Tuesday, August 28, 2012

Playbook - get flat here - top of micro bell curve - continue to buy dips

Even with 5yr and 7yr supply coming over the next 2 days, the Fed's POMO buying schedule for the remainder of the week, combined with month-end buying on Thursday and Friday, and a light corporate issuance calendar should overcome the 5yr and 7yr auction selling pressure, which should already be priced in.

I still want to trade from the long side, and i don't expect much volatility for the remainder of the week, but there should still be opportunities to find the daily mode, gauge the volatility, buy the bottom of the bell curve, and then get flat when the market trades above the center of value.

This exact pattern has already occurred today, so getting flat here at 133-31 makes sense, with an aim to repeat this pattern between now and tomorrow.

This long treasury bias for the week can be seen in the stocks vs bonds correlation.

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