Treasury and Eurodollar futures are lower in early trade today, following the strongest session since Feb. 25. That late-Feb session, as appears likely for yesterday’s trade, did not mark a renewed bullish trend. The Treasury yield curve flattened by 3 basis points yesterday between 5’s-30’s and by more than 15 basis points since Feb. 25. The Eurodollar futures yield curve flattened yesterday by 8 basis points during the first 3 years.
Open interest continues to decline. Losses there were seen in Eurodollars, 2’s, 5’s and 10-year Treasuries. My analysis continues to indicate that it is the bullish contingent that is leading the effort toward position squaring.
The enclosed chart of the 10-Year Treasury (TYM6) shows a developing bearish trend that had, on Monday, briefly recaptured 50% of the price advance registered from late December to Feb. 11. On Feb. 11, a significant candlestick pattern was formed. This "bearish shooting star" left a long ‘upper shadow’ and points toward strong resistance above. That pattern was repeated on Feb 24th, just before the last best advance.
Another bearish technical development since Feb. 11 is the "bearish engulfing" of Feb 29-Mar 01, which is a continuation pattern. Note too that the advance yesterday did not threaten the bearish channel developing since the Feb. 11 high. The upper and lower bounds of this channel are 129-30+ and 127-19.
One technical development to be watchful for today would be a "bearish engulfing" in Treasuries. A settle at or below 128-30 or lower would form such a continuation pattern and put to rest any confusion about bullish prospects in the immediate term. Watch too the 50 day moving average which at 128-23 today has not been touched since the start of the year.
In short, the intermediate-term bullish trend, described by the strong advance since late December, is giving way to increasing evidence of an emerging bearish trend that has seen longs exit positions and prices retreat toward 50% retrace of the year-beginning 6-week advance. In time we will need to find the bearish contingent more responsible for trend maintenance than was visible yesterday. For now, we remain less demanding or more patient for bearish developments to unfold.