Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
CATHY WOOD ARK GARBAGE ARK Funds Heading for 90% STOCK CRASH! - 22nd Jan 22
Gold Is the Belle of the Ball. Will Its Dance Turn Bearish? - 22nd Jan 22
Best Neighborhoods to Buy Real Estate in San Diego - 22nd Jan 22
Stock Market January PANIC AI Tech Stocks Buying Opp - Trend Forecast 2022 - 21st Jan 21
How to Get Rich in the MetaVerse - 20th Jan 21
Should you Buy Payment Disruptor Stocks in 2022? - 20th Jan 21
2022 the Year of Smart devices, Electric Vehicles, and AI Startups - 20th Jan 21
Oil Markets More Animated by Geopolitics, Supply, and Demand - 20th Jan 21
WARNING - AI STOCK MARKET CRASH / BEAR SWITCH TRIGGERED! - 19th Jan 22
Fake It Till You Make It: Will Silver’s Motto Work on Gold? - 19th Jan 22
Crude Oil Smashing Stocks - 19th Jan 22
US Stagflation: The Global Risk of 2022 - 19th Jan 22
Stock Market Trend Forecast Early 2022 - Tech Growth Value Stocks Rotation - 18th Jan 22
Stock Market Sentiment Speaks: Are We Setting Up For A 'Mini-Crash'? - 18th Jan 22
Mobile Sports Betting is on a rise: Here’s why - 18th Jan 22
Exponential AI Stocks Mega-trend - 17th Jan 22
THE NEXT BITCOIN - 17th Jan 22
Gold Price Predictions for 2022 - 17th Jan 22
How Do Debt Relief Services Work To Reduce The Amount You Owe? - 17th Jan 22
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22
Best Metaverse Tech Stocks Investing for 2022 and Beyond - 14th Jan 22
Gold Price Lagging Inflation - 14th Jan 22
Get Your Startup Idea Up And Running With These 7 Tips - 14th Jan 22
What Happens When Your Flight Gets Cancelled in the UK? - 14th Jan 22
How to Profit from 2022’s Biggest Trend Reversal - 11th Jan 22
Stock Market Sentiment Speaks: Are We Ready To Drop To 4400SPX? - 11th Jan 22
What's the Role of an Affiliate Marketer? - 11th Jan 22
Essential Things To Know Before You Set Up A Limited Liability Company - 11th Jan 22
NVIDIA THE KING OF THE METAVERSE! - 10th Jan 22
Fiscal and Monetary Cliffs Have Arrived - 10th Jan 22
The Meteoric Rise of Investing in Trading Cards - 10th Jan 22
IBM The REAL Quantum Metaverse STOCK! - 9th Jan 22
WARNING Failing NVME2 M2 SSD Drives Can Prevent Systems From Booting - Corsair MP600 - 9th Jan 22
The Fed’s inflated cake and a ‘quant’ of history - 9th Jan 22
NVME M2 SSD FAILURE WARNING Signs - Corsair MP600 1tb Drive - 9th Jan 22
Meadowhall Sheffield Christmas Lights 2021 Shopping - Before the Switch on - 9th Jan 22
How Does Insurance Work In Europe? Find Out Here - 9th Jan 22
MATTERPORT (MTTR) - DIGITIZING THE REAL WORLD - METAVERSE INVESTING 2022 - 7th Jan 22
Effect of Deflation On The Gold Price - 7th Jan 22
Stock Market 2022 Requires Different Strategies For Traders/Investors - 7th Jan 22
Old Man Winter Will Stimulate Natural Gas and Heating Oil Demand - 7th Jan 22
Is The Lazy Stock Market Bull Strategy Worth Considering? - 7th Jan 22
METAVERSE - NEW LIFE FOR SONY AGEING GAMING GIANT? - 6th Jan 2022
What Elliott Waves Show for Asia Pacific Stock and Financial Markets 2022 - 6th Jan 2022
Why You Should Register Your Company - 6th Jan 2022
4 Ways to Invest in Silver for 2022 - 6th Jan 2022
UNITY (U) - Metaverse Stock Analysis Investing for 2022 and Beyond - 5th Jan 2022
Stock Market Staving Off Risk-Off - 5th Jan 2022
Gold and Silver Still Hungover After New Year’s Eve - 5th Jan 2022
S&P 500 In an Uncharted Territory, But Is Sky the Limit? - 5th Jan 2022

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

U.S. Long Bond, an Historic Trading Opportunity?

Interest-Rates / US Bonds May 04, 2015 - 10:29 AM GMT

By: Dan_Norcini

Interest-Rates

This past week saw a huge swing in interest rates at the long end of the curve with the long bond in particular getting knocked for a loop.


June Bonds Daily Chart

As you can see from the chart, prices plunged lower Tuesday-Friday with support being broken on Tuesday. The market had an intraday recovery that day but the next day, it commenced plunging again, this time being unable to recapture broken chart support which "reversed polarity" and served to cap the contract on the upside.

On Thursday, once the unemployment numbers were released, the bonds broke yet another layer of support again recovering that level by the end of the trading session. Friday however witnessed yet another plunge this time crashing back through support just like what happened on Wednesday.

The question now becomes, Will the broken support level near 158^20 serve as overhead resistance and hold any upside retracement efforts? The answer to that is unclear at this time but time will tell.

June Bonds Daily Chart

What is noteworthy however is that this contract is giving every indication of a long term permanent top being made in the bonds and thus a long term low in interest rates. For me, the KEY to the bond market will be whether or not this contract will eventually break that MAJOR SUPPORT LEVEL down near 155. If it does, that is it for interest rates. They are going up. If not, it will bounce and move back into a range trade with interest rates remaining at low levels albeit with a higher bias.

In other words, a break in that Key support level means long term interest rates will move steadily higher. If support holds, long term interest rates will SLOWLY GRIND HIGHER. It becomes merely a matter of the RATE AT WHICH RATES will rise.

Of course, since none of us are omniscient except for God Most High, we always have to allow for the possibility that some sort of series of events could work to push the bonds back up again but I suspect they would have great difficulty clearing the bottom of the congestion zone that contained prices in the late March through April time frame.

In going over the Commitment of Traders report for this particular contract, it is revealing to see who the BIG LONGS are in this market.

Long Bond Committment of Traders Chart 1

I only went back to the beginning of 2014 so as not to clutter the chart too much but as you can see, the ASSET MANAGERS/INSTITUTION class of traders were and remain, the big longs in this market. Surprisingly enough, at least to me, is the positioning of the HEDGE FUNDS. They were the big shorts in the market at the start of this year.

Look at the chart and see the results of this positioning.

June Bonds Daily Chart

Asset managers and institutions piled into the long bond with hedge funds taking the other side of the trade as we moved through Q4 2014. Bonds then topped out in late January/early February of this year as the market received back to back strong payrolls reports and revisions to previous month data. Hedge funds raked in some huge profits from those short trades of theirs in the process with asset managers taking a big hit.

Subsequent economic data came in weaker than expected and that caused bonds to reverse course with asset managers reloading on longs once more as hedge funds again took the other side and shorted the market.

Long Bond Committment of Traders Chart 2

This week's COT report does not reflect the breakdown on the charts that commenced in earnest on Wednesday and continued through Friday but based on the previous price action and corresponding shift among traders' positioning, one can assume with great confidence that Asset managers were liquidating long positions late this past week with hedge funds booking profits on their short positions.

It does appear that we have a pattern that has formed in the bond with hedgies willing the play the long bond from the short side. If that is the case, and it appears that it is, rallies in the bonds are going to be sold. I am especially anxious to see this coming Friday's payrolls report because if it is a strong number (and I do not know what we are going to get), we could see more long side liquidation from the Asset manager class as they are the only group of traders that are currently net longs in this market. All four of the remaining classes of traders, including the Dealers, are net short this market.

Generally speaking, in a rising interest rate environment, bonds are usually not in favor as to Go-To asset class since fixed income investments tend to fall out of favor if investors believe incipient inflation pressures are potentially on the rise. This is the reason I have been remarking that something is taking place in the interest rate market that dictates we should pay very close attention.

The market will be well ahead of the Fed when it comes to anticipating any pick up in inflation. As I have noted, the rising TIPS spread is an indication that expectations are slowly changing.

My reason for such close attention to this market is because we have been dealing with HISTORIC lows in interest rates and thus HISTORIC highs in the bond market. If, we have seen an indication that this is coming to an end, the SHORT BOND trade will be an historic trading opportunity since being able to ride a market down that has relentlessly risen for more years than many of us have even been trading, will be a once in a lifetime trade.

Of course, I have been thinking that same thing now especially after the Fed first announced their TAPERING of the final QE round. You can look at the chart and see how well that worked out for me! It didn't!

Stay tuned on this one...

Dan Norcini

http://traderdan.com

Dan Norcini is a professional off-the-floor commodities trader bringing more than 25 years experience in the markets to provide a trader's insight and commentary on the day's price action. His editorial contributions and supporting technical analysis charts cover a broad range of tradable entities including the precious metals and foreign exchange markets as well as the broader commodity world including the grain and livestock markets. He is a frequent contributor to both Reuters and Dow Jones as a market analyst for the livestock sector and can be on occasion be found as a source in the Wall Street Journal's commodities section. Trader Dan has also been a regular contributor in the past at Jim Sinclair's JS Mineset and King News World as well as may other Precious Metals oriented websites.

Copyright © 2015 Dan Norcini - All Rights Reserved

All ideas, opinions, and/or forecasts, expressed or implied herein, are for informational purposes only and should not be construed as a recommendation to invest, trade, and/or speculate in the markets. Any investments, trades, and/or speculations made in light of the ideas, opinions, and/or forecasts, expressed or implied herein, are committed at your own risk, financial or otherwise. The information on this site has been prepared without regard to any particular investor’s investment objectives, financial situation, and needs. Accordingly, investors should not act on any information on this site without obtaining specific advice from their financial advisor. Past performance is no guarantee of future results.

Dan Norcini Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in