From a longer term perspective in the US 10yr note futures, the market continues to tumble since the Dec test of the ceiling of the bullish channel from Jan 2000. In general, the long held view of an extended period (years) of wide ranging with a slight upward bias, and within the large bullish channel that has been forming since Jan 2000, remains in place. This market view also fits the “economic” view over the last year that the US has likely entered an extended period (at least another year or 2) of sub par economic performance, viewing the recent of stability as just temporary, and not the beginnings of a strong economic rebound. Currently, the market is nearing longer term support at 116.00/05 (50% retracement from the June 2007 low at 103/20), then the bullish trendline from that low (currently at 114.20/25). Also, the market is approaching oversold, and has a strong “seasonal” tendency to form important bottoms in June (see last 8 years on weekly chart below-6 exact or close to bottoms, other 2 times important tops/inversions-as well as the seasonal chart, 3rd chart below). This in turn suggests that a potentially important low may be nearing. The longer term question at this point is whether the market bounces from the 115/116 area, all the way back to the Dec high above 128, or only ranges for a few months before resuming the downtrend to the base of the 9 ½ year bullish channel (currently at 106/00). At this point, don’t have to decide as there is a relatively high confidence level of at least some type of bottom approaching (over the next few weeks). At that time, will be looking to switch the longer term bias to the long side, and then allow the market to dictate the extent of the bottom as it unfolds (would be on the correct side of the market regardless of the scenario).
Nearer term, the market has plunged since last week’s break below the falling trendline from March (currently at 119/18). Though there are still no signs of a more important bottom, longer term support lies just below the recent 116/30 low, and suggests that further downside may be somewhat limited (couple of points). Note too that the market is very oversold on a short term basis, leaving open scope for a 2 pt snapback, before resuming the downtrend. So for now, not seen as a good risk/reward in just chasing the market lower from here, and instead would wait for a near term bounce toward 118.26/29 to short, stopping on a close back above the broken falling trendline from March. By waiting for such a bounce (if it does indeed occur), it would increase the potential in a short trade (selling at a higher level) while lowering the risk (entry closer to the stop), and would therefore, make for a better risk/reward. But as mentioned above, the market is nearing a potentially important bottom (at lower levels), so will want to drop stops much more aggressively on another downleg to new lows (and assuming the short area was reached).
