As previously discussed on the govttrader blog, the selloff from the 1st half of December has come and gone. While that does not mean that large long bets have been placed on a US Treasury rally, it does mean that a large short position in US Treasuries has been covered. It is for this reason that buying dips in US Treasuries has been the safest trade for the last week. Any US Treasury trader knows that the time to buy is when the last seller has stopped selling. Well, for the time being, that appears to be now.
For the past week, every day has seen the following pattern
1) A center of value develops, defining a simple bell curve
2) The bottom of that bell curve has held every single time.
3) Buying that dip to the bottom of the bell curve, and getting flat on a pop above the center of value has been the easiest daytrade i've seen in a long time (7-10 ticks in ZN each time)
The kicker is that we expect this pattern to continue until the end of the year. Of course we know that there are no guarantees in trading, and this is just something that i've identified as a high probability setup, not a guarantee. However, if a good trading strategy is making a large number of bets where the probability of winning from trading a particular pattern is higher than some reasonable threshold, then this is an example of a good trading strategy. Does this mean that I want to own US Treasuries in my retirement account? Hells to the no. Like everybody else on zerohedge, i think there is a massive wall of inflation coming down the pike, and long dated US Treasuries will implode at some point in the future. I just don't think we are there yet, and my landlord prefers i pay my rent in cash...so...i need to play in the market to make some.
more later on the blog and twitter.