Thursday, May 29, 2014

Treasuries; No Reason For Big Advance Yesterday/No Reason For Reverse Today. Yet...

Yesterday saw the biggest fixed income advance since the early April- a day the employment report for March failed to live up to its greatest hype for an overwhelmingly strong showing.  Since, yields have moved steadily lower despite continued accumulation of short positions by CFTC described ‘non-commercial (‘large-spec’) accounts.  These account types moved from long a net 700K a year ago to being short twice that amount (record 1.4m) now.  The latest showing for week ending last Tuesday (May 20) showed the most miniscule reduction in this net short. 

Today, the technical picture presented by candlesticks is a 'shooting star' that is within the body of the prior session, thus creating a ‘harami’ or pregnant line.  Both the single session and the multi-session technical development are reversal patterns.  They have not yet been confirmed.

When we review yesterday’s remarkable bullish advance, we note that there was no meaningful data released so the impetus for the advance was more likely a matter of positioning.  We had remarked here on a number of occasions a surprise that there had been no wholesale reductions in hedge fund short positioning despite strong advancing price action.  Clearly these were not naked shorts, but were these shorts offset entirely by positions in Europe or long-end or corporate or agency or even equities.  My guess is not entirely.             

The surprise that was not recognized as one was yesterday's advance.  It felt rather appropriate given the prior unrelenting advance.  However, it was an outlier in that the extent of the advance was not matched with any knowable event.  It has required today's price action to highlight the inconsistency with yesterday's developments.  

That said, an aggressive short might be called for here given technical developments alone.  This position could be immediately profitable or otherwise removed with decent risk profile.  More conservative position takers would wait for confirmation tomorrow.                                                


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