T-Bond trading comment (November 15, 2007)

New high! We broke through 2 years old highs by closing at 115-12. This was realized on the back of weak equities and heightened risk of more problems in the financial industry. These are fancy reasons to say that the real answer is simply that the market is really bullish and the market is bid. This was plainly evident during the day when equities had not yet crapped out and were simply oscillating around the zero line while bonds were going higher and higher.

We arrived this morning at the office, with some passably bad news from the UK ( more banks, more in troubles). After testing yesterday afternoon's support at 114-08 early in the night, we started to climb back higher and even had a start to 115 line. This was a good point to sell the market, but only the first time... The second one was less fun... Especially since we went through it like a bullet... In any case, we are now developping a new scenario. By entering these waters, we are opening the door for much higher prices since we switch on the double bottom scenario (see The month ahead: September 2007) with a terminal target of around 123... For now the first target is 116-10 then 118-10. We could see these levels, if the credit related crisis goes on.

Our option strategy is now starting to bleed since it is naked at 115... Funny thing that 2007 would prove to be so trendy after the last three years much more choppy... In any case there is three days left so it can still go down! Also our daily momentum strategy clicked the green light at the close for higher prices tomorrow... Our conviction level is not huge on the trade after today's monster move, but we entered it at 114-11... No point in developping models if you are not going to follow them eh?