The week has been volatile and mostly down. Boo! But it could just as well have been any other week by the time it encountered it's familiar friend otherwise known as Friday PM hours... Yes, you've heard it before, and MBS Gods know we've written it before, but if it walks like a duck...
If you haven't already drawn your own conclusions about this afternoon (perhaps even before knowing what prices are doing?)_here's what we mean. As volume, liquidity, and volatility dry up (no more data, weekend ahead, traders going home), only the lonely Tradebot 3000 remains at the office. And although he wishes the humans would some day recognize him as a sentient being, he'll probably always be known for his ability to corral the highs and lows of the bond market into a narrowing and ultimately less interesting range.
It's not all as boring as the singular points that might be suggested by the convergence of competing trendlines (thing "apex" of the triangle created by connecting the red lines). Taking a look at the tsy futures hourly chart, we can perhaps fight off that napping urge at least until Maria Bartoromo asks us if we know where our money is... (Oh yeah! Like she doesn't know already.)
Sorry that chart's a little too busy, but stay with me here... A few bullets to consider heading into the close:
- smaller yellow lines on the right-most side of the chart are akin to the converging trends seen in the chart above, but obviously on a much smaller scale. To finally cut to the chase, these lines usually suggest that the highs and the lows are in for the day (Tradebot 3000 doesn't do drama).
- lowest horizontal yellow line suggests a 2 day floor was repeatedly tested and held up quite well. This floor, once extrapolated with conversion factors that correlate tsy prices to cash market yields, is understandably coincident with the 3.47+ ceiling in the cash market.
- downward sloping red line shows a recent down-trend of lower highs that, at least on an hourly basis, was tested, broken, and confirmed in recent hours. In simpler terms, that aggressive downtrend was defeated... At least inasmuch as the technical breakout guarantees results. (if you squint, you might be able to see the white circles which show the points at which this was tested)
- The annotation between the other horizontal yellow lines is curious for two reasons.. In candle charting, any time 2 adjacent candles "gap out" from each other as they do at the inception of these lines, it's significant. Both the previous low and the new high (in the case of a downside gap like this one) are informative, and some might say "tough to break." In case you needed an example of that, you can see the only candle that manages to break the lower level gets capped exactly at the higher level. Just a bit of edification for the theory, and potentially suggesting a higher than random degree of resistance might be encountered if we rally back towards those levels. Something to keep in mind for next week (fingers crossed)
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