December 10-Year Treasury Notes are called better this morning. Fundamentally, traders appear to be anticipating a good 10-Year Note auction today. The results will be released later in the afternoon so look for volatility at that time. Based on the overnight action, there is a bias to the upside, but this could change suddenly if demand is weak at the auction.
The inability to follow-through to the upside following Friday’s strong short-covering rally suggests investors are pretty confident the Fed will begin tapering its monetary stimulus later in the month. The only decision that may have to be made is the amount of the tapering. For several weeks, investors had priced in a cut of $20 billion of the $85 billion per month of government backed securities the Fed buys each month. The market may be pricing in a $10 billion reduction.
Headline news regarding Syria may move the market. Currently, the U.S. is in discussion with Russia regarding Syria’s decision to turn over its chemical weapons to the U.S. The positive talks may be underpinning T-Notes today. However, a breakdown in talks could trigger a strong surge if investors decide to dump risky assets and head to the safety of the Treasury market.
Technically, the main trend is down on the daily chart; however, there is a bias to the upside. After breaking back into a support zone at 122’30 to 122’24.5, the market posted a strong gain overnight. This zone should be considered support.
Crossing over to the bullish side of an uptrending Gann angle at 122’31 is a sign of strength. If upside momentum increases after the auction then look for a move into a major downtrending Gann angle at 123’16. This price is also a major 50% level. Since the main trend is down, look for sellers to re-emerge following a test of this resistance cluster.