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For anyone interested here's my latest take on the bonds.
OVERVIEW: Bonds closed in the upper portion of a modest daily price spread
on modest volume. The
combination is mostly (kind of sort of) positive and implies an attempt to
follow through higher in today’s
trade. It is obvious that the trade is again dominated by the action in the
shares. If you are trading without
the benefit of either an intraday S&P or Dow chart alongside your bond
chart, you are asking for trouble.
Anyway, the sharp rally from yesterdays low, while encouraging, can’t be
labeled as unequivocally
bullish. It did however manage to shift the near term odds (continuation
of the corrective uptrend or
setback toward the lows) back to neutral. If the market was going to get
hit, yesterday was the perfect
opportunity for it to happen. DON’T GET ME WRONG: I continue to view the
rally from the 106.29 low
as corrective and still expect the market to set back and produce a test of
the low. But the odds of carry
through toward 119 ¾ have increased, particularly given the extent of the
whipping that the
equities are taking. Keep in mind, shares closed on the low of a wide
daily price spread on very strong
volume. This implies that there will be follow through lower for them
today. Anyway, yesterdays rally
(no matter the reason) at least opens the possibility for a move closer to
the 119.27-30 zone.
ON THE VERGE OF A CHANGE: I continue to sense that the market has either
ended or is very close to
ending the decline that began last October. FRANKLY: I would like nothing
better than to recommend
longs for an intermediate trading turn. BUT: Given the background of
weakness either the market has to
test and nail down the low or it has to break down some of the technical
structure waiting above the
market before I can turn bullish. I know it’s a bit of drag, picking lows
is always a temptation, but when
trends are lower, I require proof of change before I buy into the new
trend. This is how I have stayed a
long-term player through the last 17 years. At this stage of the game...
duration neutral is still
appropriate, but a significant short (other than to play swings with) is
out of the question.
RANDOM THOUGHTS: Related market activity is turning decidedly supportive.
The CRB is breaking
lower and testing support, the grains look lower, the Dollar has
strengthened and I wouldn’t be at all
surprised to see the pull back in the shares continue. WANT TO BE RICH? I
still think that the next
great bull market in commodities is just around the corner. I can see room
for another push lower or
retests of recent lows, but I believe that the groundwork has been laid.
The kind of rolling sector strength
that we have seen rotating through oil, copper and lumber should prove to
be prelude to broader strength.
GOLD: Still can’t get up off of its backside, but that may be another story
entirely (I wonder if it’s
possible for a G-7 governments to be charged with market manipulation).
Anyway, as long as Central
Banks keep hitting the bid, gold's value as a leader is dubious. ANYWAY:
I sense a window of opportunity opening. Continued weakness in the
commodities will eventually spill over and strengthen the bonds.
ONE FINAL POINT: So far, bonds have declined in anticipation of higher
commodities prices. Now, for
bonds to enter the meat of the bear market that began last October, it will
take higher commodities. I
suspect that the market has moved about as far as expectations can take it.
There is an intermediate
window of opportunity, but the next major leg down will be fueled by
commodities strength.
TRADING: With shares closing lower and late momentum mostly higher, odds of
higher prices in the early
going are fairly good... but realize that the near term course of the bonds
should be predicated to a large degree on
the behavior of the shares. Hopefully, you closed your swing shorts
yesterday when the shares began to drill
lower.... if not, lets close them in the overnight or first thing in the
morning and wait out some of the volatility in
the shares. For today, I am a marginally better seller but it is a close
call. BIG PICTURE: I have to admit that I
am getting more bullish in terms of the daily/weekly outlook. To take
positional longs I need to see either 1) A
successful retest of the low followed by bullish thrust. 2) Overtly
bullish behaviors that do significant damage to
the bear case.
BEST IDEAS: 1) Probably the best thing I see is trading the breakout of
yesterdays range (118.10-30), but
realize, particularly if you buy the breakout of the top side of the range,
that the market is vulnerable. Keep the
initial stop close and move it up aggressively. If the market begins to
stall, get out immediately. I much prefer
the sell side of this trade. Initial stops should be about 10/32s from
entry. 2) Aggressive traders will want to add
to shorts if the market breaks below Friday’s low (118.01). Wait for
either a five-minute close or the first rally
after the initial break. Run initial stops about 12/32 from entry. 3)
Watch for a gap above 119.06 followed by a
move back below 118.30. This behavior would stingily suggest a failure. If
the market gaps open, place a sell
stop @ 118.29. Place initial stop just above the high of the morning.
DAILY WORK: If you have work that must be done today (hedges, duration
changes etc.), be a better seller in
the zone around 119.12 and a better buyer in the zone around 118.02-04
zone. WEEKLY WORK: Weekly range
projections suggest support in the 117.04-06 zone and resistance in the
119.15-24 zone.
DAY TRADES SUPPORT: First support @ 118.22-24 is modest but better shows up
at 118.10-12 and even
better @ 118.01. RESISTANCE: First resistance @ 118.28-119.04 is strong and
is backed up by strong
resistance in the 119.10-12. AGGRESSIVE DAY TRADERS: Watch the area around
118.08-10 for bullish
setups and the area around 119.04-06 for bearish ones. CONSERVATIVE DAY
TRADERS: Sell ½ position @
119.20 with a 120.01 stop. I have no official buy recommendation, but if
you feel compelled, buy ½ position at
118.04 with a 117.26 stop.
IN GENERAL: Until the market either rolls onto a weekly buy signal or above
the daily downtrend, we will stay
defensive. We will not add duration or significantly reduce overall hedge
ratios until the market breaks out
higher. TRADE DESKS: I would continue to hold on taking significant new
inventory. HEDGERS: I would
not have any excess coverage in place but I would have the bulk of my
exposure covered. OPTION ROLL
POINTS: Options should be rolled down to delta neutral @ 116.20 and 119.00.
INTERMEDIATE AND
POSITION: PORTFOLIOS: OVERALL: Weekly and monthly sell signals continue to
suggest that over time
higher yields are likely. MY BOND MODEL: The weekly signal to extend still
has not occurred. NEXT ADD:
Will be on a weekly oscillator buying signal or a daily close above the
downtrend from the Dec. high. A roll onto
a weekly buy will call for a significant lengthening.
SWING TRADES: AGGRESSIVE SWING TRADERS: Hopefully you flattened out into
the equity weakness
yesterday, but if not... close them in the overnight or first thing in the
morning. If you insist on holding on, leave
your stop at 119.04. BULLISH SWING TRADERS: Should be flat. BEARISH SWING
TRADERS: Should be
flat.
At 06:01 AM 5/26/99 -0600, Earl Adamy wrote:
>Make that an Inside Day. I see the Project A ZB is down 4 ticks this
>morning.
>
>Earl
>
>----- Original Message -----
>From: Earl Adamy <eadamy@xxxxxxxxxx>
>To: RealTraders Discussion Group <realtraders@xxxxxxxxxxxxxx>
>Sent: Tuesday, May 25, 1999 8:29 PM
>Subject: FUT Bonds
>
>
>> Today we managed to put in an outside day holding yesterday's low while
>> putting in a lower high and barely higher close. Seems like a rather weak
>> showing considering the S&P closed below key support. Shortly after the
>> close the Z's were trading up 6-7 ticks, however they have since settled
>> back to unchanged. Anyone else find this a bit strange considering we
>> haven't even made it to the 5/14 high?
>>
>> Earl
>>
>
>
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