Flight to quality

Since the head-and-shoulder formation that occurred near Christmas, 10-year Treasury note futures have rocketed from below 112-00 to beyond 115-00. “People are really nervous about what’s going on in the economy and they are putting their money into bonds and notes and gold: something secure,” says Sean R. Lusk, senior broker for Manduca Trading. “We are at the beginning of a strong pullback in the Dow and the S&P, and further down the road, we could be in a recession. It’s 50/50 right now. The housing crisis is rearing its ugly head,” Lusk says.

He adds that Federal Reserve Chairman Ben Bernanke’s bias towards a looser monetary policy is likely priced into the market. Lusk expects the 10-year to challenge the 116-00 level, and after that 117-05.

“Technically it looks strong and it acts strong,” says Michael J. Hinman, senior market strategist for Lind Waldock. However, he adds that with so many variables in the markets, taking a long-term position is a little bit scary. “As long as these shallow retracements hold, and support levels hold, I’m buying the dips.” In February, he expects to see a high of 118-00, and a correction down to 114-16, and possibly to 113-16.