Bond rally nearing an end?

Honda:

You sort of need a "Bias" for those days you miss the top or bottom by 8 tics and need to average in to a bigger situation.

Otherwise you will sink the ship.
This gig is not for the undercapitalized.

I am always sanding the wood against the grain!


Good Luck
 
Quote from luckyhonda:

Thanks johnpinochet.

What about days like the last nonfarm day where the price spiked up big and never retraced back. Do you skip those days?

Luc
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Luc:

Wouldn't it be great to skip days you aren't very good at? ;-)

Bottom line, my setup mentioned on Wednesday, and applied both Wed and Thur, is really a morning 0730 report type setup. I have other setups for other types of day.

I establish price projections in a ladder fashion for both highs and lows. I weight each level differently based on price activity at each level over the past several days. So for example, let's take Thursday. Let's say I had a price level at 107 10, followed by another one at 107 21, and another one at 108 13. Let's say for whatever reason the 0730 report news was great for bonds and prices spiked up from 107 03 to 107 25. Ideally, I would love to see prices come back down to close to 107 10. Knowing that the report was so positive, and seeing the price behaviour with my own eyes, I would conclude that I should take an initial buy anywhere between 107 21 and 107 25. If price action continued to confirm strength then I would add to my position, not caring about price up through 107 28.

I would look to exit at the 108 00 level due to reasons already mentioned. I might keep some contracts for a run to the 108 13 level, although I would probably not trade anymore that day.

Note that I have never taken a position during a spike. My after 0730 report trades occur from 0735 to 0745. In addition, the above scenario I painted isn't exactly the safest way of playing such a day. Finally, the safest way of playing such a day is to put in a buy near significant previous 15 - 60 minute highs and walk away knowing that you might not get filled. More importantly, not caring if you get filled because if prices don't come down, it wasn't your kind of day anyway!

There are different ways to work a day like you mentioned. I think one of the best (among several) realizations I made while learning to trade is that I can't shoot for the 16 - 32 tick moves while day trading. I would rather take a quick 6 - 8 ticks, and maybe hold 1 contract with a tight stop for further movement.
 
Quote from johnpinochet:

The fact of the matter is that you will really never know for sure which way bonds will go after a report.
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Well, sometimes, though not often, you can be fairly sure. If the sentiment is extreme, the mkt can move only one way, even if the data would point the other way.

For example, this time there was a huge inflation scare in stocks (but not in bonds). After the big bad CPI report was out, the stock market had a huge relief rally, although it took one day of heavy churning before the reaction would appear. Had the CPI been "good", I believe the rally would have kicked in immediately. My mistake was to not understand that bonds would react by a selling off. Seems so obvious now afterwards..

Your strategy makes a lot of sense. Thanks for sharing it.
 
Hey mcurto…

Are you seeing many traders putting on steepeners? I would think they are now somewhat reluctant given the richness of 2s compared to Fed funds. But if 2s get in the 4.25-.50 range in the next month, and the treasury issuance calendar in late July early Aug. seems bearish for the long end, maybe steepeners will pay off? It is probably a better play than betting on widening swap spreads.
 
Huge steepener put on early last week in the TUT, about 20,000 stuff, when the curve was around 0 basis points, might have been the weak before. CMBS calendar looks pretty heavy going forward as well. 2yr is pretty much fair value right here. I am pretty sure there were some size steepeners going through late Friday. We had the 10yr hit twice with 5000 lots a little earlier today, didn't even work the order.
 
mcurto,

Glad to see you stop by!

Any words on activity down at the lows of 106 15 to 106 12 for Monday 19 June 2006?

Is your take more weakness to come, or that we have hit a short term cycle low?

I had a target of 106 16 per last Friday's post as well as tentative targets of 106 09, 106 07 and finally 106 03.

Yesterday's chop trading leads me to believe that we may have put in the low, or that we are close to the low for the short term.
 
In the 10yr we saw some size selling into the lows yesterday, starting around 104-24 to 22, a couple 5000 lots sold at the market, didn't even work the orders. A lot of the big put positions are being unwound and mortgages are beginning to roll their August 106 and 107 calls into the Sep 106 calls. The market seems to be more interested these days in selling into strength (SMR survey) and are doing so regardless of which direction stocks are heading. Friday we saw a nice cheapening of the long end ahead of monster CMBS supply this week (upwards of $20 billion) but I think it has just a bit more to go. Locals were able to hold the lows yesterday and scratch the majority of the size, if housing starts is consensus or just a little bit better I think you see locals pile on short and push into stops.
 
Quote from johnpinochet:

I had a target of 106 16 per last Friday's post as well as tentative targets of 106 09, 106 07 and finally 106 03.

Yesterday's chop trading leads me to believe that we may have put in the low, or that we are close to the low for the short term. [/B]
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With the last 2 days' price action, do you still think that a short term bottom is in and we are heading to 110?

Today is a no news day. How would you set up to trade today?

BTW, thanks for your journal. It is very educational. I should reread it a few times. It would be nice if you can update it from time to time for some "text-book-perfect" trades and/or some special situations etc.

Thanks again.
Luc
 
luckyhonda,

Days like Tuesday and Wednesday are really frustrating because they stay in a range forever. If you could get 2 - 4 ticks out of a day like yesterday, i.e. Wednesday, you should be very happy. This is excellent work.

How to trade no news days? Based on simple personal observation I would say do one of two things:

1) Stay out completely.
2) If you are going to trade, you can probably trade off of the S/R or pivots at least for the first 1 - 2 trades.

Even if you decide to trade, keep it short. I'm usually done within 2 hours on any given trading day, and certainly no more than that on a no news day. Why waste your time?

As far as the lows being in? Well, the market really hasn't told us much. We hit 106 06, but then we went back up to the 20's. We het 106 11 yesterday very slowly.

I'm not prepared to commit, but I'll lean towards a base being in and prices going higher. This all depends on the news Thursday and Friday.
 
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