UPDATE - US Treasuries (T-note and 30-yr)

First the charts.... I wanted to post this yesterday, hence the 1-day old chart (no big deal really, the t-note and 30-yr futures contracts each essentially finished unchanged today and all the technical levels and patterns shown below still hold true after todays close)

30-yr bond weekly chart going back to 2002 (US1 continuous contract for Bloomberg)

10 yr T-note weekly chart going back to 2002

10-yr T-note Daily chart from 2005-2006....

And the close up of the 10yr T-note front-month contract only...

Now the quick and dirty technical analysis. Just looking at the last daily chart that is marked up with trendlines:

1) The same double chart that I discussed two posts ago is still intact, even after the strong rally on Tuesday (No surprise here that as strong as this rally was, it didn't breach the first high). I guess this was the test of the old (local) high and now officially makes it a double-top.

2) Also, notice how this second-top was formed from a short-term *megaphone" pattern (I drew in the light blue lines to illustrate). This is like a 180-degree horizontal flip of a *pennant* pattern. One big thing though, while a pennant pattern typically predicts a continuation of the trend in which the pennant was formed, a megaphone is often very predictive of a trend REVERSAL. Since this megaphone is occurring while aligning itself with a double-top, it makes me that much more confident in the short trade I am recommending here.

3) I also drew in a green line that has contained the most recent rally. This is what I'm going to use for my stop-loss placement. Yes, I know these are bond futures and I know each tick is alot of money-So just trade a couple contracts-Do not try and be some hot shot like Brian Hunter of the Amaranth hedge fund that just blew up because of his over allocation to natural gas! continuing this green trendline cross almost precisely 108'00, therefore I would put my stop loss a couple ticks beyond this so as to not get stopped out of the trade by those pit traders who often hunt for stop-loss orders sitting in the book because people put their stops too close to support and resistance. I like to keep looser stops, and because of this additional dollars at risk by using looser stops, I just trade smaller size.

4) FUNDAMENTAL REASON: Wow, dont see too much fundie analysis from me on this sight, but personally I don't see 10yr or 30yr rates going back to 4.5% before going to 5.25%. Considering they are each around 4.75% right now, my risk is 25 basis points down risk versus 50 basis points upside reward. 2 to 1 risk reward isn't spectacular, but its better than a sharp stick in the eye. Plus, with the inflation picture still around (granted it IS less that it was a few months ago, but the Fed is still insistent on popping the housing bubble and concerned with energy, and other implications associated with the recent commodity bull market of the past 2 years.)

5) I will consider adding to my short on any additional rally in these bonds that approaches the green trendline.

Position disclosure: Short T-notes and T-bonds via the Rydex 200% inverse mutual fund (symbol RYJUX)