Bonds, such as they are, will not succumb to price pressure. They will carry the weight of the bailout/fiscal stimulus. On one hand, you have Treasury Secretary Hank Paulson printing them, and on the other hand you have Federal Reserve Board Chairman Ben Bernanke selling them. The whole “quantitative-easing strategy “of Japan may be in vogue among the circles of power, if for no other reason than all else has been approached or failed. As for approached, the 100-year bond is under consideration. It worked well for the Ford motor company in 1997 and should find supporters in the new administration.
We of course are weighing supply and demand issues, as a market should. However, when an entity as all powerful as the Federal Reserve Bank enters the equation with the intent to purchase the 30-year bonds as an economic tool, the balances can be “goofed.” From a technical standpoint, bonds are in uncharted territory to the upside. Perhaps Mr. Fibonacci could help with targets. Using the Fibonacci Fan projection, we may get an idea of peaks and drawbacks. Bonds can remain oversold for a long time, so it would be best to get a sign that a correction has begun. You can enter your short once a fan level is breached. “Fanning the flames” shows interim support levels using the Fibonacci Fan projections in early December at 126-30, 123-29.5 and 120-29.5.
Eventually the market has to collapse under it own weight. This false support can/should fail once the weight of the printed paper outweighs the worth. Let’s call it the weight/worth theorem and the corollary is value + time = erosion. One floor veteran noted, “helicopter Ben is lifting the bonds off the floor in order to sell more.” As a trader, think playing the Fibonacci levels and eventually, when they are clearly broken, sell, sell, sell.
J.B. Siewers III is a broker with Ira Epstein and Company Futures and has more than 15 years experience on the trading floor.