Long term rates have been slowly creeping up and bonds have been pulling back. We believe that an intermediate trend reversal is close at hand. Bonds are expected to mount a rally that could last a couple of months after which they are expected to resume their downward trends. Long term traders can use this potential surge in bonds too slowly ease into additional TBT positions; risk takers can purchase long term call options in TBT.
In the short to intermediate time frames, bonds could rally as high as 120 and possibly spike to the 122 ranges. Feb 2, 2010.
We still have daily and weekly sell signals, in effect. The first sign of a trend change would be a daily buy signal and the ability of bonds to trade past 118 for 4 days in a row. If bonds can trade above 118 for 4 days in a row, it will signal that they are ready to test the 122-124 ranges. If we get a weekly buy signal it would result in much higher prices and bonds could trade as high as 128 before pulling back. Even though the current pattern is suggesting that bonds could rally for several months in a row, this pattern will only be complete if it is confirmed with a weekly buy signal.
Right now we would advise long term players not to open up any new short positions via TBT and to actually consider taking some profits with the intention of redeploying this money later when bonds trade to the above suggested targets.
We will warn everyone via updates or interim updates when a new daily and weekly buy signal is generated.
Long term our outlook for the bond market is extremely negative but in the short to intermediate time frames bonds are expected to rally. The strength of the rally will depend on the signals generated (daily, weekly, etc.)