To give credit where it’s due, “buy high and sell higher” is a concept from William O’Neill highlighting how new highs in a market often point to high confidence and thus act as a reason to buy rather than turn tail in fear. His books are great reading for dilettante and veteran trader alike. As I looked across the markets last night and concluded it’s a good time not to draw any big conclusions in most, Treasury futures jumped out as a nicely trending market reaching new highs.
Examine The Chart
For the moment, put aside your ideal image of a perfect rectangular sideways trend that resolves up. Now look at the weekly chart of Treasury futures. You can treat the price structure since June 2012 as a rather long period of consolidation that’s in the process of breaking higher. Granted, it isn’t perfect given the decline in the middle of 2013. But that doesn’t negate the role of the structure: a pause within a larger uptrend that doesn’t show any sign of being near an end.
Supporting the case for follow-through buying, the market isn’t extended. MACD, RSI, they’re squarely neutral and rising, a sign of strength, not buyer exhaustion. And the price action doesn’t show any churning or difficulty near the ceiling around 127.
I also like how Treasury futures don’t show any discernible correlation with equities. They’ve gone up as stocks were soaring, and continued to do well in the past few weeks as stocks have sold off. Further, despite a mild sell-off in the past two weeks, I don’t see any evidence of Dollar Index futures peaking. This market recently got past key technical resistance just above 85, and the path higher looks clear. That’s auspicious. Some dollar buying (or a lot) should be translating to purchases of U.S. Treasuries.
Good trading, everyone.
