Treasury bond futures had a breakout setup for today- Friday was an inside, NR7 day. Normally we use the previous day high and low as the primary breakout levels however sometimes it makes sense to look for earlier entries.
In today’s Swing Trader’s Insight Morning Watch List I suggested we use the overnight high of 165-10 and low of 164-23 as breakout levels. I suggested the upside level be above Friday’s high because it had already failed to clear it once, and we could use a higher low for the downside because of the upside failure as the lower it went, the more it would squeeze out overnight longs.
When I started writing the watch list around 7 AM, bonds were trading in the low 165 area. Around 7:30 it pushed up to but was unable to clear the Friday high. This failure marked the start of the downturn.
The higher stock market open added to the pressure on bonds and around 8:45 the market pushed below the 164-23 overnight low, triggering out short sale. The initial stop loss could be placed above the recent 165-00 high.
The selloff gained momentum over the morning, as is often the case on a breakout day. The Friday low was taken out around 9:20, pushing down to the session low of 163-30. The low was tested and held for about 20 minutes, leading to a recovery rally.
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