Bonds: battle at resistance

Note the well defined RSI divergence since last week (shown below). I mentioned in the previous post that bonds were at resistance, but after a sharp sell-off, bonds rallied through one more box to reach a more long-term resistance level (also the center of the huge doji formed on 9/18 when Bernanke cut rates). Today's negative housing data helped the bond rally, reminding people that the worst in the housing market is far from over (DUH!). Although today's housing data was worse than the market's forecast, I don't think we will see spillover effects in the broader economy until end of this year or next year; it takes time to cut back on spending and layoff employees. Looking back to last week's economic data releases, jobless claims dropped, GDP remained unchanged, and ISM also remained unchanged. Therefore, this week's ISM non-manufacturing, jobless claims, and employment data are most likely to remain unchanged or even beat expectations. Short bonds.

[Bond futures: one-month chart]