Bearish Bond Pattern: Bullish For Equities?
On the daily
chart of the December Contract of the Long Bond (US2Z), we have an interesting
situation developing:
1. US2Z made an impulse
move down from the Oct. 8 high to the Oct. 24 low. The move was 8`02.
2. Over the last ten trading
sessions Bonds have rallied back to regain about half of what they lost
in the hard sell off in October. In fact, this rally has created a Bearish
Pattern.
3. The pattern is a Bearish
Gartley Pattern
a. Basically, we have
an AB = CD move from the Oct. 24 low.
b. Typically, Point D
completes between the .618 and .786 retracament of swing XA.
4. This pattern would
complete right into a Fibonacci price resistance zone from 112`13-113`13,
which further solidifies the pattern.
5. I also have a couple
of Fibonacci time cycles pointing to a swing high point to be made between
now and the 13th.
If you trade
bonds, this is definitely a situation where I would be lightening positions
on any longs and at least trailing stops. I would even be looking for short
opportunities here. For those E-Wavers, this sure looks like “leg B” of an ABC
corrective move. Which means we have one more leg down for C.Â
Since it is kind
of a political week, let me put on another hat. Let’s say this market rallies
above 113`13. If it does, there is a high likelihood Bonds move on to make new
highs.
Any translation
to the equity markets? You bet! If Bonds continue to sell off, the equity market
will be the likely beneficiary of that money flow. It’s hard for me to accept
this, but today’s sell off may just be a pause in a longer term rally. Watching
what Bonds do will be a good confirmation of that direction around these key
levels.