Long term bonds sold off again yesterday with a breach of 119 in the Bund this morning, we have gone as low as 118.82, with 118 the next target. This has filtered through along the whole curve with Euribor spreads at highs with Jun10-sep10 trading at 26s, Sep10-Dec10 trading at 32s with the far end of the curve on the rise too.
It is hard not to go short right now given the lofty levels of these spreads , but it is wise to hedge using butterfly strategies as there seems to be no stopping this move upwards. I'm relying on a more staggered move upwards in spreads to give me opportunities to take 1/2 ticks in these spreads as I short new highs, but I am quick to scratch should it go against me.
Stocks sold off as long term yields rise resulting from the subsequent sell of on the long end. Higher borrowing costs are deemed as a risk to an economic recovery. This is the third time we have tested the 8500 level in the Dow and until we break one way from this small range forming, it will be unclear as to where we head from here.
Markets are also nervous from the impending GM bankruptcy and the auto sector also got a hit from the bankruptcy of Visteon the auto parts company, this surely will continue to put pressure on the jobs market.
High light of the day today will be the durable goods number from the US at 1.30pm GMT and new home sales at 3pm.
Wednesday, 27 May 2009
Dow Jones tests 8500 again
After trading lower in stocks and higher in bonds for much of the day yesterday, a surprisingly strong consumer confidence number turned the tide totally and pushed us up big across the board, with the Dow up 200 points testing the 8500 level again. S&P 500 flirting with 900 and could it be third time lucky for the markets. The consumer confidence number has put a new push to the upside, and stock look strong again the morning, and it wouldn't be surprising if we reach DOW 9000 in June.
As much as I bang on about thinking this market is going down, which I still believe is where the market should be, sentiment is the only thing that matters right now, and there is still plenty of cash on the sidelines to push this market higher.
Bunds have broken out of the decending channel range and is now making a run for 119, as I stated yesterday, the short term target is 118 in Bunds, as we have broken the channel, unless stocks fail to break the resistance levels and make another attempt downwards.
Euribor spreads coninue to move upwards especially at the front of the curve, but the far end seems to be stabilising. Although there was some volume, spreads were very tight and it proved to be a difficult day. Today morning has presented alot more opportunities to enter spreads on euribors, on short sterling there continues to be a lack of real trading opportunities as liquidity is low.
US home sales at 3pm London time will be a market mover today, which could add more fuel for a push to the upside.
As much as I bang on about thinking this market is going down, which I still believe is where the market should be, sentiment is the only thing that matters right now, and there is still plenty of cash on the sidelines to push this market higher.
Bunds have broken out of the decending channel range and is now making a run for 119, as I stated yesterday, the short term target is 118 in Bunds, as we have broken the channel, unless stocks fail to break the resistance levels and make another attempt downwards.
Euribor spreads coninue to move upwards especially at the front of the curve, but the far end seems to be stabilising. Although there was some volume, spreads were very tight and it proved to be a difficult day. Today morning has presented alot more opportunities to enter spreads on euribors, on short sterling there continues to be a lack of real trading opportunities as liquidity is low.
US home sales at 3pm London time will be a market mover today, which could add more fuel for a push to the upside.
Monday, 25 May 2009
Debt ratings downgrade threat hits Bonds
Over the past week we have seen a big drop in Bunds, Gilts and US 10 year as the threat of a possible downgrade to government debt gets investors scrambling out govies.
Bunds have dropped below the 120 level and is trading at 119.76 as we speak. Looking at the chart below, technically speaking we could be due a bounce as we are touching the bottonm of a downward channel, but a break below this could mean a test of 118.
On the short end of the curve, Euribor and Short Sterling spreads have continued upwards. As longer dated yields continue to be sold of relative to the front end. We are trading above 30s on the Sep10-Dec10 spread, and on the short sterling front, we are trading 44s on the sep10-dec10 spread. In terms of trading, I will maintain an emphasis on going long on pullbacks, but am trading smaller size as there is still quite a risk that there will be a big pullback in these spreads soon as they have come up too far in my opinion.
Stock wise we look to be consolidating around these levels. The fact we have hit 8500 in the Dow twice and not gone further suggests, downside is more likely. We shall see what happens...
Bunds have dropped below the 120 level and is trading at 119.76 as we speak. Looking at the chart below, technically speaking we could be due a bounce as we are touching the bottonm of a downward channel, but a break below this could mean a test of 118.
On the short end of the curve, Euribor and Short Sterling spreads have continued upwards. As longer dated yields continue to be sold of relative to the front end. We are trading above 30s on the Sep10-Dec10 spread, and on the short sterling front, we are trading 44s on the sep10-dec10 spread. In terms of trading, I will maintain an emphasis on going long on pullbacks, but am trading smaller size as there is still quite a risk that there will be a big pullback in these spreads soon as they have come up too far in my opinion.
Stock wise we look to be consolidating around these levels. The fact we have hit 8500 in the Dow twice and not gone further suggests, downside is more likely. We shall see what happens...
Friday, 15 May 2009
Long term Yields rise
After a sharp bounce on the Bund, it was back to selling again, as we touched 122, and have retraced back to 121.18 again as I write. Schatz has barely moved as the Schatz Bund Spread rose big rising almost 70 ticks.
This was also the case in Euribors too but to a much lesser extent, as we inched up on the spreads across the curve.
Euro zone GDP was worse then expected, but US CPI was slight stronger then expected which gave rise to the market as the risk of deflation has eased.
Even though we haven't caved in yet on the stock front I still maintain my longer term view that we going for another big down leg, but for now, even though more downside is due technically, there's still buyers out there holding this market up.
Im away next week, will be updating again on the 26th.
Good trading!
This was also the case in Euribors too but to a much lesser extent, as we inched up on the spreads across the curve.
Euro zone GDP was worse then expected, but US CPI was slight stronger then expected which gave rise to the market as the risk of deflation has eased.
Even though we haven't caved in yet on the stock front I still maintain my longer term view that we going for another big down leg, but for now, even though more downside is due technically, there's still buyers out there holding this market up.
Im away next week, will be updating again on the 26th.
Good trading!
German Bunds go higher
Yesterday we saw bunds push up, and this is being continued today as we touch 122. We have risen over 150 points in the last few days as long term yields fall. Despite the rise in Bunds, Stocks showed some strength with technology leading us higher.
Spreads along the Euribor and Short Sterling strip have stabilised some what, as we have pulled back to levels we were trading before the Trichets comments last Thursday. I tended to be more long the spread yesterday, and is what I will continue today, but still hedge with another spread if necessary.
I have come across a piece by Jeremy Grantham on Business Insider, who is a bull about the short term and a depressive bear about the long-term. So what does that mean exactly?
It means there's 0.56 probability the market will eventually plunge to a new low. (See details below).
How's that for precision!
Spreads along the Euribor and Short Sterling strip have stabilised some what, as we have pulled back to levels we were trading before the Trichets comments last Thursday. I tended to be more long the spread yesterday, and is what I will continue today, but still hedge with another spread if necessary.
I have come across a piece by Jeremy Grantham on Business Insider, who is a bull about the short term and a depressive bear about the long-term. So what does that mean exactly?
It means there's 0.56 probability the market will eventually plunge to a new low. (See details below).
How's that for precision!
Wednesday, 13 May 2009
Dow Technicals
After another sell of yesterday, what does the charts tell us next?
Well as we see we have a downward channel after the initial break out through resistance through 8200, after touching 8600, it is likely that we will at least test previous resistance of 8200. We also have a cross on the MACD indicator as indicated above. This could also signal a technical move down further, with the next step being around the 7800 level.
Volume on the run up on this rally has been low relatively which suggests that there wasn't much participation from the big players, which suggests this rally is less believable in terms of sustainability, and a break of 8200 could signal another down move. We are still trading above the 50 day moving average, but unless we have some positive fundamentals out of the economy, technicals point to a downside.
As I write stocks are down again in Europe with Euro Stoxx is down 30, and FTSE 100 down 30.
Bunds are trading 121.50 bouncing sharply from the low, outperforming the short end, as spreads across the bored continue to come off.
Euribor spreads continue to come off as we trade 19.5s on Jun10-Sep10 spread coming off from 22.5 yesterday. I remain cautious in my approach choosing to trade butterflies as it is a better hedge then the outright calendar.
Well as we see we have a downward channel after the initial break out through resistance through 8200, after touching 8600, it is likely that we will at least test previous resistance of 8200. We also have a cross on the MACD indicator as indicated above. This could also signal a technical move down further, with the next step being around the 7800 level.
Volume on the run up on this rally has been low relatively which suggests that there wasn't much participation from the big players, which suggests this rally is less believable in terms of sustainability, and a break of 8200 could signal another down move. We are still trading above the 50 day moving average, but unless we have some positive fundamentals out of the economy, technicals point to a downside.
As I write stocks are down again in Europe with Euro Stoxx is down 30, and FTSE 100 down 30.
Bunds are trading 121.50 bouncing sharply from the low, outperforming the short end, as spreads across the bored continue to come off.
Euribor spreads continue to come off as we trade 19.5s on Jun10-Sep10 spread coming off from 22.5 yesterday. I remain cautious in my approach choosing to trade butterflies as it is a better hedge then the outright calendar.
Retail sales fall
A fall in US retail sales have added top the downside on equities this afternoon. As catalysts for this market rally continue to fade, government bonds have come back in favour, with the bund now back above 121.
We down 115 points in the Dow as a write, which is a 4% pullback from the recent high.
We down 115 points in the Dow as a write, which is a 4% pullback from the recent high.
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