December Treasury Bonds are trading up 6/32 at 119:31 this morning as I write. The enclosed chart shows that the December T-bonds seem to be consolidating sideways between the 40 day and 200 day exponential moving averages. The directional movement indicators are slightly in bullish territory and the ADX line is dropping at low levels. All this suggest a non-trending market. The chart shows that the bonds made a near term peak two weeks ago from its rally that commenced in June. This latest bounce over the past week could be the beginning signs of a slope over top if prices can’t follow through to the upside soon. Then if T-Bond prices begin closing below all of the moving averages and intermediate trend lines, a larger down move could occur. This may take more time to develop. If the bonds begin giving more sell signals, I may want to add to this position.

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. There are 29 days left until option expiration.

Oct. 22, 2009
David Hall