Wednesday, October 11, 2006

 

Time to sell the Ten Year Notes...

I feel a little sheepish about writing this post. The truth is I started it last week, 4th or 5th of October, but I had problems converting the graph into a format that I could post and then I got sick. Maybe John can back me up on this since it was saved on blogger. So here it is and the reason I was going to post it was to highlight something I had picked up from Barron's. One of my favorite indicators is very bearish on ten year notes. It is the Committment of Traders (COT) figures which breaks down futures positions based on who holds them. There are three categories: Commercials, Large Traders, and Small Traders. The last two are self explanatory. Commercials are large institutions which use futures to hedge. Since the futures markets are always equally balanced between the three categories you can use this information to determine when a particular futures market is more likely to move in a certain direction. How? Usually, the Commercials are right about the market and when they take a big position short the market, which is the case right now, it doesn't pay to be long. It is not a great timing tool. I use it with other indicators. What COT does when it is overwhelming signalling down is tell you that when the market starts to move down it will be fast, big move.

I was also going to give a little tutorial on trendlines and how to use them to find support and resistance but I am going to wait on that. Frankly, I was going to delete this post because it looks like prognosticating with the benefit of knowing what will happen but Matt sent me an email containing a letter analysizing the bond market and it mentioned the COT numbers for the ten year note. As of this moment, all interest rate products are trading much lower after the release of the September 20th Federal Open Market Committee minutes. I don't know what they said but the markets hate it. Stocks, also. Also, the first support level comes in at 106.16. Tomorrow I will tell you who will win the Bears vs. Bills.

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