December Treasury Bonds are up 10/32 at 119:03 this morning as I write. The enclosed chart is showing that the bonds broke some important trend line and moving average levels yesterday in the 119:00 area. The directional movement indicators are bearish. Most of my other indicators have turned bearish as well. For today, I recommend selling one December T-Bond futures contract at 119:16 if prices reach that level. That would be a rally back towards the 5 day exponential moving average which typically happens during sustained bear moves. If filled then we would initially place our protection at 120:21 stop close only.

Followers of this letter should be long one December T-Bond (115 strike) put option at 50/64 and short 2 December T-Bond (113 strike) put options at 27/64 for an overall credit of 4/32, or $125 gross as of yesterday’s recommendation.

Oct. 16, 2009
David Hall