The Long Bond has been in a holding pattern since falling early last summer when the Fed announced it would begin reducing the stimulus it has been applying to our economy thus, lifting the artificial cap on low rates. This has led to a period of sideways market movement that has provided trading opportunities on both sides. The commercial traders, as a group, tend to clean up in sideways markets due to their normal trading behavior of buying value and selling expense.
The Long Bond has held below the 136^00 level on a continuous contract basis going back to early July. Commercial traders have been strong sellers here on our last two trips to this area in both October and February. This behavior is repeating itself, yet again. Commercial traders sold more than 24k contracts over the last two weeks. Furthermore, they’ve sold more than 14k contracts in the last week as we’ve climbed above 135^00. You can see their actions and the setup for the trade on this Bond chart.
Our strategy is based on following the commercial traders’ sentiment while employing frugal risk management. Therefore, we will wait for the market to reverse lower as it fails due to the current overbought situation near this key resistance level. Finally, we’ll place a protective buy stop at whatever the swing high ends up being.