautifully capture the moves though any or all three DTS trading platforms.  Our goal remains to assist traders to make greater profits during all types of markets.  Sector and money rotation is another tool.

 

The Diversified Trading System used together with Trade Manager should continue to produce numerous trading signals in the DJIA, YM (mini), S&P 500, ES (mini), RUT, TF (Russell 2000 mini), AAPL, AMZN, GOOG, NFLX, and LNKD, GS, and Tesla Motors (TSLA).    

 

Here is an updated list of the markets where I have found that DTS (all three birds) are producing numerous signals:

  • DJIA future (e-mini available) – highly recommended
  • S&P-500 future (e-mini available) – highly recommended
  • Russell 2000 future (e-mini available) – highly recommended
  • NASDAQ 100 future (e-mini available) very highly recommended
  • US$/Euro futures (e-mini available) – very highly recommended
  • GS (Goldman Sachs) – good two way volume –
  • AAPL (Apple Computer) – highly recommended
  • GOOG (Google) – highly recommended
  • LNKD (LinkedIn) – solid intraday range
  • NFLX (Netflix) – solid intraday range
  • TSLA (Tesla Motors) – highly recommended  
  • 30-yr Treasury Bond future – highly recommended
  • 10-yr Treasury Note future – solid two way trade
  • TLT (Treasury Bond Long ETF) – very active
  • TBT (Treasury Bond Short ETF) – very active (moves inversely to TLT)
  • Gold (futures and ETF – GLD) very active – not suitable for all traders
  • Silver (futures and ETF – SLV) – very active – not suitable for all traders

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