Home > Uncategorized > 2012/03/15: Quick Post: Govvies got those “Feels Like a Trend Turn Blues” …but more right away?

2012/03/15: Quick Post: Govvies got those “Feels Like a Trend Turn Blues” …but more right away?

© 2012 ROHR International, Inc. All International rights reserved.

Just as we noted in yesterday’s courtesy access to our TrendView Brief Update assessment of the two major trend ‘haven’ psychology shifts, the major weakness that has affected the previously ‘Teflon’ govvies was based upon very solid, classical intermarket influences also apparent during previous major trend reversals for bond markets. We encourage anyone who has not already read the extended discussion to link into that analysis from yesterday’s post. It is classic macro-technical intermarket psychology taking hold of an asset class that had stayed too long at the ball.

The other significant consideration now that the trend reversal in govvies has seen the initial downward shockwave is whether there is any primary government bond market relief rally in sight, or the aggressive downtrend is going to continue in right into the end of this week. That typically leads to spillover into early next week as well. The issue is whether govvies prices can stabilize without knocking out some key supports, below which there is not much for quite some distance.

The operative factor is likely to be the equity market decision against interim resistance as we head into the weekly Close…  especially as the March S&P 500 future expiration today leaves the modestly discounted (six dollars) June contract as the lead futures contract for the weekly Close tomorrow. Interesting, and possibly just a bit of an edge for the equities bears and govvies bulls, that it should be right around a significant psychological and technical level like 1,400 just as the June S&P 500 future remains below it after the March contract breached it today…

…and whether the June contract can also sustain activity above the 1,400 area (especially the top of interim resistance at 1,407) will be a very telling factor for not just the equities, but most certainly primary government bond markets as well. That is because the 1,400 area is only interim lead contract S&P 500 future resistance. The next heavy resistance (historic congestion and weekly oscillator) is not until 1,425-28, and again at the major 1,440 May 2008 high. Probably not very positive for govvies if it looks headed for those sorts of levels right away.

General Market Observations

Of course, the June S&P 500 future will remain an up trend overall even if it has a somewhat sizable setback from the top of such an extensive rally. While it would likely take some disconcerting news like the resurgence of some troubling aspect of the Euro-zone Sovereign Debt Crisis or significantly weaker than expected Asian data for the US equities drop that far, the violated recent and historic congestion in the 1,370-67 area is likely to hold any initial retest. That is if it should even happen the drop fully down to that area (versus holding minor interim support at 1,375.) The problem for the bears is that for any more extensive selloff to actually slide back below 1,370-67 there is going to need to be a significant reversal of recent strong US economic data across a period of time; in other words, not just the odd occasional weak data point.

EXTENDED TREND IMPLICATIONS

The key levels to watch are June T-note future down below the 129-24/-16 support range, yet with the March contract (which does not expire until next Wednesday) still only marginally below it; which will be important for the weekly Close. Given the half point premium of the March contract, the key indication will be whether June T-note future finishes the week no worse than 129-00. If it does, it will be the March contract that remains lead contract that will remain important early next week for the continuation technical projections, where the next support is not until down into the 128-00 area (i.e. 127-16 for the June T-note future.)

Similar considerations apply in the previously most resilient June Bund future if it is below the 137.20-136.93 range low-end lead contract low (from the bottom of the early February selloff) for the weekly Close this week. After the sharp October and November selloffs in the Bund, the next interim lower support is not until 135.00 area. Weak sister June Gilt future has fared worst of all. Not surprisingly, after a gap lower opening yesterday below the 114.50 area, it also finished below its late February 112.81 low. That left it ranging below heavier historic congestion support in the 112.50 area, which it struggled back to Close at today. Next major support is not until the 110.50-.00 area. So the burden of proof to prevent a further debacle late this week into early next is on the govvies bulls; and they will NOT likely succeed without some help from a downside reaction in the equities.

And as far as the foreign exchange goes, this is been as much secular weakness in the Japanese yen as a strong phase in the US dollar, also for all the reasons discussed in yesterday’s TrendView BRIEF UPDATE; and we refer you back to yesterday’s post for that. However, even the weak sister yen is now at some key levels where it is finding support after its recent debacle. Its break against the greenback has reached some important interim USD/JPY resistance in the 84.00-.50 area. And that works hand in glove with the degree to which the US Dollar Index and the EUR/USD have both now reached next important interim technical trend areas as well. While the next major US Dollar Index resistance is not until the .8130-50 area, the .8050-70 area has been an important interim level across many swings. Similarly in EUR/USD the more major support is likely still down at the yet to be tested 1.2925 UP Break from January. Yet here as well the 1.3080-50 area has been an important interim level.

As a final note, April Gold future has acted very weak on its failure below the low end of its 1,685-76 support (including its late January UP Break and weekly MA-13 and MA-41.) Yet the more major support still remains down at its Negated December DOWN Break, congestion and major Fibonacci 0.25 retracement in the 1,615-00 area.

Thanks for your interest.

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