Clash of Opinions Could Bring Real Volatility to Prices

By Morris, John | American Banker, May 27, 1986 | Go to article overview

Clash of Opinions Could Bring Real Volatility to Prices


Morris, John, American Banker


FUTURES: Clash of Opinions Could Bring Real Volatility to Prices Q. Where are interest rates headed?

A. Up, down, or nowhere over the next few days. But wherever they go, the movement will likely be rapid.

Q. And interest rate futures?

A. Prices on interest rate futures move opposite to interest rates. If rates fall, futures prices will rally; if rates rise, futures will plunge. Either way, a growing conflict of opinions among traders promises some volatile market action.

Q. What are these conflicts?

A. While some traders profess to detect a growing a growing willingness to buy, technicians point to a picture on their price charts that suggests sharply lower prices in the near future. They can't all be right.

Q. Is that all?

A. Not quite. A situation in the cash market for Treasury bonds, created when government securities dealers misjudged the games they were playing as the Treasury sold a new flood of debt issues early in May, could underpin prices. In layman's language, it's called a "squeeze."

Q. Who's more likely to be right?

A. No one knows. Gary Dorsch, senior credit market analyst at G.H. Miller and Co., says that Treasury bond futures for delivery in June could fall to 95 from their current 96-12/32, but then bottom out and turn up again over the next couple of weeks. If they break upwards through strong overhead resistance at 97-28/32, then they have a good chance at hitting 102, he said.

Q. Anyone else agree?

A. Angelo Coglianese, head of financial futures at Clayton Brown and Associates Inc., anticipates that should they punch through resistance between 96-24/32 and 97, then June futures could rally to 98-1/2. If they fail, they'll likely remain within a volatile trading range between 93-1/2 to 96-1/2. "The tone in the market is to buy the price dips," he noted.

Q. And the technicians?

A. At McCormick Commodities Inc., vice president and chart expert Ken Shaleen pointed out that a completed head and shoulders chart pattern points to a downside objective of 89-24/32. …

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