Moment of Truth

I think the hardest part of speculation is determing when a good idea has gone bad. I am facing just such a situation in the bonds and notes now.

I thought the September T-bond futures would turn up from the 115-11 low on July 19. My long standing downside target for the drop from 119-23 had been 115-04 and eventually the market hit 114-29 on July 21. I also thought that the notes would hold their target level of 111-00 with the 1/2 point of the box being 110-30.

As you can see from the hourly charts above this post both markets have dropped 1/2 box further than I had expected. Both have taken out the July 21-22 lows. Should I abandon my forecast of much higher prices in both the bonds and notes?

One rule I always like to repeat to myself is never to let a small, adverse flucuation unduly influence my view of the big picture. Right now I am still quite confident that the bonds will rally to 121-123 and the notes to 116. This is largely based on my feel for the state of market sentiment which I think right now is quite bearish. I also know that the bonds are trading near the low of a 4 point bull market box and this in conjunction with my read on market sentiment gives me confidence in my longer term bullish view.

As far as market tactics go, I think the downside breakout in the notes Friday and in the bonds today will soon be reversed. I expect the bonds to bounce off of the 1/2 point of their current box and the notes to bounce off of the bottom of their current box. If my basic view is correct then I think both markets will trade higher for the rest of the week.