Confused and Confusing Bond Markets
23 October 2009
The US, UK and European bond markets have all experienced recent double failures at long-term all-time highs. So the long-term technical outlook is bearish. But those failures occurred nearly a year ago. They have fallen since, but from June this year they have lacked any bear impetus at all. Any medium and long-term structures that have developed are far from completion and markets are locked in trading ranges. Traders should stand aside and await events.
The Technical Trader's view:
WEEKLY UK GILT CONTINUATION CHART
The UK Gilt chart over the two year period since October 2007 shows a steep rally then the market ranging for the last year.
The Double failure at the old all-time-high from 2003 is an unquestionably bearish context.
But the market's difficulty in penetrating back down beneath the Prior High support - which is the lower boundary of the trading range - is clear.
The possible bull channel since June of this year is interesting, and may be a continuation pattern in the making, but that remains conjecture for the moment.
WEEKLY BUND CONTINUATION CHART
The shape of the Bund chart follows that of the Gilt though the parameters of the trading range since last October have been derived from Highs and Lows that have arose at different times.
The clear double failure at the old all-time-high sets the tone of bearishness
But medium-term there is less of a bull channel that has been created - more of a tight trading range.
And the market remains squarely within a wider trading range.
WEEKLY TNOTE CONTINUAITON CHART
The US market only bears comparison with the European markets since the beginning of 2009.
After that all three markets have followed each other closely.
The double failure at the old all-time-highs is there as in the other markets.
And most recently still, the US has closely matched the bull channel of the UK Gilt market.
But that shows no sign of completing yet.
Traders might well be intrigued by the future possibility of the formation of a second shoulder to a large Head and Shoulders Top formation...but that too is conjecture for the moment.
Mark Sturdy, John Lewis
Seven Days Ahead
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