Bond Rally Still Has Legs

Gosh, oil was up so much Monday. It was gushing. So why didn't all the oil stock groups gush too?

Last week I posed the possibility that oil might be making a head-and-shoulders top, but I tend to give breaks of trend lines a few days to recapture the line. Thus far, oil's action hasn't recaptured the line; it has once again gotten back to the underside of it. In fact, I can now draw in a small downtrend line that it has rallied to as well.

If oil recaptures that broken downtrend line, I will give it credit. Usually I will only allow for a few trading days to recapture a line but with the end of the quarter and the holiday at the end of this week, I'm going to be lenient. The line in the sand, so to speak, is around $73 on the August contract.

I also would like to revisit bonds. It's been a while since I discussed the bonds so as a reminder I suggested back in late May that we were heading toward a bond rally in which rates would come down from their lofty levels. If we look at the chart of September 10-year notes you can see that we have rallied to resistance, namely the downtrend line dating back to mid-March.

I suspect bonds will back off here or at least take a breather in this neighborhood, but I don't believe the rally in bonds is quite over yet. If we take a rough measurement of the top in the bond chart we see that the high was 124 and the low was 118. If we subtract the two levels we get 6. Then we subtract 6 from the breakdown from line A (120) and we get 114 as the downside target. Bonds got to 113, which is close enough for government work.

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At the time of publication, Meisler had no positions in any stocks mentioned, although holdings can change at any time.

Helene Meisler writes a daily technical analysis column and TheStreet.com Top Stocks. For more information, click here. Meisler trained at several Wall Street firms, including Goldman Sachs and SG Cowen, and has worked with the equity trading department at Cargill. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. She appreciates your feedback; click here to send her an email.