The interest rate sector has been tug of war between geopolitical fears and a weak European economy supporting lower yields versus the Federal Reserve Board’s tapering of its purchases and a progressively improving U.S. economy suggesting rates could be higher.
Due to the number variables and the fluid situation that best describes Middle Eastern and Russian politics its best to analyze the market through price and behavior patterns. That being said, our first screen is always a look at what the commercial traders are doing in any given market.
The recent stock market rally to all-time highs also pushed the interest rate sector prices lower which drives yields higher to compete with the stock market in the never ending battle of return vs. risk. The decline in the 10-year Treasury note futures brought out anxious commercial traders waiting to buy in at bargain prices. Their purchases of around 70,000 contracts have turned our commercial trader momentum indicator positive. Positive commercial momentum means that we will only look for buy side trades in this market.
We always want to be on the same side as the commercial traders.
Finally, Friday’s outside bar combined with the shift to positive commercial trader momentum gives us the spike low and reversal higher we needed to enter the trade. We are buying 10-year notes as well as placing a protective sell stop at Friday’s low of 123^16. We’ve had roughly eight trades in the 10-year Treasury notes over the last year or so. You can see the trade results and chart, here.
