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The Treasury market managed to rebound yesterday after failing at a number of key points on the charts. Apparently seeing the New York Fed announce an actual buying schedule yesterday afternoon revived bullishness in the Treasury market off the news that the purchases would include 30 Year bonds and that the purchases might begin today. However, the June bond contract still sits right on a critical chart support point of 128-07 in the early trade today and unless the June contract manages a rise back above 129-11 today, the trade will continue to carve out a pattern of lower highs. While the market might react to the Durable goods report, which is expected to be down, seeing the New Home sales readings later in the morning might be an even more important reading. At least initially, the trade expects to see weakness in both of the scheduled reports this morning and we seriously doubt that the readings will lend definitive support to Treasury prices in the current environment. In fact, the market might simply ignore the data points in the event they are as expected, or if they are even weaker than expected. On the other hand, in the event that the data points happen to be better than expected, that could really turn up the selling heat on both bonds and notes. With a record amount of 5 year Notes to be auctioned today, the market might be expected to carve out a series of somewhat violent two sided swings. We suspect that weak data and the threat of the “beginning” of the Treasury buying will help the market respect support early today, but in looking at the charts, one gets the impression that the bulls are simply fighting an uphill battle and confirmation of that uphill battle should be confirmed in the face of a muted 3 to 9 tick rally in the wake of the Durable goods report early in the trading session. What the bull camp really has to worry about, is anything even remotely better than expected from the New Home sales report, as an improvement in the Existing Home sales report recently, would then amplify the sellers resolve. We might add that seeing an improvement in New Home sales readings today might be unlikely, especially when one looks at the fact that mortgage rates only recently spiked downward for a 24 hour period last week in the wake of the Fed’s initial buyback announcement. Therefore, mortgage rate action could hardly have benefited the New Home sales reading that is due out today, and therefore we suspect that the New home sector of the real estate market remains a trouble spot. Respect the markets capacity to glean temporary support from the Fed’s buyback threat, but keep in mind the market has already forged an 8 point explosion off that news and around the lows yesterday, the Bond market had given back 6 points of that run. In the end, we get the impression that the June bonds want to settle back down into the February and March consolidation zone that is roughly bound by 127-17 and 123-20. The June Note contract has given back 3 points of its 6 point Fed rally, but unfortunately for the bull camp, the Note market doesn’t seem to have much in the way of support under the market until the top of the February and early March consolidation zone down at 122-28. The bias is down, but we suspect that prices will be able to bounce temporarily today, but it is possible that the June bonds will run into very solid resistance at 129-15, with similar resistance seen in June Notes up at 124-11.
