Time to bond? Signs of life in Treasuries, and what's next, as they're testing symmetry and Fibonacci targets

Did bonds make their low for now? Let's look at their charts with indicators as well as compare against our symmetry targets for TLT at $86.28, UST at $116.88, and USB at 115.79, which I've discussed here including in these posts: TLT digging down into interesting test of how low it can go with US bonds' weakness today (5/26/09) and Bonds on the run - when will their low be done? Some views (5/27/09). The recent lows were $89.94 in TLT (over $3 above symmetry), $117.02 in UST (about $1 above symmetry), and $115.47 in USB (poked symmetry this morning, closed at $116.25). So there's reason to think that bonds can be finishing a low! Is this it, then? Well, first we've got to acknowledge that only USB made it, so we cannot be certain that UST (and TLT) have finished. But UST came close, and TLT is supposed to track the long bonds like USB .... plus TLT's volume has picked up after having poked a low 5 days ago. While USB today (and UST yesterday) continued lower, someone's been buying TLT and moving it a little higher.

The indicators are looking more positive, especially the faster-moving StochRSI, while the others are only starting to warm up. Some speculators may be starting to edge in, but we must also respect the fact that a reversal pattern has not shown up yet. (Any reversal pattern comprising higher highs and higher lows, plus volume should kick in.) Speculators who do come in would likely place stops at the recent lows. After all, there's another risk - the risk that a symmetry target isn't the right level for this cycle low. (We've seen a recent example in the dollar, which moved under its symmetry target - may have seen its low on a different basis, but that's still shaken up anyone who tried going in on the symmetry level before waiting for a confirmation from a trend reversal pattern.)

If bonds don't get their footing from lows around their symmetry targets, then obviously that would be much more bearish for bond prices in the near term. At this point it looks to me like a symmetrical, C=A type pullback for this decline would be "fitting" for bonds. So if bonds do get support here, what's the upside potential? Personally, I would assign a small likelihood to the idea that Treasury bonds would go into a new bull market to achieve new highs in prices and new lows in rates. It seems much more likely that bonds would have a bear-market rally of their own. In that case, a reasonable target would be a Fibonacci retracement of approximately 38%, 50% (my favorite), or 62% back to their late 2008 highs. A rally like that would have them testing the consolidation range levels from earlier this year.

Speaking of Fibonacci levels, I checked to see what would be the 1.382 extension of the A wave (that's what I'm calling the drop from late 2008 to early 2009) in UST, and I found that level is $116.62 - very close to the $116.88 symmetry of C=A. So if UST drops a bit more to test that, this can lend extra support for that level. The comparable 1.382 Fibonacci extension level for USB is at 117.65, so that's been met and USB closed two cents above it at $117.67 today.

There are other measurements we can calculate for bonds if they fail to establish support in this area. So, once again - it might be enough for bond speculators to start edging in, but with an eye to looking for confirmation to kick in, such as buying volumes, improvement in MACD and other indicators, and a pattern of higher highs and higher lows. More conservative investors will want to wait for that kind of confirmation before wading in.

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