Japanese Bond Futures to Fall on Black-Candle Pattern: Technical Analysis

Japan’s bond futures may fall, snapping a five-month rally, Mitsubishi UFJ Morgan Stanley Securities Co. said, citing trading patterns.

So-called black candlesticks on last week’s chart signal that the lead bond futures contract may drop to 141.60 in the “near term,” said Katsutoshi Inadome, a Tokyo-based fixed- income strategist at the unit of Japan’s largest banking group. Candlestick charts show information on opening and closing prices and the trend within each trading period. If the close is below the open, the candlestick is black, or bearish.

“Investors need to be cautious as bond futures turn into a bear market in the short term,” Inadome said.

Ten-year bond futures for September delivery dropped 0.37 to 142.62 at 1:20 p.m. in Tokyo. The contracts climbed to 143.14 on Aug. 25, the highest for a benchmark since June 2003, before falling to as low as 141.60 on Aug. 30.

Bond futures may also decline as “parabolic and moving average convergence/divergence indicators reversed to a sell pattern,” Inadome said.

MACD charts can indicate whether a price shift is a change in trend or a short-term deviation by comparing moving averages based on nine-, 12- and 26-day periods. Parabolic systems, which follow a bond’s price in the form of a parabolic shaped dotted line, are used by traders to track the strength of a trend.

In technical analysis, investors and analysts study charts of trading patterns and prices to forecast changes in a security, commodity, currency or index.

To contact the reporter on this story: Yumi Ikeda in Tokyo at yikeda4@bloomberg.net.