Daily September 10-Year Treasury Notes

10-Yr U.S. Treasury Notes (TY) Futures Analysis – June 28, 2013

September 10-Year Treasury Notes posted a lower close following a volatile trading session on Friday. The obvious sign of volatility was the outside move chart pattern. My analysis would’ve been easier if the market had closed higher for the day. The lower close makes things a little more complicated when compared to the T-Bonds which posted a similar move but closed higher.

The volatile trading session was fueled by comments from a couple of Fed officials. If you recall, Fed officials were also responsible for some volatility on Thursday. While the Fed keeps saying that it is offering us more transparency so that we can make more informed decisions, it seems to be creating more uncertainty and confusion for traders.

On June 27, a Fed official said that investors misinterpreted the central bank Chairman Bernanke’s comments on June 19 and that economic growth and not the calendar will determine when and if the Fed will begin tapering its aggressive bond-buying stimulus program. Traders had built in a September start for the stimulus withdrawal.

Daily September 10-Year Treasury Notes
Daily September 10-Year Treasury Notes

On Friday, another Fed official used a September date in a hypothetical example, causing traders to sell T-Notes, but by the end of the day, the market had recovered about half of its loss. Later in the session, another Fed official said that marketplace volatility should not affect the economic recovery.

Although the Fed is trying to be more transparent, its comments are generating the volatility. Traders want to know when it is going to begin the tapering process and are making adjustments accordingly to the information they have available. Here’s what we know so far. The Fed is considering pulling back on its stimulus program if growth in the economy warrants such a change. The two key components in the decision process are employment and inflation. The employment report is Friday, July 5. This is when a key piece of the puzzle will be revealed. If you like volatility then expect to see some next week because of thin trading conditions and a slew of economic reports including a couple of Fed speakers.

Watching the daily chart could offer you move insight as to how the T-Notes will trade. Firstly, know the trend. The main trend is down. It will change up when the swing top at 129’25.5 is violated. The rally from 125’00.5 has put the market in a position to retrace at least 50% to 127’13. This is a normal move in a bear market. Short-sellers are likely to be waiting at this price to resume their bearish positions.

Standing in the way of a 50% correction is a downtrending Gann angle at 127’09.5. If this angle stops the rally, it will serve as a sign that short-sellers have become more convinced the Fed is going to soon begin the tapering process perhaps as early as September. If the rally moves beyond this price then it likely means that short-sellers are positioning for a date for the stimulus to end sometime beyond September. If the trend changes to up then traders are completely confused as to the Fed’s next move.

Technically, the first resistance is a downtrending angle at 127’095, followed by the 50% level at 127’13. A break through the support angle at 126’00.5 will be a strong sign that investors are positioning themselves for the start of another major leg down. This makes 125’00.5 vulnerable.




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James Hyerczyk

James A. Hyerczyk has worked as a fundamental and technical financial market analyst since 1982. His technical work features the pattern, price and time analysis techniques of W.D. Gann.

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