How to Read the Signs of Change—Trend Change, That is… (Part 3)

03/18/2009 12:01 am EST

Focus: STRATEGIES

Timothy Morge

President, MarketGeometry.com

Today, we will look at another market that had an exceptionally large move in a very short time this past year—the US 30-year Treasury bond futures market.

Treasury bond futures on the CBOT had a nice summer rally in 2008, moving from 112 to 122 from July to mid-September. Bonds then sold off in an orderly fashion, leaving three lower highs, a classic formation known as “Three Drives to the Top,” before bottoming out in late-October at the 112 area. A series of collapses of US financial institutions in November caused most banks to cancel all outstanding credit lines, and the ensuing liquidity crisis caused a rush into US Treasury bond futures. Once the trend line drawn above the down-sloping highs of the “Three Drives to the Top” formation gave way to the up side, the flight to quality rally took bond futures as high as 140 by early-December 2008!

chart

Again, there was a change in behavior for you to see—if you were looking for it. When prices broke above the trend line drawn above the three lower drives to the top, the fierce rally began.

Let's see how US 30-year Treasury bond futures are doing in 2009:

chart

Once bond prices topped out above 140 in December, they eventually sold off and formed a base line at roughly 131. You can see that this base line held for some time, but as the current President began announcing his fiscal packages, bond prices broke below the base line and have been trading lower in an orderly fashion ever since. Once again, a base line break signaled a clear change in behavior. It's easy to spot and very reliable, once you begin to recognize it.

More in Part 4 tomorrow…

Timothy Morge

timmorge@gmail.com
www.medianline.com
www.marketgeometry.com

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