Bulls Stampeding for the Exits as Bonds Break Down
Bond bulls had already had a rough week with the market moving off its recent highs, and then came the surprising 50 basis point rate cut by the Federal Reserve to signal an end to the recent bull run. So far for the week, December Treasury Bond futures have dropped almost 3 full points, as fears mount that the Fed is not through with its rate cuts for the year, which has weakened the U.S. Dollar and brought fears of rising inflation back to the forefront. The long end of the yield curve is especially affected by inflation concerns, which has caused a sharp run-up on long-term rates as compared to the short end of the curve. Technical traders note that the recent sell-off sent Bond futures prices below the key 20- and 50-day moving averages, which caused momentum traders to switch to the short side of the market. With no economic reports out today, Bond traders will focus their attention on the four speeches scheduled by Fed officials today for clues to their rationalization for the aggressive 50 basis point cuts in the Fed Funds and Discount rates this week.
Looking at the daily chart for December 30-year Bond futures, we notice only the 100-day moving average stands in the way of declaring the recent bull market in Treasury futures over. Currently, this key moving average comes in around the 109-12 area, which will now be looked at as support for the market. The 14-day RSI has moved into oversold territory, with a reading of 25.70. Should the 109-12 support hold, it would take a close above the 20-day moving average near the 112-08 level to allow Bond bulls to regain control. In early trade, December 30-year Bonds are trading at 110-05, down 0-03.
Mike Zarembski, Senior Commodity Analyst
