Chicagostock Trading

The bond market showed signs of reliance late last week as the SP500 printed new highs early Friday, yet bonds stabilized to create a base from those lows printed on Thursday at 14024.  Friday's action saw lows of 14105, testing and holding the range from Thursday's lows, and in turn building a right shoulder for an inverted head/shoulder pattern as aggressive buyers were using this as an entry with stops below Thursday's lows.  The move on Friday squeezing through the neckline of 14121 confirmed the inverted head/shoulder and rewarded buyers down to 14105. This range of 14121-14024 gave an upside target of 14223 to complete the expansion of the inverted head/shoulder. As the market held above this neckline on Friday, it consolidated after taking out the 14129 high made on NFP day and in turn this consolidation created a bull flag as seen in the hourly chart, also projecting 14223.  

All of this technical analysis confirmed Sunday night as the bond market opened higher at 14210 and squeezed to complete the target of 14223. The catalyst for this, 'news' out of Cyprus putting a tax on bank deposits.  Price action always precedes news as one cannot predict when news comes out, however they can use price action as the roadmap to guide where they can defend levels and where the market can go.  

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Since the Euro's double bottom in January, with lows of 12627 on the 13th and 12628 on the 17th, the market trapped shorts who were looking for the breakdown and used as fuel to squeeze above 12884 being the highs from January 13.  This squeeze led to reversing the downside momentum and short covering as the market rallied through the year highs of 13085 and up to its next major resistance being 13237 from December 13 where this down leg started.  After hitting this resistance of 13237 and 6 handle move off the lows, the Euro went into consolidation period, building a flag for the move from 126-132.  This flag built right above the year highs of 13020-13085, being the new level of support as the year highs was conquered.  

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Since the Euro reversed its downward trend mid January by climbing above 12900 and through the downward trendline, the market has gone into a short squeeze which led the market to take out the year highs at 13085 and bump against resistance from December 13th at 13237.

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