February 24th, 2009

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Big days but small trading range

Treasury bonds continue their path of nonexistent progress.  As mentioned yesterday, large intra-day ranges haven't resulted in yield changes.  It has been a big rally followed by sharp selling.  The only thing that we can say for sure is that this can't last.  It is a tough call as to which direction the market may  break out but we believe that the initial move may be higher.  Here is why. 

If you follow seasonal patterns in the financial markets as I do, you are likely aware  that the long bond tends to move moderately higher from now throughout the first and second week of March.  Going beyond mid-March, the market should resume their downtrend. 

Along with seasonal support, Treasury prices may find solace in the fact that the market has attempted to price in a majority of the bearish news.  For example, the expected inflation pressures arising from the massive injections of capital into the system have already been somewhat accounted for in the December/January decline.  Given that the implications are months or years away, the market may have priced in what it can for now.  Also, government debt issues of mass proportion have kept pressure on Bonds and notes but the situation is known and the markets have adjusted accordingly.  That said, large supplies have been mitigated by strong demand for safe haven assets. 

From my conversations with followers, insiders, etc.; I have concluded that the average retail trader is highly bearish.  In a longer term time-frame I must say that I agree.  However, it seems as though the path of least resistance may be temporarily higher. 

I see resistance at 130'15 and support near 125 in the March 30-year bond futures.  Note  futures traders should look for support near 121'14 and resistance near 124'24.  I like buying the five-year note near 117'14 but would be a seller near 119'14.

* Due to time constraints and our fiduciary duty to put clients first, the charts provided in this newsletter may not reflect the current session data.  However, market analysis and commentary does.

Treasury Bond and Note Option Trading Recommendations

**There is unlimited risk in naked option selling.

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Treasury Bond and Note Futures Trading Recommendations

**There is unlimited risk in trading futures.

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Eurodollar Futures Trading Recommendations

**There is unlimited risk in trading futures.

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*Due to the volatile nature of the futures markets some information and charts in this report may not be timely.

There is substantial risk of loss in trading futures and options.