A US Treasury trade for the brave

The US Treasuries market is depressed. Bears abound. But for the contrarian trader, could there be a case for a bullish trade? John C Burford investigates.

A recent article by my colleague John Stepek went into the very real worries surrounding the US Treasury (T-bond) market.

These worries are rapidly coming to the fore in traders' minds.

Subscribe to MoneyWeek

Become a smarter, better informed investor with MoneyWeek.

I have commented before on the very bearish opinions emanating from influential figures. But as a trader and a contrarian one at that I like to see if taking the other side of the trade makes sense.

Let's take a look.

Advertisement
Advertisement - Article continues below

Is there a case for being bullish on T-bonds?

Here is the latest chart of June T-bonds (this is the most active contract):

SB00072-01

(Click on the chart for a lrger version)

The market is trading around the 118 level, which was the previous low made in February.

On the way down from the 123.50 high made in mid-March, the selling pressure is getting weaker, as shown by higher lows in momentum while new lows in price are made.

This is a positive momentum divergence.

If this 118 level can hold, we would have a potential double-bottom.

Advertisement
Advertisement - Article continues below

But look at my tramlines. The lower one cuts right through the highs and lows with no 'overshoots', making it a very reliable line of support and resistance.

The upper tramline is less reliable, but it does cut perfectly across the two latest tops made on 7 and 8 April.

Buying opportunities for the brave

Currently, the market is poking its head above the parapet and has moved away from the upper tramline.

I estimate that there are many buy-stops just above the previous minor high at 118.50 (made on Friday).

This would be a good place to enter entry buy-stops if you are a contrarian trader, looking to surprise the majority!

But be warned the upper tramline has only two valid touch points trading previous to these highs was marked by several 'overshoots', so I will not be surprised if we get another overshoot here.

Advertisement
Advertisement - Article continues below

If we do, then prices will slip back to the channel between my tramlines.

But the market is giving the bond bulls (who are very few in number) some cause for optimism based on current charts.

Advertisement

Recommended

Visit/trading/spread-betting/600782/boeings-share-price-plummets-heres-how-to-play-it
Spread betting

Boeing's share price plummets: here's how to play it

Boeing shares have fallen by a third this year. But there could be worse to come. Matthew Partridge explains how traders should play it
10 Feb 2020
Visit/519524/how-my-2019-spreadbetting-tips-fared
Share tips

How my 2019 spreadbetting tips fared

Matthew Partridge reviews performance of his 2019 spreadbetting tips. This year’s winners include Bellway, JD Sports and Taylor Wimpey.
17 Dec 2019
Visit/519285/bettingon-politics-some-safe-labour-bets
Spread betting

Betting on politics: some safe Labour bets

Matthew Partridge outlines a few flutters on what should be safe Labour seats in the general election.
10 Dec 2019
Visit/518916/ds-smith-will-deliver
Spread betting

DS Smith will deliver: here's how to play the share price

Packaging group DS Smith is profiting from the online retail boom. Matthew Partridge explains how traders can play the share price.
3 Dec 2019

Most Popular

Visit/economy/inflation/600799/federal-reserve-inflation-money-printing
Inflation

Here’s why the Federal Reserve might print more money before 2020 is out

The Federal Reserve wants to allow US inflation to run “hot” for a while. But that’s just an excuse to keep interest rates low – and possibly print mo…
10 Feb 2020
Visit/investments/investment-strategy/600804/the-secret-to-avoiding-being-panicked-out-of-your-portfolio
Investment strategy

The secret to avoiding being panicked out of your portfolio

With the coronavirus continuing to occupy headlines, investors still aren’t sure how to react. But the one thing you mustn’t do is panic. Tim Price ex…
11 Feb 2020
Visit/economy/600796/money-minute-monday-10-february-lacklustre-growth-in-the-uk-and-europe
Economy

Money Minute Monday 10 February: lacklustre growth in the UK and Europe

Today's Money Minute looks ahead to the week's GDP growth estimates for the UK and the eurozone, plus inflation figures for the USA.
10 Feb 2020
Visit/517625/tr-european-growth-trust-why-investors-shouldnt-overlook-europe
Sponsored

Why investors shouldn’t overlook Europe

SPONSORED CONTENT - Ollie Beckett, manager of the TR European Growth Trust, tackles investor questions around Europe’s economic outlook and the conseq…
6 Nov 2019