Mr_Dent
Panjang

Bear Trap Set - Bonds Set to Rally

CBOT:US1!   T-Bond Hadapan
The Long Bond has seen a sharp 6.5 point selloff during the past 20 Trading days.

This has turned technicals and trends down, (including our own Trend indicators)- and you can be sure the trend following algos, Hedgies, and CTAs             are piling on the shorts here.

Not so fast though for Bond Bears - We are seeing a number of signals that at minimum a over sold rally is due.  Lets take a look at the setup.

1 - This 6.5point 20 day sell-off is long in the tooth Statistically speaking. Since 1993, over 6.212 trading days, our Actuarial Tables show us that over a 20 Trading Day Interval, this decline ranks in the 93rd percentile. This doesn't signal a end to the fall, but it does show us this decline is due to expire soon.

2 - On the Terrible jobs print on Friday, a bear trap was set - Running all stops and getting the trend followers short on the breakdown, only to immediately reverse.

3 - The COT report shows that Commercials bought/covered over 50k contracts last week. This scores a 100% on a 18m+5yr basis. So Dealers are on the buy here. One concern here is that historically, Bullish Commercial weekly positioning correlates with <em>negative</em> price action in Bonds- Meaning they have been early when buying big. It must be noted that this is the chink in the proverbial armor of the Bull case.

4 - Similar action was seen in safe haven currencies Gold             + Yen.


If one is short bonds, you can't feel very comfortable with this action. As a trader, put yourself in their shoes - you'd want to protect the sizeable gains on short bets over the preceding month.

Expect to see short term trends turn positive and the algos to kick in their trailing stops - This should be good for at least the standard 38-50% Fib retrace which would take us to approx 155, or 3 points higher. Here is a low risk way to play this.

1 - Buy 1 Dec ZB Future at 152 currently

2- Buy a 152 by 150 Put Spread for approx DR             of .78 or 25/32. A selloff from 158.3 to 150 or 8.3points within a 40 trading day interval, would put this decline in the 93rd Percentile of all selloffs in that Time Interval going back to 1993.

3 - Sell the 155 Call for 38/64 or .593.

The Net cost of protection down to 150 is therefore .187, while we leave ourselves 3 points upside.

Exit the entire structure on any hourly close below 150. Your R/R here is minimum 3-1.

Please visit our blog for more detailed analysis and Alchymist Charts and Actiarial tables

Good Trading,

3ptCapital
Hi,
very good analyse !
Where did you find COT report for US Bonds and the Bund (German bond) for example (FGBL) ?
Balas
Mr_Dent pring
@pring,


Thanks -

The CFTC issues the weekly commitment of traders which you can download from their website - This has all US futures including the US 30yr bond, although I am unsure about the bund.

I developed a proprietary Tracking and scoring system for this across all commodities, along with many other tools, in my platform Alchymist. You can see more on my company blog and website.

Cheers!
Balas
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