The Treasury market starts the new week trading slightly lower on the charts but facing outside market conditions that could result in a downside pulse in prices. With the Euro zone Greece debt situation seemingly moving toward some form of temporary resolution that in turn has created an up beat feeling which in turn has resulted in slightly higher equities, a lower US Dollar and a wave of physical commodity market buying. It will still take some form of improved US economic reading to definitively put Treasury prices under noted pressure. In fact, with only a US Federal Budget Deficit reading due out today, one shouldn’t expect that much guidance on the pace of the US economy, but that reading could still add a bit of pressure to Treasury prices as the Budget deficit will more than likely point to even more supply ahead. With the US economic report slate this week starting out very slow, trading ranges might be slightly narrowed but perhaps the bias might be tilted downward. After the close today, the market will see Alcoa earnings, with Intel earnings due out on Tuesday and that could serve to turn up the pressure on bonds and notes. We will assume that the path of least resistance is pointing downward today and that a logical downside target in June bonds is 115-00, with a similar target seen down at 115-16 in June Notes. The Commitments of Traders Futures and Options report as of April 6th for U.S. Treasury Bonds showed Non-Commercial traders were net short 115,594 contracts, a decrease of 5,190 contracts.

The Commercial traders were net long 151,667 contracts, an increase of 5,167 contracts. The Non-reportable traders were net short 36,074 contracts, an increase of -10,358 contracts. Non-Commercial and Non-reportable combined traders held a net short position of 151,668 contracts. This represents an increase of 5,168 contracts in the net short position held by these traders. It should be noted that the Non-Commercial Net Short position in Bonds hit a new record level at 256,697 contracts. The Treasury 10 Year Notes showed that Non-Commercial and Non-reportable combined traders held a net short position of 344,794 contracts. This represents an increase of 50,182 contracts in the net short position held by these traders. Therefore, the Treasury market is trending toward an overbought condition, but that is to be expected in the midst of an overall entrenched down trend pattern.

However, we doubt that the technical condition will do anything but slow the overall progress on the downside tilt. Traders should look to sell rallies of 1/2 to 3/4 of a point, looking for an eventual return to the December 2009 lows below 114-00 in both June bonds and June Notes.

This content originated from - The Hightower Report.