Falling knife

thumb_2010-12-19-tos_chartsThe falling knife award of Nov/Dec does not belong to the Euro (although a close second and the month is not over yet), but bonds and treasuries. Anyone that tried to pick a bottom during the drop got their head handed on a platter. Where do we look for support? The ZN chart (ten year note, see chart) is pretty clear. The 200 weekly exponential moving average found solid buying throughout 2009 and during the April equity correction of this year. We just bounced slightly above that moving average, which now stands at 117'212 and closed the week above 38.2% 12 months (118'267). Note resistance at 120'232, 50% of that same time frame. In terms of interest rates on the ten year, pulling up the TNX chart gives you the 200 weekly at 3.55% (chart 2), which was precise resistance last week. 3.25%, (61.8% 09/10) is support. There is no such thing as random numbers in the markets. thumb_2010-12-19-tos_charts2

Equities are quite overbought and over-loved, which could lead to more short covering in bonds, but the 2009 lows immediately come into play if we lose 117. However, that drop in TNX from 3.55% could suggest a period of consolidation ahead of us, a trading range between roughly 3.2 and 3.55%. A breach either way should get follow-through, so mind your step.