Daily September 30-Year Treasury Bonds

30-Yr U.S. Treasury Bonds (US) Futures Analysis – June 27, 2013

September Treasury Bonds ended the trading session in a position to challenge a downtrend line at 136’12. This line is somewhat important because it has controlled the direction of the market since the June 14 top at 140’28. Traders should watch for resistance on the initial test, but also be aware that strong momentum could take it out, leading to an acceleration to the upside.

Based on the break from 140’28 to 133’04, investors should look for an eventual test of the retracement zone at 137’00 to 137’29. A move into this zone will complete a normal 50 to 61.8 percent retracement. Since the main trend is down on the daily chart, short-sellers may re-emerge inside this zone.

Although technical traders want to pin the current rally from 133’04 to 136’00 on oversold conditions, there may be a little going on fundamentally that is slowly guiding the market higher.

I have to concede that the market may have run out of sellers when it reached a low at 133’04, but surviving a test of this low on Wednesday following a weaker than expected U.S. Final GDP number, may be indicating that investors are concerned about the growth of the economy. This move indicates to me that adjustments are being made by short sellers to account for the possibility the Fed will refrain from unwinding its stimulus program in September like traders were pricing in. In effect, if the shorts are lightening up then they may have actually been “over short”.

Daily September 30-Year Treasury Bonds
Daily September 30-Year Treasury Bonds

Thursday’s comments from New York Fed President William Dudley were important because it created more uncertainty which typically leads to increased volatility. Trend traders won’t like it because it forces them to ride out the retracements. Counter-trend or day-traders will like the increased volatility because it creates more trading opportunities.

Dudley basically gave the September T-Bond futures a goose when he said that U.S. investors were “out of sync” with the economy. This can be interpreted to mean the hard sell-off since June 19 was unwarranted based on current economic conditions. Once again the “overbought” theme emerges.

He also added that if labor and economic conditions don’t improve, the Fed may even increase stimulus. The gist of his speech was that Fed decisions shouldn’t be set by a calendar, but by economic conditions. This is likely to relieve some of the downside pressure on bonds while encouraging less speculation. By taking out some of the speculative interest, bonds may be allowed to rally and settle into a range. This is why a move to 137’00 to 137’29 is a reasonable upside objective at this time. 

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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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