The Treasury Bonds have been in a downtrend since breaking down from their consolidation range after making its high on April 3, 2015. This decline has taken price to the levels the March contract was at just before June became the lead contract, closing the gap created on the continuous chart by the switch to June from the March contract. After closing the gap (the September contract), price rebounded and is currently attempting to trade above the 21 day moving average. A close above the average could lead to a test of the 50 day moving average, which has crossed below the 100 day moving average. This is bearish for bonds and a failure from here could send the Bonds back to the 200 day moving average and a possible breakdown to the February lows down at 143 25/32. A failure from the 21 day moving average could also lead to a test of the 200 day moving average and the February low.
I suggest buying ratio option spreads to prepare for either scenario. Buying an August Call 1 by 2 ratio spread and an August Put 1 by 2 ratio spread is how I would like to trade the potential break outs. Let’s look at the 153 – 155 call ratio spread and the 149 – 147 put ratio spread to strangle this market.
