- New Science in old markets -

Energy and bonds

Energy markets have been stuck in trading ranges for almost a year and in particularly tight ranges for the last two months. There have been compression signals during this most recent tight range but no break into a trend. Now we may be seeing the first signs from Heating Oil, as we have compressions that have broken down and are currently being re-tested. This is usually a good opportunity to sell so we would do so here. Start with Heating Oil and see if we get more signals to sell the others.

Crude & HO comps

Bonds are also stuck in ranges but we are getting conflicting signals from different countries. This is not surprising as our methods depend on the unfettered flow of bids and offers from disinterested participants in a free market. Bonds have been heavily 'managed' for several years and manipulated upward in price, so our methods have not worked too well. Knowing this we have avoided making many forecasts until the situation becomes less 'managed'. That moment may have arrived in the US.

There have been compressions in 30-year bonds and 10-year notes and in their yields. These are all at a daily scale, the most recent weekly signal being an old top extension in the yield after the first rise into November last year:
30 year yield top ext summ

Enough time has now passed for that signal to have expired, so yields can rise again, if warranted. Meanwhile we have been seeing daily-scale compressions in the 30-year and 10-year yields and prices. We will switch to prices to show these next signals:

10 yr & 30 yr comps brking

As written in the charts, these compressions may now be breaking downward so we are preparing to sell short. We are not yet executing the trade because prices are at the bottom of a well-defined range. It is foolhardy to sell here but less so if prices fall a bit. This requires a strong stomach and patience. We are poised but waiting.

The situation is different in Europe as we will write soon.