It has been since last October that I wrote about bonds. Much has happened since then and bonds have had quite the move. Last I wrote that bonds had been in a down trend since the middle of summer. After the Election, however, bond took off and rallied back to 152-21, where they once again turned around and started to head south.
The economy is improving, though at a very slow pace. The economic indicators that are distributed throughout each month have been gradually getting batter but are not even close to what we had going into 2007. On the other hand, the indexes are making 5 year highs, which argues that we are almost back to the economic conditions we were in back in 2006-2007 (NOT!). GDP is at 2% not at 6%. Employment is still waning, spending is cautious, and housing is nudging up. Not at all like we saw back in 2006-2007. But we must trade what the market gives us, and it is saying that the economy is improving, and bonds agree.
The chart below is a daily chart of the March 30 year bond futures, with a 3, 21, and 65 period simple average. Notice by the end of December that the two short term averages broke below the 65 day average. The bonds bounced back to the 21 day average and turned back around and went to new lows. On a long term basis, as long as bonds stay below 148-12, bonds will remain weak. On a short term basis as long as bonds stay below 146-05, bonds will remain bearish. A 3 day close above either of these two levels will have bonds heading back up. Until then, look for shorting opportunities (or sell Bond Calls). Early last year, the 142-143 area held resistance. What was resistance will be support. A 3 day close below 142-00 would argue to test last year’s low at 134-05. Good luck trading!
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Geof Smith is a seasoned trader who has been trading since the 1980’s. He currently teaches both basic and advanced trading courses at DTI. Courses are offered on-site in Mobile, Alabama and via the web. Geof may be contacted at firstname.lastname@example.org.
Tom Busby is the founder, President and Chief Instructor of the Day Trading Institute in Mobile, Alabama. Tom has traded the S&P 500 every day (but six) since its inception in 1982, and is well known throughout the trading community. In 1996, he founded the Day Trading Institute to teach others his unique method of using the S&P 500 as the market leader for trading futures, options, equities and other securities. The Day Trading Institute teaches its students how to approach the market using technical analysis combined with risk management techniques. More information about Tom Busby and the educational and informational services of the Day Trading Institute may be obtained by calling toll-free 800.745.7444 or by email to email@example.com. Visit their web site athttp://www.dtitrader.com.