December Treasury Bonds are down 19/32 at 120:02 this morning as I write. The enclosed chart shows that the directional movement indicators flipped back to the bull side as of yesterday’s close. The problem is that none of my other indicators that I follow are bullish at all. As a matter of fact, they are all bearish. This includes the Bollinger Bands, the Weekly chart, the oscillators, divergence and the moving averages just to name a few. They are all pointing bearish. Notice also that the T-bonds traded above the 200 day moving average but closed right on top of that level. It is also interesting to note that yesterday’s intraday price high at 121:02 was right at the 50% correction level of the latest down move from the October 2nd high and the October 15th low.

Followers of this letter should be short one December T-bond from 119:16 and short one December T-bond (119:00 strike) put option from 1 46/64. Followers should also be long one December T-bond (115:00 strike) put option from 50/64 and short 2 December T-Bond (113:00 strike) put options from 27/64 each for an overall credit of 4/64 or $62.50 gross.

We will continue to hold these trades for now. I may look to add on to this trade if the market sets up right, over the next few days.

Oct. 21, 2009
David Hall