Monday, February 2, 2015

Last Weeks GovtTrader Supply Imbalance NewsLetter

My apologies for not starting my EOD market commentary.  I had the flu for a full 2 weeks in January, and it knocked me out.  I got back into the market last week just in time for the Friday supply imbalance.  Here is the newsletter sent to subscribers on Thursday afternoon.

As you can see from this chart...the supply imbalance could not have played out any more perfect.  My position was never "tested" by the market (newsletter was sent out where you see the cross-hairs on the chart below).

My P&L on this trade was +28 ZN ticks (fully levered) in just about 24 hours.
That comes to just over +30% return on AUM in just one day.

---------- Forwarded message ----------
From: Govt Trader <>
Date: Thu, Jan 29, 2015 at 4:09 PM
Subject: GovtTrader Supply Imbalance NewsLetter

Today the UST model has triggered a supply imbalance in ZN futures.
Yesterday was a P-up, and today was a non-facilitating sell imbalance (meaning *they* tried to sell the mkt early, but the mkt came right back up in the afternoon).
This tells us that the UST mkt (specifically ZNH5) has an embedded skew to higher prices.

ZN is currently trading 130-04 while ES is @ 2014
The ZN mode today is 130-05 at the lowest.  This makes 129-22 the bottom of today's bell curve...and that *should* be the lowest ZN can trade with this embedded skew.  The most likely path for ZN should take it to above the local high @ 130-20...possibly to as high as 131-08.  Nothing is guaranteed in trading of course.

Tomorrow in the month-end trade...which should be supportive of this UST rally.

As you all saw on twitter, i bought both the 7yr auction (ZN @ 130-02), and then ZN after the auction @ 129-30 (so my avg price is long ZN @ 130-00).
My stop is the ZN local low @ 129-16...but unless ES rallies to 2062 (the top of its January bell curve) we *should* not get anywhere close to my stop level.
Remember, everything in trading is based on probabilities.  We never have 100% certainty.  Even tho i'm confident that this will play out in my favor...that is not a guarantee.

Since these embedded supply imbalances / skew are the highest probability trades, my position is larger than usual.  While there is no guarantee that we will see a short squeeze rally in ZN tomorrow (or possibly early next week), the odds are greater than 70%, and that is what i am playing for.
My target for this ZN long is 130-27 --> 131-08.  That is a large range...but short squeezes are notoriously difficult to predict, both in time and price.
If you have any questions, please feel free to reply by email.