A US Treasury trade for the brave

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.

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.

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):

US T-bonds spread betting chart

(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.

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.

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.