March T-Bond Futures Reach Key Retracement Zone and Decision Point

Although the major U.S. stock indices have been firming for several sessions, the price action by the March U.S. Treasury Bond futures suggests the selling pressure in the equities markets may not be over and that they may be setting up for a resumption of the downtrend.

The main trend is up according to the daily swing chart. A trade through 170’26 will signal a resumption of the uptrend, while a move through 163’30 will change the main trend to down.

The main range is 152’24 to 170’26. Its retracement zone is at 161’25 to 159’21 is the primary downside target.

The short-term range is 170’26 to 163’30. Its retracement zone at 167’12 to 168’06 is the primary upside target. The lower or 50% level of this range at 167’12 is currently being tested.

Trader reaction to the retracement zone at 167’12 to 168’06 is likely to determine the near-term trend of the market. Watch for increased volume and volatility on a test of this zone.

Aggressive short-sellers are going to try to form a potentially bearish secondary lower top inside this zone. Trend traders are going to try to take out the sellers in an effort to attack the main top at 170’26.

The catalysts behind today’s rally was the break in the U.S. equity indices and the weaker-than-expected U.S. consumer confidence data. According to The Conference Board, consumer confidence dropped from 97.8 in January to 92.2 in February. Traders were expecting a reading of 97.4.

With the market in a position to resume the test of the retracement zone, investors should pay close attention to the other major U.S. reports this week. They should help generate a reaction. These include Flash Services PMI and New Home Sales on Wednesday and Durable Goods on Thursday. Friday is the most important day with reports due on GDP, Personal Spending and Personal Income.

Several Fed members will deliver key speeches this week also. Traders will be looking for clues as to the timing and pace of any rate hikes in 2016. FOMC Member Fischer speaks on Tuesday at 8:30 p.m. ET. FOMC Member Bullard on Wednesday at 7:00 p.m. ET. The week ends with speeches by FOMC Member Powell and FOMC Member Brainard on Friday.

Based on the current price action, investors should treat the 50% level at 167’12 as a pivot. A sustained move over 167’12 will indicate the presence of buyers. A move through the Fibonacci level at 168’03 will indicate the buying is getting stronger. The inability to overcome 167’12 will signal the presence of sellers. This will give the market a downside bias.