T-Bond trading comment (September 04, 2007)

First day of September and I don't think everybody was back... We had a relatively low liquidity market and small volume throughout the day. I remember at one point this morning just before 11h00, the market was only 6000 by 6500 which is a bit small. Even if the market went down like crazy this morning we remained almost unchanged compared to the settle of Friday. We are only down 3/32 on the day.

We opened this morning with some ambitions of testing the 112 line. We failed again at 111-29. Each time we fail, we inrease the probability that this resistance will hold in the future so we must keep in mind our bearish monthly scenario. After this unsuccesful challenge the market started to nose dive, we lost 20 ticks in the space of 90 minutes. At one point I tought we were going for one big point but in the end we settled for much less. This movement was spurred by strong equity markets as well as a sense that we are not yet deep in troubles. Just before 11h00 we encountered some aggressive bidding and a small base formed around 111-07/08. With the RSI hyper-compressed and stock markets starting to stall, we retraced part of the dive by succesive steps that continued for the rest of the day.

Tomorrow, we have the Beige Book as well as the ADP index and pending home sales. Home sales are not looking good but the ADP index is showing a healthy 80k survey. Also at 9h00, we will have the Bank of Canada rate decision. It will be interesting to see how they cope with the current market conditions.