Monday, July 18, 2011

Treasury Tuesdays

Last week I wrote the following about the Treasury market:
Overall, the last two days' price action is more a fundamental reaction to the EU situation, which is interesting, as this has occurred at exactly the same time as the Fed backing away from the market lowering demand. And then there is the possible impact of the debt negotiation deal. It's my opinion this is a temporary bounce, caused by the EU situation.
In short, fundamental factors were driving the market higher. Let's take a look at the charts.

The IEFS rallied the previous week, but have since been consolidating in a tight price range between 97.20 and 97.90.

The daily chart shows prices have rallied, but to below the previous trend line. The shorter EMAs are all moving higher and are now below prices. Prices are using the EMAs as technical support. The fact prices have stalled and are hitting resistance at the previous trend line are both important developments. Also note the decreasing volume over the last few days, indicating a less than enthusiastic feeling about the rally.

The longer end of the curve rallied, consolidated between 96.20 and 97.40 and is now moving lower.

The daily chart of the TLTs shows the price action in more detail. Note that prices have hit resistance and fallen into the EMAs for technical support. Currently, prices are also at key Fibonacci levels.

The treasury market is still caught between conflicting trends. On one hand, the US is the "least dirty shirt in the hamper," meaning it is still considered a safe haven play in relation to the goings on in Europe. But there are big problems at home, especially as the debt ceiling drama plays out. The latest inflation data is pretty benign, indicating that won't be a reason for a sell-off. However, I'm still concerned that Wall Street has their collective fingers on the sell button.