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GREENWICH NATWEST FUTURES
311 S. Wacker Dr., Chicago, Illinois
(September 22, 1997) FINANCIAL INSTRUMENTS: TREASURY BONDS–December Treasury bonds settled at 115.21 Friday, up a sharp 2 and 14/32nds of a point from the previous week's close. The major daily trend of the market turned from down to up on last week's move higher, while the longer-term major weekly and monthly trends remain up. Most of the conflicting technical signals that we discussed in the September 8 report have resolved themselves over the last week by turning bullish. I continue to look for a significant one to several month directional move to begin from this pivotal price area. However, this move now appears likely to be to the upside. My outlook has now turned bullish above critical underlying support located at the 112.16-112.03 level this week.
One particularly bullish technical item over the last two weeks has been the market's test of, and sharp rally away from, important support at the 112.04 level. This level represents the upper parameter of bullish symmetrical triangle patterns that appear on the longer term weekly and monthly charts. The minimum upside objectives of these patterns are 127.11 and 127.26, respectively. Over the last month or so, I've mentioned that the tops of these patterns must loosely contain price on the downside in order for their validity to remain intact. Quite often after the initial breakout, a pullback to retest the upper parameter of the pattern occurs before the market really begins its directional move in earnest. That's exactly what has occurred here. Adding icing on the cake is the fact that last week's move higher off of this support was made on high volume and expanding open interest. This indicates urgency to get into the market, and conviction that price will continue higher.
The topping/declining weekly oscillators we referred to two weeks ago, which warned of a several week sell off, have since stalled on the downside and now appear to be turning upward. This suggests a bullish directional bias for the next one to several weeks.
Two weeks ago, the MACD indicators of the weekly Treasury bond and weekly NOB spread charts had also warned of an impending move lower for bond futures. However, the weekly MACD of Treasury bonds turned higher on this week's price strength, while the MACD of the weekly NOB spread simultaneously crossed its trigger line to the downside. (The NOB spread has a very close inverse relationship with Treasury bond futures, and is often of a leading indicator of them.) This indicates a bullish shift in weekly market momentum for Treasury bond futures, and portends continued higher prices over the next one to several weeks.
A bullish head and shoulders continuation pattern was validated on the daily (December) chart on Tuesday, September 16. The minimum upside objective of this pattern is 116.05.
As mentioned earlier, the 112.16-112.03 level is critical support this week. As long as price remains above it, the bullish technical bias discussed here will remain valid and in force. 116.20 is critical overhead resistance this week, and represents a major high that was made on August 1. Longs are advised to be on the defensive if this resistance is tested this week. It is unlikely that this level will be significantly penetrated to the upside without at least a minor intraweek to weekly downside correction first. The 114.30 area is an important minor support level early this week. We would view a test of it as a potential new intraweek to weekly buying opportunity.
John J. Kosar
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