Tuesday, September 22, 2009

Treasury Tuesday's

Let's look at the Treasury market from several time perspectives.

On the six month chart, notice that prices are consolidating in a triangle formation and have been doing this for almost 4 months. From the larger perspective, treasuries are caught between two trends. The first is a return to risk based assets that means investors are selling Treasuries and moving into higher yielding riskier assets. At the same time, investors are turning more conservative in their orientation to the markets as profiled in this week's Barron's:

Following the series of shocks that started nearly two years ago -- from a 30% decline in the Dow to the collapse of Bear Stearns, Lehman Brothers and AIG to the revelations about Bernard Madoff's $65 billion Ponzi scheme -- individual investors have changed. They've understandably grown cautious, as was evident again last week when new data showed mutual-fund investors put an estimated $43 billion into bonds and withdrew $1.7 billion in stocks in August, even as the Dow was charging from its March low of 6,547 on its way to last week's 9,820. Cash now stands at $3.5 trillion, above where it stood at the height of the financial crisis.

The three month view shows that prices are at the top end of a range within their consolidation pattern. Notice there's a lot of supply in the lower 92 price handle -- meaning when prices get to that level someone (or a group of investors) puts a ton of stock on the market.

The one month chart shows further consolidation in a smaller triangle at the top of the trading range. Also note that prices are using the 50 day EMA for technical support right now.