Treasury Bond futures are down 4/32 this morning at 121 29/32 as I write. The enclosed chart shows that the bonds sold off last night enough to hit the back side of the green 200 day exponential moving average which was coincidentally the breakout point from the early September congestion. All of this is natural support, as when a market takes out a level of resistance, which coincides with many price highs, it usually rallies a ways, then falls back to that level where it originally broke out from. That is the case of the bond market last night. Now the key will be for the bonds to hold that support area from last night in the 121:00 area, then begin the next bull market leg higher. We shall see. Otherwise, the directional movement indicators are bullish and the ADX line is still rising. Better long term support comes in at the 119:00 and 117:00 areas. Yesterday, I recommended trying to but the 125:: to 127:00 ratio call spread at even money, but was unsuccessful in getting filled. For today, I recommend trying to put on the same trade. That is, to buy one December Bond (125:00 strike) call option and sell 2 December Bond (127:00 strike) call options for even money. This will give us a slight bullish position, and if the bonds never make it that high in 42 days by the expiration date, then all these options will expire worthless and the result will be a zero gross gain or loss. The best result would be if the bonds close right at 127:00 on expiration date, and the gain would be $2000 gross.

Oct. 9, 2009
David Hall