Sunday, August 07, 2005

Bond and Note Boxes

As you know I had thought that the drop from the June 3 top in the bond and note futures was over around July 19, 3 weeks ago and 40 ticks higher than Friday's close in the bonds.

In this post and that one I said that I expected a good close Friday after the initial negative reaction to the employment number. This didn't happen so my best guess now is that somewhat lower prices lie ahead before the big rally I am expecting gets underway. See yesterday's post on decennial cycle to see one reason why I am expecting this big rally.

In any case the first chart you see above shows the bull market boxes on a weekly chart for the upmove in the bonds which began from 103-02 in May 2004. These boxes are 4 points and 3 ticks high. I had believed that the market would hold the bottom of the box near 115-10 but now it looks like a drop to 113-10, the 1/2 point of the next lower box, is underway.

The second chart shows 82 tick price boxes on a daily chart for the 10 year notes. It looks like the market will drop to the bottom of the second box near 109-16 before an extended upmove begins.

The next two charts are hourly charts of the bond and note futures showing the price boxes down from the lower tops made on June 27. The 1/2 division point of the next lower box in the bonds is at 113-01 vs. the 113-10 target implied by the bull market boxes. In this sort of situation the market will often drop to the average of these two targets before turning around. Similary, the bottom of the current hourly chart box in the notes is 109-20, closer agreement with the 109-16 target from the daily chart boxes, and the market will probably stop somewhere between the two targets.

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