Chart Updates

UST 10 Year Note : Bear Squeeze

• Short USTs is one of the most over-crowded trade for some time already. Incredible, but not surprising therefore, that we have taken out the 15Oct14 spike top (Ebola fears, good inflation and weak data) and holding above that level comfortably.
• [Markets in turmoil due to SNB peg removal shocker, buy USD, buy USTs, buy Gold, buy JPY]
• Having to overcome a huge mental block to buy here; but certainly am saving myself a lot of heartache by not even thinking of any kind of short attempt.
• Looks like front TY contract can test 135-1/2. [Monthly periscope breakout]
• [The other over-crowded trade being long USD but that is more grounded on relative fundamentals than the long bond trade].

US Rates : Bearish

• Weekly line charts of TYc1 and EDZ6. Clean view of price action stripped of intra-week noise.
• TY (or ZN) : Fresh triangle breakout on downside, should be good for 4.5 big figures (from break point of appx 124-08), therefore targetting 119-24. Early days, plenty to go for. Short trade can be made with relatively tight stop on top given the freshness of the break.
• ED (or GE) : Chart not as negative as TY. EDZ6 still trapped within range but current downleg should take us to 97-70. Probably need a change in current Fed stance (eg removal of "considerable period") to trigger the break, which I do expect.
• Position : 1. Large short EDZ6 at 97-98 average   2. Medium sized short at 124-18 and 124-15. Probably wrong way round in weighting. Any increase in risk should be made in TY, unless 97-70 breaks too.

UST 10 Year Note : On the Cusp

• ZNZ4 at 124-22, sitting right on a support line on the weekly chart, in front of FOMC meeting on Sep 16-17. Potential game changer in the works?
• Inability to hold onto rally given last Friday's << expected NFP (+142k only) is telling.
• Bear case is building, slowly but surely.
• Sticking with large core short EDZ6 for now. Patiently waiting for ZNZ4 breakdown before increasing exposure to short US Rates instruments. This is one (ZN) that I do not need to rush into (or rather, already have it).

US Rates : Short ZNH4 @ 125-06 & Short EDZ5 @ 98.93

• Long standing GTC sell orders filled today in general Risk Off environment cascaded from the weak China PMI yesterday (then Turkey, Argentina). Fresh short in ZHH4 (2.73%, 1 risk unit) and EDZ5 (1/2 risk unit).
• Same event was trigger for the Copper SHS top breakout (lower). [Risk Off = Base metal down, US rates lower]. In effect, currently my short Copper position (2 risk units) from yesterday is somewhat protected by the fresh rates positions today.
• Expect the negative price correlation (HG down, ED and ZN up) to turn positive going into FOMC next week ie US rates go back up, Copper go lower on tighter monetary policy. ie win win on both sides.
• Stops placed GTC.

US 10 year T-Notes : Trending Down

• My long standing assertion that US rates are currently the best trending market looks to be correct. Laser like focus here on trading this right will probably be more rewarding than trying to catch some of the ongoing FX moves.
• I really should be making a lot more money but for improper trade sizing previously. Nevertheless, am getting back on track with very controlled sizing in fresh short ZN and ED positions. 
• Monthly : Uptrend line broken + back below significant previous tops = bad sign.
• Weekly : Bearish outlook below 124-12 for ZNU3. Very large top made and reversed. 121-22 and 117-16 not impossible targets.

US 10 year T-Notes : Increased Short

• Initial entry short ZNU3 -126-26.
• Daily triangle break on downside. Stopped in additional unit -125-13.
• Stop on close back inside triangle line at 125-17. 
• The ZN daily triangle break is good for around 2 big figures. Weekly and monthly point to much more downside potential than that.
• Immediately ahead, next critical chartpoint is 124-11.5
• Re - earlier post today on S&P500, market is at 1668 now, ie breaking the SHS NL. Waiting for close before taking action, if any.
• Pity on the tight stop in EUR/USD done near the high of the day. Ah well, that's life.

US 10 year T-Notes : Almost There Again

• Monthly : Uptrend line broken, Recent rally = pullback of break = chance to sell.
• Weekly : Supertanker made the big turn already. Trend = down.
• Trade : Looking for trade location now. Probably will have to be against 127-23 stop (vs last 126-19) so have to be patient still to get to a more favorable R/R entry point.

US 10 year T-Notes : Initiated Short @ 124-30

• Monthly : Uptrend line broken at 126-16. Target 117-18.
• Weekly : Consolidation pattern break down at 127-23. Target 119-19.
• Daily : Strong downtrend going on now.
• Trade : ZNU3 sell stop-in below recent low at 125-00.5 triggered by strong NFP. Fresh short at 124-30.

US 10 year T-Notes : Sell Now + Sell Later

• Daily and weekly charts = bear flag (beware long flagpole).
• ZNU3 is a sell here (around 127-00) and on any rally towards 127-23.
• Unwilling to increase trading risk ahead of NFP so sitting tight on short EDZ5 only. Increase via -ZNU3 if NFP surprises on weak side (but not too weak). At current level of risk (28%) am comfortable to add on if we trade up to 127-23. If I add on now, will be thinking of cutting loss if we rally.

US10YT : Turned/Turning

• Thus far, I have expressed my "US is best" view via FX (excellent results) and Gold (+ve, but so so performance). This has been correct as relative economic performance clearly favors the US. But perhaps it's now time to ditch relative strength and focus on US absolute performance. Thus, am mulling diversifying the same view into the Rates markets.
• ZNc1 chart : looks like the battle-ship has almost completed its about turn. Taken a year, with many whipsaws in the process. The carry traders have probably had their time. If so, it's the turn of the trend traders who are not crippled by the inertia of negative carry considerations. Watch for a strong close below the bold blue line on the chart for sell signal.
• Rates are probably the best trending instruments around. Once it starts and you catch it right, the money simply will not stop rolling in.
• Unlike 1994, this time round the market will lead the Fed. Back then, the bond bear was due to Greenspan catching the market by surprise. This time, it will be due to markets punishing the Bernanke Fed's over-staying QE ad nauseum. Thoughts that "the Fed won't do anything yet" are dangerous. Banish them.
• Trade : Initiated tiny short ZNU3 -129-19. GTC sell orders nearby above to add on to a decent risk level. If the orders above do not get filled and we get a weak close, hit the market then. EDZ5 GTC sell stop-in order placed 2 months ago nearing fill as well.

Ponder Ponder

• 1. US 10 year yields up from 1.60% to 1.96% now.
• 2. USDX trying to take out 2012 highs.
• 3. S&P500 at new high.
• 1+2+3 => Pricing for US recovery (without inflation). Don't fight the tape, even if I think the central banks are doing the wrong thing and it will all come crashing down hard eventually. DO NOT TRY TO SHORT S&P. Accept it.
• Recovery = Time to buy back balance of Copper short (still in the money). Trade : Bought HGN3 +325.70. Square now.
• Free up room for taking more risk in Gold and Cable; both charts look good. (Enough long USD/JPY already. In fact, am in risk excess at 35% vs limit 25%).

US 10 year T-Notes : Bearish Potential

• Running short ZNH3 since mid-Jan. Average in-rate for this latest round at 131-22. Trade feels slow but this condition will not last forever. What bears need now is a shock event (FOMC minutes?) to cause a volatility explosion.
• Weekly chart rolling over, sort of. Awaiting a periscope like large red candle for further action. As long as equities stay firm, being short ZN is the better risk/reward side. 

Core Book : Risk Step-Up

• As flagged by my 2 weekend posts, have made the following trades on the futures open today. Risk limits % up to 82% from 71%.
• 1. +EUR/USD @ 1.3647 (add)
• 2. -ZNH3 @ 130-28 (add)
• 3. +GEM4 @ 99.49 (cut loss) - replace low beta GE for high beta ZN.
• Attached screenshot shows "before" and "after" risk position changes.

US 10-yr T-Notes : A Scandal in Bohemia Moment

• Sharp reversals under stress conditions often reveal important clues regarding underlying market intentions. Last Friday's ZNH3 price action pre- and post-NFP could well be one such instance. Pre-NFP around 131-06, post-NFP rally high 131-26.5, close of day all the way back down to 131-03, leaving behind a huge "selling tail".
• Weekly : Poor close, suggests heading towards 127-23.
• Daily : Just like Sherlock Holmes tricked Irene Adler into revealing the hiding place of the King's incriminating photo, the within expectations NFP + uptick in UR gave the market a "WTF are we doing up here" collective Eureka moment, resulting in the sharp trading reversal. The bears are clearly in ascendancy here. 
• [The corresponding EUR/USD point is 1.3585 (exact same price action on Friday). There is an observed high negative correlation between the 2 (ZN vs EUR/USD) ie higher US rates = higher EUR/USD. Never mind the lack of logic. Just go with the flow.].
• Going forward, 131-26.5 and 1.3585 will be useful reference points for stop losses and trade risk/reward considerations.
• Trade : Short, deep in the money. Recently been making +131-00/-131-16 trades. Armed with this latest clue, it's time to get serious short and skip the trading in and out part.

US 10-yr T-Notes : On To 129-00

• Close only line chart presented here to filter out the intra-week noise. Last week's ZNH3 close at 131-12.5 looks like a harbinger of more weakness ahead.
• None of the usual classical trend reversal pattern formed yet to call for a bear market in US bonds. But sufficient early signs apparent to get me excited and short in decent size.
• Trade : Averaged in short ZNH3 @ 132-04. Added tiny @ 131-14 at NY close last Friday. All-in cost now @ 132-02.5.
• View : Down to 129-00 first. Then perhaps come back to form a right shoulder before the big bear comes. Watch this space.

Business Insider : 1994 Fed Tightening

Having joined the market 6 months after the crash of 1987, 1994 was my first experience of a serious bond bear market. Let me tell you, if you are not mentally the right way round, it's like a marathon torture session - the pain just goes on and on and on ...

At the time, I had just taken over running the ITL, ECU and GBP MM books in UBS and had no clue how correlations go to 1 when complacent markets panic. Boy did I suffer that year.

Nice review of 1994 Fed tightening here.

US 10yr T-Notes : Short @ 132-15

• Having narrowly missed the rally, initiated a short position instead last night, @ 132-15.
• Weekly : Should see heavy overhead resistance from here, now that we are into a prior congested trading zone. Reckon this might be near the top of a new trading range.
• This ship will take a long time to turnaround. Think 130-00 is attainable, as the early part of that turn.

US 10yr T-Notes : Right Decision, Bad Result - It's OK

• Trying to comfort myself with Bob Rubin's words. But jokes aside, this is probably an important post for beginning traders to understand (although these past 2 years I have often felt like a grasshopper myself).
• Trade : Had scaled into a sizable long ZNH3 position at 131-23 during the sell-off driven by the Dec12 FOMC minutes. Now trading at 132-12 but I was stopped out at 131-19 for a small loss. Low was 131-14.5. 
• I did not have the fortitude nor conviction to get back in after my stop was taken out. At the time, I was trying to ride the USD/JPY and EUR/USD SHS moves. One's conviction capacity is limited, probably to 2 or 3 positions at any one time. Choose wisely!
• Entry was based on my long experience as an interest rate trader. There was no technical justification for the long trade. If anything, I should have been short based on pure charts. So getting out of the long ZNH3 position was the correct decision, even though with the benefit of hindsight now, the trade made money. Ex-System, therefore lacking conviction by definition. Hence, I do not feel bad about missing the upmove which I held within my grasp.
• Moral of story : Develop a system that you believe in, stick to it. Don't let the odd negative result grind you down. "Nolite te bastardes carborundorum" (which I just learnt from the Handmaid's Tale, although I think my ex-boss GH taught me this a few years back).
• PS : The chart is now closer to a sell than a buy.

US 10-year Notes : Scale in Long at Pivot

• Fiscal cliff "resolution". TY (or ZN, which I will stick to from now on) back to 132-00 pivot line (1.835%).
• Started buying at 132-00. More on dips lower.
• Previous campaign was moderately successful. Missed selling the bulk of the long position nearer to 133-00 and got stopped out at 132-15 instead. Still, a profit is a profit, is better than a loss.
• New round begins. Reckon trade risk reward at least 1 to 3.