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The Treasury market seems to have lost a bit of upside momentum and that is surprising considering that equity prices early this morning are showing weakness and are also sitting just above this week’s lows. Perhaps the comments from the Fed Chairman in the prior trading session dampened bullish sentiment somewhat or perhaps talk of direct help for the US mortgage market took away some of the buying interest for Treasuries. However, it was a little surprising to see the Bonds fall away from the highs in the wake of Bernanke’s reiteration that the Fed may purchase longer term securities, but with the Fed Chairman also suggesting that more government bank injections would be needed, one gets the sense that the financial crisis remains a significant threat. There is another Fed speech today from the Philly Fed President, but that speech might be overshadowed by the US retail sales report scheduled for simultaneous release. In fact, with retail sales largely expected to easily be down by more than 1% this morning, one should expect some classic fundamental support for prices early in the trading session. While there will be a Treasury department update on the TARP program later in the trading session today, one should expect the bulls to hold the advantage for the early part of the trading action. However, the bulls control might not be definitive (unless the retail sales readings are worse than expected) as some Asian equity markets managed to rise overnight. Without the fear of supply we suspect that March Bonds would have already reached the next chart resistance point of 135-27, but apparently the market remains a bit sluggish. Close-in critical support seems to sit at 134-14 in March bonds, with similar technical chart support in March Notes seen at 125-24. In the short term, that 135-27 resistance level could be a really significant pivot point, as a rise above that level might be necessary to discount the view that the December and January action in the Bond market has forged a head and shoulders top formation on the charts. In the near term, we have to think that the majority of the scheduled news today is going to further the bull case but given the action this week, it is clear that the market is set to burn a lot of fundamental fuel (meaning weak numbers) to forge minimal gains. Fortunately for the bull camp, the prospects of an ongoing chain of weak US data remain high.
