Wednesday, August 8, 2012

Position going home??

So the final question for today is, go home long ZN (10yr futures), or go home flat.

 You'll notice that i didn't mention going home short as an option.  Sure, the 10yr auction was a little messy, and we are going out a tick or 2 below the auction stop.  But if we look at Market Profile, the center of value is still well above current market values.  While i'm normally not one to trade off seasonals or other historical type event trades, I am well aware that 10yr and 30yr bond auctions tend to be profitable to purchase within 24 to 48 hours, especially after a concession.  So, getting to buy the bond market below the auction stop, after a decent selloff / cheapening auction concession....this is not such a bad idea.  Not to mention getting to buy ZN 8 ticks below the center of the days value zone...this is a better than 50% probability trade.

Of course, I want to get a chance to sell the top of the bell curve sometime overnight so i can set a short for tomorrow's 30yr bond auction.  However, we will need to wait..and wait for what you might ask?

As the market is not in a trending mode, it is therefore tethered to a mode (center of value).   The question we must answer is...what is the mode?  Coming into today, that mode in ZN was 133-20+...and it worked very well overnight/early morning as the market coiled around it.  The market was sitting at the 133-20+ mode right into the 10yr auction.    The question we must answer now is..has the mode shifted?  That shift would have to be entirely from the 10yr auction.  Either the answer is yes, and the market will stabilize over the next 10 hours at a new mode...or the market will return to the previous mode up at 133-20+  (mkt sitting at 133-14 as i write this).  This would mean that today's auction tail was due to low volume summer doldrums, rather than some larger change in global investor sentiment.  Personally, I vote for summer doldrums (most of my flow desk buddies who run treasury desks are on vacation)

Now, if the mode (and thus global sentiment) has shifted, we won't know until 2AM NY time overnight.  Conversely, if 133-20+ is still the center of value, then that price should suck in the market sometime during the overnight session.  As the ZN market has sold off 2 full points (64 ticks) over the last 2 weeks to levels not seen since late June, my gut says to fade this auction tail induced weakness.

As the market is currently sitting at the bottom of the bell curve, going long is allowed.  If come 2AM the market has not successfully returned to the 133-20+ area, then this idea loses its appeal.  This has been more questions than I am normally accustomed to when dealing with a high probability trade, so I'm only going to trade with 1 out of 6 units.  When to go short is a whole different that will have to wait for the London open to discuss.

I'm currently flat, and will bid below the market to get long if we get a late afternoon push down to shake out the weak hands from the auction.

Update  I bought 1 unit of ZN @ 133-13

good luck trading....govttrader

1 comment:

  1. Cool! Profile based trading and probabillity of succes. I do not yet fully understand. Thanks for sharing this I will study this.

    - hve