Last night I wrote a note to myself to watch the bear flag patterns in the T Bond, T Note, Gold and Silver futures. There was a good selloff in the T Bonds that came out of the flag, let’s take a look at the chart so you can see the pattern.
Below is the daily chart for June Treasury Bond futures.The daily trend is bearish; I use MACD as a trend indicator. I left MACD off this chart to focus on the price action itself, but if you want to look at it, I used the standard 12-26-9 settings.From a low on Monday it had two higher days.That’s the bear flag-at least two days with higher highs and lows-a correction against the dominant trend.I used the red arrow to point out the down trend, the green arrow to show the countertrend flag.
There are others things to notice on the chart. Monday’s selloff poked below the March 24th low at 126-24.5, but by the close of Tuesday it had regained it.Yesterday’s rally tested resistance at 127-27, a 50% retracement of the Feb 27th to March 18th rally.
This set the market up for a selloff today-a “momentum sell short day” in my parlance.I drew an arrow to momentum at the bottom of the chart, yesterday was the first day in the last five that momentum was above the zero line. This tells us that momentum is in a position where it is likely to flip to a down trend, and price should turn lower as well.
On a momentum sell short day we look to do that-sell the market short.On a momentum sell short day we expect the market to open on or near the high of the session then trend lower for the course of the session.This means we look to get short early in the session, to ride the intraday wave.If you were late for this, the rules for a bear flag entry would be to sell when yesterday’s low was broken, in this case 126-22.0.
The bear flag price objective for the selloff was Monday’s low at 126-01.5. This was hit; the market subsequently saw further selloff when it was broken. This should now be resistance, so short term traders could place stops above this point for remaining shorts. From here, downside targets could be 125-01 (the distance of the 3/18 to 3/24 decline taken from the 4/2 high) then trendline support at 124-14.
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The bear flag worked.
.gif "The Bear Flag Pattern")
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