(April To September 1997)
TECHNICAL DATA
MARKET COMMENTS
Prepared by Technical Data
A Division of Thomson Financial Networks
U.S. Treasury Bond Technical Analysis
As investors approach the month of October with its haunting history of market corrections, it is clear that the path of the Dow Jones Industrial Average and that of the nearest bond future are very much in synch with each other. Chart One depicts daily bars of both the December bond contract (above) and the Dow Jones Industrial Average (below). From this vantage point, the correlation of price action between the two is quite striking. In fact, each chart reveals that there is a large bearish head and shoulders pattern (with two right shoulders) now present on daily charts.
Chart One
December Bond Contract And Dow Jones
Industrial Average Daily Bar Charts
(April To September 1997)
Source–CQG
What may not have been obvious to chart followers before the release of August's CPI report last month was the smaller (bullish) inverted head and shoulders formation nested within the two right shoulders for the December bond contract (Chart Two). And, although not precisely exact, a very similar triple bottom formation was set on the Dow Jones Industrial Average whose upside implication was very much akin to the bond's inverted head and shoulders.
Chart Two
December Bond Contract And Dow Jones
Industrial Average Daily Bar Charts
(April To September 1997)
Source–CQG
Interestingly, these smaller patterns likely hold the key as to whether fears of another October calamity in the financial markets is warranted or not. Important to both December bonds and the Dow Jones Industrial average is the fact that the smaller necklines (of the inverted head and shoulders) were decisively broken (Chart Two). By themselves, these are conspicuous hints that upside probes for each may not be over. Of course, an eventual break below the neckline of either of the larger bearish head and shoulders patterns (seen in Chart One) would increase fears often associated with the month of October. But then again, it depends on what technical pattern eventually emerges on daily bar charts.
In any event, it's clear that the Dow Jones Industrial Average is taking its cue from 30- year bonds.
September 22, 1997Jim Donnelly, Chief Technical Strategist
Technical Data
A Division of Thomson Financial Networks
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