Tuesday, June 06, 2006

The Dog That Didn't Bark

Here are hourly charts showing trading in the September T-bond futures.

One of the most important and effective clues to the underlying trend of any market is what I like to call "The dog that didn't bark". I have discussed this idea on this blog here and here .

Yesterday Fed Chairman spooked the markets by pledging vigilance against inflation according to the front page of the Wall Street Journal. This was interpreted as a hint that Bernanke intended to raise rates further instead of pausing as the markets had hoped.

One would think that such news would send bond prices much lower. But as you can see on the hourly chart of the T-bond futures the bond market hardly noticed. This dog didn't bark. And I think this is yet another piece of evidence of strength that is telling us that the bond market is headed much higher from here. At the minimum I would expect the futures to reach the 110-111 zone over the next couple of months. There is even a very good chance that the May 15 low will turn out to be the low for all of 2006 in the bond market.

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