Bund futures outlook

Clive Lambert of FuturesTechs gives his in-depth short and longer-term outlook for bund futures for 2014: Bunds have been going sideways for over 6 months now, as you can see from the weekly chart below. The interesting thing  about this chart is how it looks like a potential head and shoulders. I use the word potential there as it’s a common mistake to call these things too early, and that’s something I always try to warn against. Clearly the ECB have signalled no rate rises in the near future so this sideways “chop” at the highs could continue for a fair while. This chart makes it pretty easy to deal with in this respect though, as support is clear at 136.20 (Incidentally I have always favoured using a continuation setting that equalises the roll-overs for bond markets, and the chart I’m showing justifies this decision. It is for the March ’14 contract and the prices would therefore change at the next roll).

The key support level on the chart with respect to the potential for a head and shoulders is 136.20. This is the horizontal “neckline” that joins the lows from September 2012 and September 2013. Maybe this will finally break in September 2014. The chart also shows clear resistance at 142.28, either side of the 145.08 all time high from April of last year.

Lastly, I would point out the drop in volume over the life of this chart, and the fact that there have only been one or two weeks in the last 6 months that have seen the average weekly volume exceeding the 20 week moving average (the green line overlaying the volume histogram).

Bund1

Now let’s move to a lower timeframe to try and add some colour with respect to the here and now. Our analysis at the start of the year highlighted the fact that we’d bounced from a key 61.8% retracement level over the Christmas break, 138.68 being the level in question. As you can see from our chart this was also a low/bounce back in October. All very neat and tidy. From here I always had a worry about the 38.2% level at 140.00, a mark that was finally cleared on the recent US Jobs numbers. This week we have seen a move through downtrend resistance, and now the bulls look good to have another go at the 142.21-28 level mentioned above. If this is exceeded an assault on 1450.08 would be the most likely outcome.

In the short term I am referencing 140.87 as a level to use to maintain a fully bullish skew. A break below here and 140.38 would force a rethink and suggest we’ve once again struggled in the face of resistance in the 142s.

Bund2

Our daily analysis is generally a little shorter in timeframe to this piece, and we utilise Composite Profile charts to see where the volume has gone through as we find that volume attracts price and that (conversely) markets quite often spend very little time at prices where very little volume has gone through previously. Interestingly this chart throws up similar levels to our work from the candlestick charts, in particular the “Low Volume Node” below at 140.90. Below is an example of this sort of chart. As I write this shows an unbalanced market that is moving higher searching for sellers..and not finding them for now!

Bund3