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GREENWICH NATWEST FUTURES
311 S. Wacker Dr., Chicago, Illinois
(October 14, 1997) FINANCIAL INSTRUMENTS: TREASURY BONDS–December Treasury bonds settled at 115.01 on Friday, down 1 and 20/32nds of a point from the previous week's close. The major daily, weekly and monthly trends remain up. However, the market is now in the midst of a minor downside correction within the major daily uptrend. This correction appears to be the result of the market's test of its contract high (major overhead resistance) at 118.11 on October 3, while technically overbought. Despite this minor move lower, the major uptrend on the daily chart will remain in force as long as the 114.05 area loosely contains price on the downside this week.
Bullish symmetrical triangle patterns remain valid and in force on the longer term weekly and monthly charts. The minimum upside objectives of these patterns are 127.11 and 127.26, respectively. These bullish patterns will remain valid as long as underlying support at the 111.31-111.12 area loosely contains price on the downside this week, which represents the upper parameter of these patterns.
Now for the potentially bad news. Bearish divergence has now become apparent between price and daily and weekly momentum indicators. Bearish divergence occurs when a higher high in price is accompanied by a lower high in an indicator that measures market momentum. This divergence indicates technical weakness, and warns of an impending move to the downside. Because this divergence shows up on the daily and weekly charts, it becomes especially significant.
Despite the bearish divergence, the most important technical consideration is always price action. There is a critical band of support located at the 114.16-114.04 area this week, and represents; A) an important longer-term weekly level (114.16), and B) major support on the daily chart (114.04, its fifty-day moving average). As long as this support contains price on the downside for the remainder of the week, my overall outlook will remain bullish.
Open interest has declined over the last three sessions, which suggests that some profit taking has taken place on the recent sell off. However, looking at open interest over the last month, it has done exactly what it should do in a bull market; expand on higher prices, and contract on corrections.
The current downside correction on the daily chart will remain in force as long as the 116.06 area loosely contains price on the upside for the remainder of the week. However, upside penetration of 118.04 would indicate that the downside correction is over, and the major uptrend has resumed.
John J. Kosar
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