The long-term technical outlook for 30-year bonds shows futures are looking to re-test late 2008 highs. Here is what to watch for to take part in this trade. A trendline can be drawn from the June low to the August low and extended out. September and October’s trade respected it, and then November’s trade opened right on it, verifying the market is paying attention to that level. The June 2009 low matches within one tick the June 2008 low. The long-term upward trendline is nearing a convergence with that level. Bonds in November dipped below the upward trendline due to overseas markets trying to force the U.S. Fed’s hand on intereest rates, but closed well above it. But as the Fed has made very clear in its last few meetings, rates will remain extremely low for some time.
So, we’ll look to buy above the trendline, but even if the 30-year drops below it, bonds are a buy above the November low of 117-25. Go ahead and buy one unit at the trendline, and buy a second unit against 117-25. Your initial target is 126-24, the 50% retracement of a move from the high to the June low. Add to your position if that is breached, targeting 131-19 and eventually 140-16.
Jack Broz trades from the floor of the CBOT. He can be reached at firstname.lastname@example.org or through his Web site, www.tradebondfutures.com .