U.S. 30-year futures have been holding to the classic pattern of spending nearly 80% of their trading life within a range and the other 20% of the time trying to establish a range. Since Oct. 2, 2009, the chart pattern forming has been defined by a series of lower highs, which suggests a continuation of range trading for the foreseeable future. The chart below appears to be showing the market to be forming a narrowing channel between 120-24 and 118-24 through the month of November.
Treasuries should find some end-of-year strength on flight to security during the holiday season and buying on New Year portfolio adjustments. The market should test upside resistance around the 61.8% Fibonacci retracement level at 121-16 (we are using a front-month chart). If resistance holds, expect a break below the 118-00 level. From there the market should find initial support at 117-16. If that is taken out, look for a downside target of 116-10.
Breakout levels on Treasuries appear unlikely for this time frame, but levels should be noted, as a break in equities could lead to “flight to quality” buying in the first quarter of 2010. Using Fibonacci retracement measures from the high spike of October 2009, the March 30-year contract upside breakout target should set up at 124-11. On the downside, a break of 115-27 could set up for a test of the lows from June 2009 at or near the 111-00 range.
Richard Roscelli is a broker for Whitehall Investment Management in Las Vegas. E-mail him at firstname.lastname@example.org.