Gilt Futures May Decline to 10-Month Low: Technical Analysis

Gilt futures may decline to the lowest level in 10 months after dropping below so-called support, UBS AG said, citing trading patterns.

The 10-year contract broke through 115.75 yesterday, the low set on Jan. 4, opening the way for a decline to another area of support around 111.77, said Richard Adcock, a technical strategist in London.

“Fresh selling pressure developed in gilts yesterday to extend the rejection from the recent highs, seeing a break but no close below the Jan. 4 low of 115.75, which was the immediate support focus,” Adcock wrote today in a note to clients. With “the ongoing bearish trend and momentum falling, we anticipate this level giving way on a closing basis soon, confirming the risk of further downside.”

The futures contract expiring in March fell 0.2 percent to 116.12 at 4:03 p.m. in London after dropping to 115.61 yesterday, according to data compiled by Bloomberg. The last time it traded below 111.77 was on March 21.

The moving average convergence/divergence pattern, or MACD, which tracks the difference between a shorter- and longer-term moving average, is suggesting further declines as it remains below zero, Adcock wrote. The MACD was minus 0.4 today.

Investors should place a bet the March contract will extend losses, starting at 116.60 and targeting 111.80, with an automatic instruction to exit the trade if the price rises to 116.80, Adcock wrote.

Support refers to an area on a price graph where technical analysts predict buy orders will be clustered.

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

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