Blow off top forming in Treasuries?

Bonds and notes rallied moderately sharply in the face of higher equities and lower safe havens (greenback and gold). There seems to be a transformation in market psychology and more importantly psychology. In the coming days we will know if the timid trade in Treasuries or the risk on trade was the right call.

In the short-run, we have to lean toward some sort of intermediate term top in bonds and notes. The economic recovery is more like Swiss cheese than a building block for the future but that isn’t a surprise. The markets have been operating with this knowledge for months (even years) so it doesn’t make sense to assume we’ll see a sudden influx of fixed income buying at pathetically low rates of interest without some sort of shoe dropping in Europe.

In economic news, the second estimate of GDP was a little weaker than most were expecting at a growth rate of 1.8% but again…nothing shocking here. Similarly, initial claims for weekly jobless claims moved up to 424,000.

The Treasury issued $29 Billion in 7-year notes to an eager group of buyers. The yield came in at 2.429% and the bid to cover a healthy 3.24. The news enabled bonds and notes to turn positive and that seemed to trigger rather swift short covering.

COT data in recent weeks suggests large speculators (smart money?) are adding to short positions in the 10-year note and small speculators are gradually covering their shorts. They might be running out of margin, money or both but it is the small spec category that tends to be getting out when it should be getting in and vice versa.

We’ve been calling for this move to see the mid 126’s in the June 30-year bond future and near (or maybe a little above) 124 in the June 10-year note. At the time of this writing, prices were getting near our targets…accordingly, we will be monitoring trade tomorrow and looking for a possible bearish opportunity.

may26bond11.pngmay26note11
* Due to time constraints and our fiduciary duty to put clients first, the charts provided in this newsletter may not reflect the current session data. However, market analysis and commentary does.


**Seasonality is already factored into current prices, any references to such does not indicate future market action.

Treasury Bond and Note Option and Futures Trading Recommendations
**There is unlimited risk in naked option selling.

Flat

(Our clients receive short option trading ideas in other markets such as gold, crude oil, corn, soybeans, Euro, Yen, and more. Email us for more information)

Carley Garner

Senior Analyst / Commodity Broker
DeCarley Trading

cgarner@DeCarleyTrading.com

1-866-790-TRADE
Local : 702-947-0701

http://twitter.com/carleygarner
http://www.linkedin.com/in/carleygarner
http://www.DeCarleyTrading.com
http://www.ATradersFirstBookonCommodities.com

*Due to the volatile nature of the futures markets some information and charts in this report may not be timely.

There is substantial risk of loss in trading futures and options.

Past performance is not indicative of future results. The information and data in this report were obtained from sources considered reliable. Their accuracy or completeness is not guaranteed and the giving of the same is not to be deemed as an offer or solicitation on our part with respect to the sale or purchase of any securities or commodities. Any decision to purchase or sell as a result of the opinions expressed in this report will be the full responsibility of the person authorizing such transaction.

Enhanced by Zemanta

2 Responses to Blow off top forming in Treasuries?

  1. mirekmatysiak May 30, 2011 at 4:05 pm #

    Great source of information and fine stock chart analysis.

  2. Frontier Markets Capital June 2, 2011 at 4:04 pm #

    As CNN says today, Gold has quietly crept back near $1,530 an ounce, only about 2% below its all-time high set in early May. The yield on the 10-year U.S. Treasury note dipped under 3% Wednesday for the first time since December as investors shunned stocks and scooped up bonds.
    Investors are buying emerging markets bonds in South Korea, Taiwan and Latin America
    This is where we can help.
    We research frontier markets, we study them and we produce analysis papers on the subject of your choice.
    Frontier Markets Capital is the premium provider of information and research for organizations that wish to invest in the next emerging markets.
    By providing first class research, excellent consulting and cutting edge advisory we help our clients make the best decisions to maximize their returns and minimize their risks while building their business in these growth markets.
    http://frontiermarketscapital.com/

Leave a Reply