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The trader must use disciplined trading strategies to take advantage of the situation, no matter how it should unfold. The one thing we can be reasonably sure of is that the bond market is likely to make a very significant move out of this consolidation period. If the market is unfolding in the same manner as the bull campaign into the 1986 top, which appears to be the case, we should look for opportunities to short the market at resistance as well as at the breakout below the trading range/consolidation. If the market continues higher, it will probably do so dramatically, as it exceeds a level of resistance that has been tested several times in the past four to five months. If that scenario were to unfold, we would buy a confirmed breakout of resistance or a close above the August 1 swing high. The trader will take advantage of whatever situation unfolds regardless of what he believes should unfold.

As of late December, the market had made three attempts at resistance: August 1, October 16 and November 16. The rule of four states that the fourth attempt is likely to result in a dramatic change, breakout or failure.

TIME ANALYSIS

The time analysis has indicated that the week of December 19 (12/17-18 = weekend) is an important projected turning point period (PTPP), which has a high degree of probability of change. I use a technique called Time Cycle Ratio (TCR) analysis to project turning point periods. This analysis is based on Fibonacci ratios of day counts between past turning points in the market. I count the number of days between turning points, multiply the result by a number from the Fibonacci series and add this amount to the last turning point. This period had a large cluster of important time factors, including:

December 17 = 1.618 TCR 10/19/87L-8/16/88L
December 17 = 1.5 TCR 8/1/89H-9/26/89L
December 20 = 60 trading days (TD) 9/26/89L
December 21 = 2 TCR 8/16/88L-1/27/89H
December 22 = 1.618 TCR 8/1/89H-9/26/89L
December 23 = 144 calendar days (CD) 8/1/89H
The trading strategy involves entering the market counter to the short-term trend going into the PTPP if the market is at a support or resistance level and the daily price activity indicates reversal. In short, when time, price and pattern coincide, action should be taken.

Going into the PTPP of the week of December 19, the short-term trend was clearly up. The market was making a fourth attempt at a very strong resistance zone. On December 20, price exceeded the immediate trading range high of November 16 intraday but closed below this resistance level near the low of the day, a sign of weakness. Note how often bonds approach or slightly exceed important resistance levels at final tops, yet fail to close above that resistance level. But in this case, time, price and pattern have coincided to indicate change. The trading strategy was to sell bonds on the close on December 20 at this important coincidence, with a stop and reverse just above the intraday high.