Tuesday, August 7, 2012

New Market Profile Trade Setup - bonds

Looking at 10 year futures (ZN....TY on bloomberg)

So, global stock markets floated up on low volume today, and global bond markets floated down in turn, also on low volume.  Tomorrow is the new 10yr auction, followed on Thursday by the new 30yr auction.  Today's 3yr auction came at a tail below the lowest print in the market today, which indicates demand for US treasuries is NOT of the "aahh...i need to buy'em...at any price....just buy'em!!"  mentality.  This is not to say anything about the quality of US treasuries as an asset class, or anything else on a long term basis....just that market participants did not bid the offered side to buy paper from the treasury.  Just the opposite, they bid below the bid side...and they got filled.  Rarely happens this nicely...call it a summer gift to the dealer community.  In any case, with the demand for paper established as "not insanely bullish," we are now looking to find a signal within market profile that allows us to trade UST.  

The bond downtrade occurred on low volume today.  So either the market will return to the previous mode (134-01 in ZN) or the market will spend enough time in the current price zone (133-18) and the market will establish a new center of value (at the moment...that would be 133-18, but we need another few hours of sideways activity at this level to validate).  If the market spends enough time at 133-18 to establish it as the new center of value, then the trade idea of buying ZN @ 133-23 expecting the market to return to the previous mode @ 134-01 becomes invalidated.  If 134-01 was truly the center of value, then we would have returned there by now, so for practical purposes, we have already invalidated it.  (technically, the model will wait for a new center of value to materialize, but we can use our market intuition to technically invalidate the idea). 

Markets tend to give back some of their movement on days like today (days where the market moves as though it was a trend, but there was very little volume to validate the move)   For this reason, we expect the market to test the top of the new value range at some point in the next 24 hours.  Because there is a 10yr auction tomorrow, and today's 3yr auction was poo poo'ed, we would like to get an opportunity to sell the top of the new value range (after it is established)

At the moment, assuming a stable market thru the illiquid Tokyo hours, I will try to sell ZN at 133-22 (or perhaps the equivalent in 30yr bonds if they are attractive on the curve).  These opportunities often occur between 2-4AM NY time....but we will just have to wait and see.  I'll update later if/when i do a trade.

Good luck trading...govttrader

No comments:

Post a Comment