Monday, November 5, 2012

Making sense of this volatility - MP has the clue

On Friday after NFP, the ZN market touched just barely 132-10 from 132-27.  The high mode for the past week is either 132-22 or 132-27 (depending on your bias).   If you were to use the higher mode (132-27), then the top of the weekly bell curve is now 133-12. 

The CFTC commitment of traders report lists ZN (10yr futures) net longs the highest since March 2008.  At the same time, net shorts in the ultra-long T-Bond (30yr futures) are the largest since July 2011.  So, the market is net long duration, and in a 7/30 steepener.  We can see this in the price action over the last week (the market has rallied and steepened).  The last time the market was this long in March 2008, there was a correction (selloff) that lasted over the following month down over 3 handles (this makes sense, as all those spec longs have to sell to somebody).  Given the upcoming 10yr and 30yr auctions this week, I expect these recent highs to be an opportunity to sell a pop, and use the auction concession setup to capture half of the bell curves volatility.  The POMO for this week includes one additional purchase (30yr bonds) which was carried over from October because of hurricane Sandy.  I'm hoping this induces a POMO related i can sell into it.

Remember, trading bell curves with market profile not only helps us determine our bullish or bearish also helps us determine where to buy and sell to minimize our risk.

govttrader out...

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