Reviewing the US Treasury trade

The recent short term sell off in the US 10yr Treasury market was something we predicted was likely to happen last week in our blog post. For those of you who missed it, you can review that article here.

In that post, we mentioned what the next major support levels were to watch, specifically the level at 108.26 which was the 61.8% Fib retracement line.

The chart below outlines how I was thinking about it from a trade set-up perspective. We covered off on some of the reasons why the 110.0 top was on a very good PRICE and TIME set-up. The outside reversal bar provided a good short entry on the break of 109.39 (see chart below) for a risk position of around 68-70 points, assuming the stop loss order was placed in with a small amount of distance above the 110.0 highs.

The 108.26 level was a nice place for profit taking, providing a 112 point trade return profit or 1.65x our estimated risk level. Two options were available from there. The first, was an opportunity to take all profit off the table and bank the 112 points when the market hit the 108.26 target.

A second approach could be to take half the short trade position off the table and keep the remaining half running at the original stop price. This approach ensures that 112 points have been banked on half the trade, and the remaining half stays on risk with a 68 point stop loss risk. Overall, even if the position gets stopped out, the trade still finishes in front (112 - 68 = +44 points).

The chart below summarises the stop, entry and target levels graphically.

I think we are in a very poised position on US interest rates right now, and the 110.0 level becomes critical for a break-out higher on the upside, but equally that 107.19 level is equally important on the downside. If either one of those levels get taken out, I think we get a medium term trend developing in the direction of the break - likely to last several months and possibly into the end of the year.

As always, nothing in this post should be construed as financial advice - but simply an explanation of how some of the Gann techniques can be applied to certain markets.

The financial world is currently taking a very curious look at the direction of US interest rates - as these will have massive consequences on the direction of global financial markets more generally. It is definitely a chart I have on my watchlist.

Until next time...