March Treasury Bonds are down 12/32 at 117:21 this morning as I write. The included chart shows that T-Bonds are looking a little heavy on the chart. The double top still looms overhead at 123:00. The neckline of the double top pattern is the price lows from early November just below 117:00. The textbooks will tell you that a double top is confirmed when the neckline is violated. The to get a projection of where prices should go afterwards, you take the distance between, (in this case), the double top highs and the neckline, then subtract that distance from the neckline. So, rounded, take 123:00 minus 117:00 equals 6 full points. Take those 6 points away from 117:00 and you get a target of 111:00. So, if T-Bonds close below 117:00, and confirm the double top, then the initial downside price target will be 111:00. Back in June, prices hit 110:00, so a drop back towards those lows would not be a big deal or surprise. We are currently positioned well in case that event takes place. The directional movement indicators are bearish and the ADX line is rising suggesting the beginning of trend strength to the downside. The Fed has a two day meeting beginning today. The speculation is whether the Fed begins talking about raising rates or being less easy with their money. That statement will be released on Wednesday afternoon. Either way, the bonds are trading below the trend line and it will be interesting to see whether prices can close below the trend line and see what happens at the 117:00 level.
Followers should be:
Long one March Bond (114:00 strike) put option from 2 12/64. (Cost basis of 28/64, or $437.50, if you include the buy back of the two short 110:00 put options on December 8th).
Long one March Bond (108:00 strike) put option from 52/64. (Cost basis of 2/64, or $31.25, if you include the buy back of the two short 105:00 put options on December 8th).
Long one March Bond (117:00 strike) put option from 128/64.
Short one March Bond (113:00 strike) put option from 51/64.
March options expire in 66 days.
David Hall
The information and opinions contained herein comes from sources believed to be reliable, but are not guaranteed as to accuracy or completeness. The risk of loss in trading futures and/or options can be substantial. Each investor must consider whether this is a suitable investment. When trading futures and/or options, it is possible to lose more than the full value of your account. All funds committed should be risk capital. Past performance is not necessarily indicative of future results.
This newsletter is not intended for dissemination to the public without prior approval from David Hall.
