08.22.04 - Interest Rates Headed Higher Soon?

Never Fight the Big Boys I was doing a quick scan of my charts for the upcoming week and came across one potentially ominous piece of information. I watch the committment of traders data in some markets for confirmation of possible market reversal points. The "big boys" (commercial traders) are rarely incorrect in their market assessments – when they begin taking a large position in one direction it’s time to sit up and take notice. By nature they have deep pockets and are therefore often early in establishing their play, but ultimately they win out.

This past week’s data demonstrates that the commercials are betting that interest rates are headed higher (bond and notes lower). As laid out in the Friday 08.20.04 update, US notes and bonds up against major resistance levels. The last time that commercials were this negative on US interest rates was in late Feb and early Mar 04, roughly 2-3 weeks before Treasuries topped out and reversed with the 30-year bond dropping over 13 pts during the next 1-1/2 to 2 months. Clearly, traders need to be on alert for reversal signals. Closes below 112'16 and 110'16 basis TYU4 and USU4 would be the warning shot for longs with a close below 112 and 110 signs of weakness. Closes below 111'04 and 108'28 are required to turn the momentum lower and Friday 08.20.04 may have been a warning shot for the longs. The session closed at or near its lows on a range compression day. Monday (08.23.04) is setup for a range expansion.