Article / 20 September 2017 at 12:00 GMT

Gilt futures teeter on brink of big sell signal

Technical Analyst / FuturesTechs
United Kingdom
  • US T-note futures have posted eight red candles in a row, could be due for an upturn
  • Bund futures are the least bearish of the three markets considered here
  • Long gilt future is approaching a big support level at 123.71
  • If that breaks, a "double top" sell signal is triggered, pointing below 120.00
UK financial graph, flag and pound notes
 Gilt futures could soon trigger a big sell signal on the charts. Image: Shutterstock

By Clive Lambert

We've seen some decent moves in fixed-income markets recently, so let's take a look at a few charts ahead of today's Federal Open Market Committee meeting.

T-note futures, the benchmark for US bond markets, have been sold off in recent weeks since topping out at the upper side of a rising channel on September 8. Within a few days, the futures had broken the bottom line of this channel, and they have set a weaker tone since, posting eight red candles in a row, which suggests we will see some green soon, according to our usually reliable "rule of nine".  We would be watching the 126.18-22 area for signs of sellers returning on any rallies now, expecting this current bout of weakness to extend to 125.08 at least.

10-year US T-note futures - daily
T-Notes Daily

Source: CQG Inc
10-year Bund futures have been retracing the gains seen through July and August in recent weeks, and 161.15 is the 38.2% retracement of this move. They have hit this level in recent days and the ship has steadied, but if they can't retake 161.38-53, we can look for further downside, targeting 160.44 and 159.73 next. But this is the least bearish of the three markets I'm looking at here.

Bund futures - daily
Bund Daily
Source: CQG Inc

Which brings me to the chart that has some real downside threat about it: gilts in the UK.

Below is a daily bar chart for the gilt future. As you can see, it is approaching a really big support level at 123.71. If that breaks, a "double top" sell signal is triggered, and the measured move target is somewhere below 120.00.

The bulls' current task is to retake resistance at 124.68, but yesterday we saw a rally to 124.65 where the sellers returned to keep the bear story "front and centre".

Long gilt future
Gilt Futures Daily
Source: CQG Inc

— Edited by John Acher

Clive Lambert is chief technical analyst at FuturesTechs

ChristianK ChristianK
Hi Clive. The current level is hovering around your sell signal. Are you side on the sideline and waiting? Cheers
Clive Lambert - FuturesTechs Clive Lambert - FuturesTechs
This morning's price action so far (we're only 45 minutes in) has been pretty compelling in favour of the bear story for Gilts...
Clive Lambert - FuturesTechs Clive Lambert - FuturesTechs
123.81 was Wednesday's low. We gapped lower yesterday and this stayed above all day yesterday, but we were called higher this morning and could/should have opened above here. We didn't, and the bears should be very happy about this....
ChristianK ChristianK
So still waiting on the sideline - ?
Clive Lambert - FuturesTechs Clive Lambert - FuturesTechs
"Back from the brink" for now on this one. We could now se a recovery to 124.65-68 which looks like a big area.. Here is my report to clients from this morning.


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