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Sometimes when one sees a move in the markets, and you don't see
correspondingly significant news being broadcast, one can sense there is a
story being played out that is only known by a few insiders.
It also sometimes indicates that this story is about some player blowing out
of a huge position. And, that other players can sense the urgency in the
victims liquidation and take advantage of that.
Like sharks smelling blood in the water and going after the bleeding shark,
big players in the financial markets will go after the hurting competitor.
The story is in the NOB spread, the spread between Ten-year Notes and 30-year
Treasury Bonds. Take a look at this spread on a 3 Note to 2 Bond basis and
see a spread that normally moves 4 ticks in a day, absolutely collapse. See
what fear and liquidation looks like on a chart.
Now, I don't know any details, or if there is an incident. There are several
rumors flying around, with some getting more and more play. Who knows.
What I do know is that it looks like this is a trade in the cash and futures.
And when the cash guys sense the urgency, the spread get wider because the
volume and the expectations of greater and greater volume coming to bear.
When the selling is done, markets will often have a rubberband effect and
snap back. It has been my advice to traders in situations like this to take
their profits and if they want to maintain their posture, to reestablish
their positions in options. Or, just lighten up and take some profits.
Being flat during times of cloak and dagger activity, especially after taking
good profits, is often a comfortable position.
Movements from buried stories (?) like this are often over before they even
come to the forefront. That is why it is important to be able to read the
market and try to see if the market makes sense with what the known news is.
The market is putting up one big caution flag, IMHO.
Regards,
John J. Lothian
Disclosure: Futures trading involves financial risk, lots of it!
Disclosure: John J. Lothian is the President of the Electronic Trading
Division of The Price Futures Group, Inc., an Introducing Broker.
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