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Received this from a friend.
It is rather lengthly so-- if not interested delete
I have no connection to the site other than as an interested observer.
http://www.tbondtrader.com
Contact Me at: sardou@xxxxxxxxxxxxxxx
3/15/2000 - I think it's a good time to take a look at what we may have been
doing in bonds over the past several months and what we might expect going
forward. In looking at all of my charts a few things begin to come into
focus. In regards to the bond contract, one possibility of where we may be
in a wave count, is that we may have finished an 'impulse' or 'A' wave up
from the January low at 89-00 on 2/3 at 95-24. From that high we may have
been in a correction which would eventually lead to a run up in price of at
least 4 and perhaps 6 or more points.
A second possibility would have bonds completing a wedge from the January
lows which could only be a 'C' wave and which would target about 96-12/20
followed by the return of the bear market with objectives below the January
lows.
Price action going forward is the best way to determine which count is
correct but there are some clues to be looked at which can help us to
anticipate market behavior and consequently recognize the correct count at
the earliest possibility. It does appear to me that regardless of what we
have seen since January, another significant move may be close at hand. So
what are the clues?
First of all, if we assume that the more bullish count is correct, then one
thing that needs to happen is that we need to overcome a lot of resistance
rather quickly since a 3rd or 'C' wave should be fast and powerful. The
bond contract on a front month basis has had major failures at 96-09 last
November, 96-08 last September, 97-04 last August and 97-26/27 three times
last July. During the same period of time the cash 30 year has held yields
of 5.98/94, 5.85, 5.81 and there is also a Fibonocci retracement target at
5.96. The smallest break from these levels was 3 and a half points and the
largest was over 7 points so these levels need to be taken very seriously.
The 10 year futures which are currently trading near 96-48, have targeted
resistance basis the front month at 99-15, 99-32/33, 100-08 and a
retracement target at 100-14. The cash 10 year has strong resistance put in
with the bonds last summer and fall at 5.86, 5.75, 5.73/71 and 5.62 and it
is currently trading at 6.24. In the 5 year futures, currently at 97-57,
there is targeted resistance at 100-14, 100-43, 100-50 and 100-62 with cash
resistance from last year at 5.80, 5.61/62, 5.50 and retracement targets at
5.66 and 5.32 and it is currently trading at 6.48. All of these numbers (in
the 5 and 10 year maturities) are a long way off but as I have been
reporting recently, the 5 and the 10 year notes have not yet confirmed to me
that the lows have been seen so if we are not about to see these targets
ahead of us, then we may well be about to go visit the bottom again.
Actually the 10 year cash is in the process of breaking the bearish pattern
but it probably won't be confirmed without a good number tomorrow and some
follow through from here and the 5 year has a long way to go to get itself
out of the woods in regards to wave patterns.
Looking at all three maturities together in cash as well as futures, I think
there are three possibilities from here which offer great trading potential
and there should be ample time to figure which one is correct. Well,
hopefully there will be ample time.
Count #1 would have us fail in the vicinity of 96-15 in the bond contract
in what will be a terminal top followed by a return to, and probably
through, the lows of January. This count should be characterized by a
failure in the above mentioned price area followed be a 5 wave decline and a
corrective rally which needs to be sold.
Count #2 would have us pull back towards 93 in the contract to complete the
correction which began on 2/3, but probably much more severely in the
notes. Following this pullback, we could expect a rally which would
probably only be several weeks off and it would be very strong. If this is
the correct count, we might also expect to see a 5 wave decline but it would
have much higher targets and it would be confirmed by a 5 wave rally
following the low.
Count #3 would have us break out to the upside from right here, probably
tomorrow on the number, and never look back.
This last, and most bullish scenario, seems the least likely in that its'
likelihood is not supported by a wave count in the shorter maturities and it
would require the bond to ignore a large amount of very strong resistance
all within 25 basis points of here. Once above that resistance, however,
there is clear sailing. This will be the hardest move to catch from here
unless you are willing to get long and hope, using a good stop which for now
would be 95-07 for me. This leaves us with 2 counts which would call for a
failure from here and they only differ in terms of where they project us on
the down side. One thing that makes the more bearish scenario of new lows
across the board seem unlikely is the fact that a break that hard in the
fixed income arena would almost certainly cause problems in the equity
markets which would in turn tend to support the fixed income markets.
Given all of this, I am left with a best guess that we are about to begin a
move back down to complete a correction. Just where we are headed, I hope
to figure out with the help of wave analysis but for now I would suspect a
92 handle in bonds is not out of the question, nor is a 5 year yield above
6.80. I am not recommending a short from right here as the number tomorrow
will likely prove me either right or wrong and possibly in a big way. In
either case I think the move from here can be and likely will be
substantial, so I am willing to wait until tomorrow to make a determination.
Baring an incredible surprise, we shouldn't be anywhere near our targets
tomorrow regardless of which way we are headed.
A long trade doesn't look too good to me at 95-07, and a short trade gets
scarry with the contract at 96-28 or cash yields at 5.93.
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