01-25-2029: March Treasury Notes: China Virus May Have Only Short-Term Impact

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Point & Figure

Internal Progrm
Third System

Historic Range

Random Chart
Calendar Spread

Level Table
Other Factors



We were surprised at the extent to which the Chinese virus epidemic has affected treasury prices. As efforts to make the problem go away are underway, it would seem a weak basis upon which to hang one's hat on a bullish stance. However, it may be a case of making the news "fit" the commodity prices, where the real underlying motivation for a bullish stance is the stock market. Notes will move opposite to equities much of the time, as they like bad news. The bad news is that the stock market is overbought and has extremely poor valuations by historical standards. Everyone is looking toward improved earnings from the tax breaks provided by Republicans to Wall Street, but these may not be as wonderful as anticipated, especially since money saved on taxes is going more into bonuses than into capital expenditures. Our technical indicators are quite mixed suggesting a "flat" market, but the edge appears to us to be to the downside.

Intermarket Analysis

We fed Treasury Notes, Treasury Bonds, and Eurodollars into a neural network to get the following result:

Parabolic Chart

March Treasury Notes:

Parabolic Chart

Nirvana Chart

March Treasury Notes:

Initial Chart

News Analysis

Bonds and notes hate good news and as the U.S. equity markets continue to flirt with all-time highs, expectations continue to be that Treasury Notes will slow and end a minimal edge they seem to have been giving to bulls. The Chinese virus is playing a role in supporting treasuries, as infections are running in higher numbers and will probabliy get woirse before containment is achieved. China is taking strong counter-measures. There is a belief that a pandemic could undermine the global economy. News flow on the virus from China will slow. The trade expects improvement in U.S. existing home sales that could shift Fed-related reports to a bearish Treasury price condition. Mortgage applications are expected to decline somewhat. Existing home sales are having a modest uptick from November.

China has taken steps to contain the spread of the deadly coronavirus that has rattled global markets. Chinese President Xi ordered an "all-out prevention and control effort" to stop the splread of teh virus. Chinese health officials said the City of Wuhkan, where the virus originated, has been placed under heavy supervision. The China Health Commission said it would start a nationwide screening for the virus that has claimed 9 lives thus far with 440 confirmed cases across Chinese provinces. Markets are concerned that the virus may spread further as hundreds of millions of Chinese prepare to travel across the country and globally for the New YIear holidays that begin this coming Friday.

The 20-year German bund yield dropped to a 2-week low recently of -0.267%, underpinning T-note prices. Bund yields fell on political turmoil in Italy, which boosted safe-haven demand for bunds, after Luigi Di Maio resigned as leader of the anti-establishehment Five Star Movement in Italy. His exit has fueled specualtion that Italy may be heading for a snap election. Markets hate uncertainty, which is good for note yields.

Recent U.S. economic data was positive for T-Note yields, as the December Chicago Fed national activityi index fell -0.676 to -0.35, weaker than expectations of -0.43 to 0.13. The FHFA house price index rose +0.2% month over month, weaker than expectations of +0.3%.

The yield curve is no longer inverted. 30-year bond yields are around 2.20% and 10-year treasury note yields are closer to 1.80%. The actual cash yield is 1.769% as of this writing.

China's efforts to rein in the spread of the deadly virus encouraged investors to flock back to higher risk yields. Experts are remembering the economic fallout from the Severe Acute Respiratory Syndrome (SARS) crisis in 2003. Fears of a global pandemic sent investors running for safety and saw stock markets tumble. A first U.S. case was detected in Washington State. Health officials said the affected invidual poses little risk to the public.

No treasury auctions are scheduled as of this writing for the near future.

Trump is doing his best to pressure the Federal Reserve to lower interest rates, claiming the GDP would be near 4% and Dow soaring if it weren't for the Fed.

Art Cashin of UBS, one of the stock market prognosticators we believe is highly informed and reliable, said that it is time to "cash in" as the market is clearlyi overbought. That would be good for treasuries. Hong Kong markets have been severely downgraded. A number of U.S. stocks including Bank of America have been downgraded on valuation.

Fed-watchers are seeing a mulffled Federal Reserve, which will probably do nothing at its next meeting, and statements coming out of meetings are likely to be somewhat delayed.

Point & Figure Chart

133.0|                                                                  R  1/21
     | IMM - Mar-20 Treasury Notes, 1/32 pts $100K Cm.=0.03  Lim.= 2.3
     |                                                       X
     |     X X                                             XOXOX
     |     XOXO                                          X XOXOXO
     |     XOXO                                          XOXO OXO
     |     XOXOX                                         XOX  OXO
     |   X X  OXOX X                                     X    OXOX X X
     |   XOX  O OXOXO                                    X    OXOXOXOXO
     |   XOX    OXOXOX                                   X    OXOXOXOXO
     |   XOX    O OXOXO                                  X    OXO OXOXO
     | X XO         OXO                                XOX    O   OXO
     |OXOX          O O            X                   XOX        OX
     |OXOX            O            XO                  XOX        O
     |OXOX            O            XO                  XO
     |OXOX            O            XO                  XO
     |O               O          XOXO                  X
     |                O          XOXO                  X
     |                O        X XOXO                  X
     |                O        XOXOXO                  X
     |                O        XOXOXOXO              XOX
     |                O        XOXO OXO              XOX
     |                O      X XO   O O              XOX
     |                O  X X XOX      O              XOX
     |                OXOXOXOXOX      O            XOXO
     |                OXOXOXOXOX      O            XOX
     |                O OXO O OX      O            XOX
     |                  OX    OX      OX           XOX
     |                  OX            OXO          XO
     |                  O             OXO          X
     |                                OXOX X       X
     |                                O OXOXO  X   X
     |                                  OXOXOXOXO  X
     |                                  O OXOXOXO  X
     |                                    OXOXO O  X
     |                                    OXO   OX X
     |                                    OX    OXOX
     |                                    O     OXO
     |                                          O
                    111111           11          111            11111

Our computer tells us a non-conventional reactive approach works best for Treasury Notes on p&f charts. Therefore the above chart is taken as giving a buy signal.

Cyclical and Seasonal Factors

We are headed toward a cyclical low and a seasonal up period.

Cyclicals Cyclicals Seasonals

Internal Program

Our best-performing internal program is "Project". It is giving a sell signal.

Internal Printout 1 Internal Printout 2

Results of "Project" for Treasury Notes (blue lines = successful trades, red, unsuccessful): (Not always in the market.)


Third System Confirmation

Our third system has triggered a buy signal. (Note, disregard the year on the chart. Our regular readers know this is not a Y2K-compliant system, but it still works.)

Third System


The point value is $1,000. Initial margin on a single contract is $1,265. Use of options is not advised.

Historic Range

Scale trade sellers are entering the market for the long term in this price range.

Historical Chart

Commitment of Traders

Commitment 1

In the chart below, the yellow line is the futures price, read on the right axis. All other colors are read on the left axis. Blue is small speculators. Red is large speculators. Green is commercials. Commercials with the best track record are getting increasingly-short.

Commitment 2

Interpretation of a Different Site Below (Their trader categories may vary from ours):

Commitment 3

Volatility / Probable Range

FB 1 FB 2

The average volatility shown below suggests that an uptrend remains intact from the last volatility low point, despite what appears to be a near-term downtrend..

Range/Volatilitiy Chart

Possible Future Prices

Random Chart

Option Recommendation

Our option trade recommendation is to Buy (1) Treasury Notes June 128.5 Put and Sell (1) Treasory Notes June 130.0 Put @ 1.00 to the sell side or greater.

o 1 o 2 o 5

o 3

o 4

Calendar Spread

Calendar spreads don't work too well on T-Notes because of the shortage of forward contract data. What Mar. - Jun. calendar spread suggests to us is that buying the near contract and selling the far one is at most times not profitable, which we think is a sign that these futures may go down in the long run. The best time to enter or leave the above spread is when it is at -0.12 or narrower selling the far as prices are falling and then buying the near, and exiting or entering when it is at 0.58 or wider bjying the far as prices are rising and then selling the near. At this time, we appear to be midway with no particular trend detected in either direction.

Level Table:

Level Table

The path of least resistance is up.

To view the chart below correctly use Microsoft Internet Explorer.

133.0|                                                                  R  1/23
 IMM - Mar-20 Treasury Notes, 1/32 pts $100K Cm.=0.03  Lim.= 2.3
122.0|-A-B-C-D-E-F-G-H-J-K-L-M-N-O-P-Q-R-S-T-U-V-W-X-Y-Z----|----|-- TPO= 0.868
                                           1 1 1 1 1 1                
       1 2 2 3 3 4 4 5 5 6 6 7 7 7 8 8 9 9 0 0 1 1 2 2 1 1           1
       2 0 2 0 2 0 2 0 2 0 1 0 1 3 1 2 1 2 1 2 0 2 0 2 0 2           2
       5 7 2 8 2 5 2 6 0 4 8 2 7 1 4 8 2 6 0 4 7 1 6 0 7 2           3

Other Factors

Multiple Chart Indicators Summary
Multiple Chart Indicators Summary

Here's an intraday chart for a previous day ( 1/25 ).

Intraday Chart

                 Risk Versus Opportunity Report

                  TYH0    March Treasury Notes

                      High Price:  131.38
                   Current Price:  129.78
                       Low Price:  128.98

                            Risk:  0.012
                     Opportunity:  0.025

                    (O/R) Ratio =  2.000

Overall Recommendation

Decision Weighting Factors
FactorsWeighted Points
Inter-Market Analysis - 1
Parabolic Chart + 1
Nirvana Chart - 1
News + 1
Point & Figure + 1
Cyclicals - 1
Seasonals + 1
Internal System 1 - 1
Internal System 2 0
Third System + 1
Historic Range - 1
Commitment of Traders - 1
Range/Volatility + 1
Level Table + 1
Other Factors + 1
Total + 2
Place 10 March Treasury Note (10-yr.) on a Buy Watch with stoploss @ -1.41 below the get-in point when recent price is represented as "129.58 (129-37/64)".