Bond prices to break out higher

On the weekly chart of the 30-year U.S. Treasury bond futures contract, we observe that prices are breaking out higher so far this week as last week tested the long-term lower upward sloping blue trendline of the blue trend channel. Prices remain above support that was found on the downward sloping green trend line. Recently, prices broke support on the lower upward sloping purple trend line and may have reached a short-term target. Prices remain at 2015 trading levels where consolidation may be coming to an end for a move higher.

In reference to the “Triple ‘T’ Pattern”, prices had reached the third time measurement peak which targeted the last week in June 2016 as indicated which anticipated a potential decline in prices. We continue our view that prices may have exhausted the longer term cycle uptrend of which a potential final top level may have completed. But, based on positioning, a strong retrace rally may take prices higher of which we anticipate will make a lower cycle high.

But, “What do the commercials or hedgers know that we don't know?" Our anticipation for support at current levels is reinforced by the Commercials or Hedgers who continue to remain at their net long position after pulling back from near their highest levels since April 2010 which represented a major cycle low in prices. Historically, the Commercials or Hedgers are net long at market bottoms as shown with vertical red arrows on the chart.

As per the Commitment of Traders report released this past Friday by the Commodity Futures Trading Commission, we note that the Commercials or Hedgers decreased their net long position from near their highest level since the week April 30, 2010. Large Speculators decreased their net short position from levels not seen since Aug. 5, 2011. Small Speculators decreased their net short position.

Open Interest or the number of contracts held overnight decreased as the Commercials or Hedgers reduced their net long position. Historically, Commercials increasing net long positions and high open interest is bullish for price expectations and as these decrease, the momentum remains for higher prices during an unwind.

Based on time and price patterns along with positioning, we remain short-term bullish and anticipate a strong rally that could extend into June, and we remain long-term neutral.

30-year US Treasury bond futures



About the Author

Daniel S. Shaffer is the author of the weekly “Shaffer Market Report” and author of “Profiting in Economic Storms: A Historic Guide to Surviving Depression, Deflation, Hyperinflation and Market Bubbles”.