Treasury Selloff Exhaustion Has Reversed - Next Stop Month / Year End

govttrader's picture

2 days ago we talked about why US treasuries were cheap (both on an outright basis and on a relative value basis vs stocks).  While I make no prediction regarding the direction of the stock market (Tyler @ zerohedge gets all the credit for that), US Treasuries have outperformed both on an outright basis as well as on a relative basis vs stocks from Tuesday Dec 18, just as we thought they would.  On the blog we talked about using the bell curve and market profile to determine the best location to buy US Treasuries to leg into this trade, and yesterday afternoon / last night we got our perfect buying location (132-03 / -04 in ZN).

So that's all history now...what to do next?

While I expect US Treasuries to outperform stocks and continue to rally up through month / year end, that doesn't mean i want to just stay long and expect treasuries to move up vertically.  Like everything else in the markets, nothing moves in a straight line.  My bias is now to be either long UST (buying on dips) or flat (sell pops).  There can still be some value in getting flat UST on pops, and then re-buying on dips, but we must be careful to watch how much volume trades in the screens so we don't miss the coming undersupply condition (the rare instance where we do get vertical price action after a large buyer asserts their position).  The bell curve and market profile will be our guide for these levels.  I'll be updating thoughts on these ideas and levels on the embedded twitter feed on the blog.

govttrader out...

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govttrader's picture

Read up on ElliotWave theory.  Even if you don't take any value out of its "predictive capability" will notice that the market does move both up and down in "waves" - even if these waves are only clearly identifiable after they occur.   It just proves the point that nothing in the market moves in a straight line.  Markets are made up from people...and people are what create crowds..and hence, crowd psychology.

Trader-Scholar's picture

"Like everything else in the markets, nothing moves in a straight line."

The shortest distance between two points is a straight line. Markets must be stupid or something.

smart girl's picture

Been thinking about how the U.S. plan is to herd people into treasuries. I understand how "operation twist" was good for stock prices; (trade dollars for Euros and have everyone buy up each other's stocks..- I got the memo late on that one...) Ben is now buying treasuries and mortgage backed securities. How is that the same kick for stocks? Just wondering if they wouldn't mind a crash- weakens individual freedom- and what a great excuse to herd everyone into "safe" U.S. treasuries. That NDAA ruling really has me paranoid like these guys are out to get us. Please shed some light.

Howdan's picture

I know it sounds counterintuitive but I've learned the hard way not to "Fight The Fed" and indeed got it wrong more than once trying to short US Treasuries in the belief that the Fed is one big giant Ponzi and that rates on the long end of the curve are waaaay too low. I mean how could The U.S borrow 10yr money @ sub 2.00% ???

HOWEVER, I soon realised that whatever way the cookie crumbles, money still flows into UST's in times of stress and although the fundamentals stink to high heaven, anyone who wants to put their foot in the fire will almost certainly get burned.

I don't have any current active positions in US bonds but I would consider going long the US 10yr @ 1.75% as it could tighten back to the 1.50% level if we go "Over the Cliff". (Remember when S&P 500 downgraded US's AAA rating? UST's were bid to the max).

I do believe the bubble will burst at some point though..... Most probably as soon as the market gets a hint that The Fed starts to reverse all this QE and starts to raise rates.

govttrader's picture

The Fed will reverse QE after their last bond purchased 31 years or so...and no...that was not a math mistake.

are we there yet's picture

Keep the ponzi going. Scientists have discovered an new Earth around TouaSeti star system only 12 light years away.

But what if they have intelligent illuminati already, and want to ponzi Bernankie.

SAT 800's picture

"Bell Curve" Bwahaa-haa-ha.

DeficitAlchemist's picture

This is like trying to trade dot com stocks long in 98/99... you may well get some short term gain.. but heaven help you if you caught on reset day... an avoid for longs for me, on the basis I will feel a complete mug for dancing on the edge of a cliff... 


1. Trade the currencies/commodities on Technicals 

2. Invest in Silver and Gold on smash downs.. those that want equities can chase high yield & dividend payers and resources.


If I can pick the moment, which I doubt I'll only ever be on a short on US debt.. outside of picking the moment... they can Lie longer than I can take drawdown on a position short..


This is a' bigger idiot' long.. If you later dont find one, you are it

Panafrican Funktron Robot's picture

"This is a' bigger idiot' long.. If you later dont find one, you are it"

It's a decent point.  The Fed is the "bigger idiot" in this scenario with the $45 billion in long dated unsterilized purchases, but, as you mentioned, that could be a real "gotcha bitch" trade.   

Kiss My Icelandic Ass's picture

"US Treasuries have outperformed both on an outright basis as well as on a relative basis vs stocks from Tuesday Dec 18, just as we thought they would."


That's some great hindsight.

Jack Sheet's picture

The only thing he is long on is bullshit.

SAT 800's picture

'Short ZNH3 @ 132-15 and loving it. I'll be buying your stop loss before long.

Jack Sheet's picture

Looks like a profile of Hitllary in a supine position