December Treasury Bonds are up 10/32 this morning at 119:14 as I write. The enclosed chart shows that the T-Bonds rallied off of the main uptrend line coming up from the June lows yesterday. That intermediate up trend line continues to hold. The directional movement indicators are still bearish but notice that the ADX line has never begun to rise to confirm the trend. This is the reason why I haven’t gotten more aggressive with any more short oriented positions in Bonds. This price bounce is bringing the Bonds back up into a whole host of moving average resistance, so the next few days should be a struggle for Bonds to make much more price advancement. It I am wrong about that and the bonds rally with ease, then that will tell me that bonds are stronger than anyone thinks. That is hard to believe considering the continual massive supply of bonds that will be coming to market in the weeks and months to come to finance our huge and growing budget.

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 23 days left until option expiration.

Oct. 28, 2009
David Hall