Monday, December 20, 2010

Year End Look At the Treasury Market

The primary trend for the IEFS has been a strong, upward sloping pattern over the last three years. However, notice that prices are currently nearing this important trend line. The real question is will the line hold? If not, then a fundamental trend that has lasted three years will be over, indicating an important shift in the bond market.

This year there were three important trends. The first was the rally that started in late May, caused by the EU crisis. This rally lasted until September, when prices formed a triangle top. Prices have since fallen hard and fast. Note the increasing volume on the sell-off.

Notice that when the IEFs were forming a second top, the MACD was decreasing (a), indicating the momentum was declining, indicating the rally was weaker. The MACD has continued to decline, indicating momentum continues to decline. This has been followed by a declining A/D line and negative CMF, both of what tell us that money is leaving the market.