Chicagostock Trading

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Since failing the test of the February levels late March, the Euro has fallen to retest its double bottom of 12975-13004.  This neckline is being threatened and the Euro is fighting very hard to hold with its back against this fence.  Upside resistance is met within 13195-13391 as the level to move through in order to break out of this downside pressure and move to take out the February highs to complete its upside target of 138.  Failure to do so and the neckline is in jeopordy of being broken for stops and to attract shorts where the January level will be retested with 12890 as support off that low of 12627, where a false breakdown can be seen to trap these sellers.  Ultimately the January lows need to be broken for the Euro to be back in bear mode, until then the market is in short covering mode and should continue to look into retracing to 138 where it broke down from 142.

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The US dollar most recently has been testing its failed highs from March after the pullback found support at the February lows.  This test builds a right shoulder on a failure to take out this high, giving room to break the neckline of 7812-7880.  With that the 7800 level will have a better chance of being taken out as the market has tested and failed upside levels.  Downside target comes in to take out the October lows.  Currently fighting minor support at 79700.  Buyers need to squeeze March highs to fail this head/shoulder attempt and target the year highs in order to regain control.

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1- Make a high

2- Small shake out attract early sellers

3- Make a higher high to squeeze out early sellers

4- Break of rising trendline squeezing out longs

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During the last FOMC conference on January 25th, we highlighted Chairman Bernanke's comments about how the inflation rate only hurts one if they "do their life savings in a mattress"  

Today, Congressman Dr. Ron Paul questioned Chairman Bernanke on this comment:

4:50- "In January at one of your press conferences you said that, you sort of poked a little bit of fun at people to downplay the 2 % inflation rate. But if you say it's 2, I say its 9, lets compromise for the sake of argument its 5%.  You said that it doesn't hurt you unless you're one of those people who stick their money in a mattress, but where are you going to put it? Are you going to put it in a CD and not make any money at all?"

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Notice a pattern above?

Over the past 2 months we have seen the 30 year bond attempt to breakout only to fail.  Thus far, we have seen 3 setups that attempted this.  The first one was during January 13-18, followed by January 30-February 2nd, and most recently February 27-29.  All these attempts have couple things in common, one they were all led by short squeezes as the market tried breaking down but was not ready to, and two- as they tested the highs and tried to break out, they failed and created a 3 point consolidation that was followed by a selling.  Most recently, once again the 30 year tried to breakout as short covering led the market into testing its 14400 level, only to once again fail and create a head/shoulders pattern with highs of 14403/14411/14404.  This thus far has once again repeated the pattern and broken down as the June contract has taken over for the front month.  Lower highs, and higher lows are now being created and this market is getting tighter.

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February 6, 2012, Prince Alwalweed of Saudi Arabia with Maria Bartiromo of CNBC - "Saudi Arabia went public by saying we will not let the price of oil go more then $100. Which means we can use our leverage, our excess capacity to be sure to pump more if needed, to be sure to have it not go over $100, so we will not impact and affect the consumer countries while they're getting out of the economy of the recession slowly but surely, hopefully."

Source: CNBC

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As "X" marked the spot in the 30 year bond market on January 31st, the market had squeezed into highs of 14515 only to fail the "X" spot and turn lower.  The turn fell to retest the January lows of 14021 offering oppurtunity for smart shorts to take some profits off the table as the market fell into this low and held by 2 ticks with lows of 14023.  With this low failing to take out the previous month's lows, the market went into a short squeeze as it caught bears looking for the January lows to break trapped and forcing to cover.  This squeeze led the market right back to where it broke down from on January 31st being the 14328 old support now acting as new resistance off this high of 14515.  If this bond market bull is indeed strong then it will work through this range of 14328-14515 to squeeze out sellers and gain back momentum.  On the other hand this resistance offers sellers a level to defend these highs on this retracement and look for the double bottom of 14021/23 to break, squeezing out longs and targeting the December 13924 lows.  There is a lot of complacency amongst bond bulls and complacency is always a recipe to offer the most pain.  In this case the most pain is seen on a break of 14021.