Tuesday September 14, 2010 - 04:49:57 GMT
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T-Bond Reversal Bottom indicates Possible 2 to 3 day Retracement Rally
Demand for higher risk assets helped push December Treasury
Bonds lower on the opening, but technical factors helped turn this market
around, triggering a strong intraday rally and a higher finish. T-Bonds fell sharply lower early in the
session after an agreement by global regulators on the size of bank capital
reserves and strong Chinese economic data increased appetite for higher
Over the week-end, global banking regulators agreed to close
to triple the size of capital reserves that banks must hold against losses.
On Saturday, China
posted a report which showed industrial production was stronger-stronger than
expected. Chinese retail sales also rose while August inflation of 3.5% was
reported at the pre-report estimate. This helped squelch rumors of another
round of monetary policy tightening by the Chinese central bank.
The money which left the Treasury and Gold markets last week
was put to work this morning in the global equity markets.
December Treasury Bonds traded higher at the mid-session
after successfully testing a key technical area early in the session. Short
traders then took the opportunity to take profits on their positions following
a completed .618 correction of the 124â€™22 to 135â€™19 range. The completed retracement triggered a
short-covering rally which drove the market back to 50% of this range to
The higher close today set up a daily closing price reversal
bottom which could trigger the start of a retracement of the 133â€™12 to 129â€™05.
This would send the market back to 131â€™09 to 131â€™24. A downtrending Gann angle
from the 135â€™19 top indicates that this is likely on September 15 or 16.
From a bearish traders perspective, the market is in a
downtrend which means rallies are likely to be sold. In addition the daily
swing chart indicates that 128â€™05 is the next downside target on September 17.
An uptrending Gann angle from the 124â€™22 bottom indicates that price squares
time at 129â€™11 on September 17 also. This gives bearish traders two potential
downside targets by the end of the week.
Fundamentally, the rally in the Treasury market may have
taken place because many investors still believe that the only way the T-Bonds
will begin a substantial break will be after the U.S. economy gets back on track.
Some also didnâ€™t believe the rally in the equity markets and that most of the
rally was short-covering triggered by the surprise announcement from the
Technically, todayâ€™s short-covering rally indicates that
traders arenâ€™t in a hurry to sell out their positions on weakness. This means
that the T-Bonds may have to go through a series of retracements in order to
attract fresh sellers. Watch for a zig-zag pattern to begin on the charts. This
will be a strong indication that new shorts are beginning to enter on rallies.
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