Friday September 24, 2010 - 01:30:51 GMT
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Profit-Taking Weakens T-Bonds into Close
December Treasury Bonds soared early Thursday as investors
took risk off the table. Traders were encouraged to seek shelter in lower
yielding assets after Europe reported weaker
than expected manufacturing numbers.
T-Bonds topped shortly after the opening as equity markets
bottomed, signaling a clear asset allocation play. Profit-taking was the main
reason behind the T-Bond sell-off. This market had rallied substantially since
Tuesday when the Fed hinted at additional quantitative easing. Another reason
for the break may have been short-term overbought conditions.
Although the Fed gave the green light to investors to buy
Treasury Bonds, todayâ€™s action proves that this current leg of the rally may be
labored unlike the rally in August.
The December E-mini S&P 500 was under pressure early
this morning. Intraday oversold conditions coupled with the inability to break
this weekâ€™s low at 1117.00, however, forced shorts to take cover, fueling a
rally back to 50% of the weekâ€™s range at 1130.50.
The rally eventually died at 1132.50, but served as another
reminder that any weakness will continue to be viewed as a buying opportunity
until significant support is violated.
Although this weekâ€™s low served as support this morning, the
key downside target remains an uptrending Gann angle at 1112.50 today. This
angle will move up to 1116.50 on Friday. Making 1117.00 â€“ 1116.50 an important
Based on this set-up, a violation of this area is likely to
trigger an acceleration to the downside with 1103.50 the next target.
Iâ€™m still looking counter-trend because of the reversal top
at 1144.00 from earlier in the week. This developing bearish pattern may
eventually trigger a correction back to 1088.25 or 50% of the last rally.
On Friday 1119.75 will be another area to watch. A close
under this number will form a weekly reversal top. This could mean more selling
pressure next week.
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