Monday, 14 April 2014

Short second T-Bond M14 from 134.875

I am short a second T-Bond M14 from 134 18/32. I have to defend my short position on T-Bond so the 135 level seems to me a good point to start out a "counterattack" , hoping that some buying will occur in the stock market at the start of the new week.
First target is 133 16/32. No stop for the moment being.

Thursday, 3 April 2014

The Market's 'Stop Hunt' Phenomenon Explained

"Momentum Ignition" - The Market's Parasitic 'Stop Hunt' Phenomenon Explained

A few days ago, Credit Suisse did something profoundly unexpected: its Trading Strategy team led by Jonathan Tse released a report titled "High Frequency Trading - Measurement, Detection and Response" in which the firm - one of the biggest flow and prop traders by equity volume in both light and dark venues -  admitted what Zero Hedge has been alleging for years (and has gotten sick and tired of preaching), and which the regulators have been unable to grasp and comprehend: that high frequency trading is a predatory system which abuses market structure and topology, which virtually constantly engages in such abusive trading practices as the Nanex-branded quote stuffing, as well as layering, spoofing, order book fading, and, last but not least, momentum ignition.
This is Credit Suisse, an entity whose incremental input we are confident will be very much welcome by Congress and the regulators, not some fringe, tinfoil hat blog.
While we we cover the full report in the next few days and all its SEC-humiliating implications, it is the last aspect that we wish to focus on because while all the prior ones have been extensively covered on these pages in the past, it is the phenomenon of momentum ignition that goes straight at the dark beating heart of today's zombie markets: momentum, momentum, and more momentum, in which nothing but stop hunts and even more momentum, define the "fair value" of any risk asset - i.e., reflexivity at its absolute worst  (in addition to Fed intervention of course), where value is implied by technicals and trading patterns, and where algos buy simply because other algos are buying. Behold robotic stop hunts: HFT-facilitated "Momentum Ignition."

From Credit Suisse:

What is Momentum Ignition?
Momentum ignition refers to a strategy that attempts to trigger a number of other participants to trade quickly and cause a rapid price move.
Why Trigger Momentum Ignition?
By trying to instigate other participants to buy or sell quickly, the instigator of momentum ignition can profit either having taken a pre-position or by laddering the book, knowing the price is likely to revert after the initial rapid price move, and trading out afterwards.
Likelihood and Rapid Price Moves
Momentum ignition does not occur in the blink of an eye, but its perpetrators benefit from an ultra-fast reaction time. Generally, the instigator takes a pre-position; instigates other market participants to trade aggressively in response, causing a price move; then trades out. We identify momentum ignition with a combination of factors, targeting volume spikes and outsized price moves - see Exhibit 18 for a example of this pattern in Daimler on 13th July, 2012:

To pinpoint momentum ignition, we search for:
  1. Stable prices and a spike in volume (Box 1 in Exhibit 18)
  2. A large price move compared to the intraday volatility (Box 2)
  3. Reversion (Box 3)
Though we cannot conclusively determine the intention behind every trade, this is the kind of pattern we would expect to emerge from momentum ignition. We use this as a proxy to estimate the likelihood and frequency of these events (further details are provided in Appendix 4).
Likelihood and Rapid Price Moves
As shown in Figure 19, we estimate that momentum ignition occured on average 1.6 times per stock per day for STOXX 600 names in Q3 2012, with almost every stock in the STOXX600 exhibiting this pattern on average once a day or more.

In addition, we note that the average price move is 38bps (but over 5% are more than 75bps, with some significantly higher – see Exhibit 20), and the time it takes for that move to occur is approximately 1.5 minutes (see Exhibit 21).

While 38bps may not sound like a big move, it is a bit more significant when compared to the average duration of these events (1.5 minutes) and the average spread on the STOXX600 (approximately 8bps).
Though not all momentum ignition events result in massive price moves, those that do can cause significant impact. Percentage of volume orders that would normally execute over hours may complete in minutes on the back of “false” volume ( one of the causes of the 2010 flash crash was a straightforward percentage of volume order). AES offers a variety of protections to help mitigate this kind of dislocation, including customised circuit breakers, active limits (that kick in when the stock decouples from a specified index) and fair value limits.

Monday, 31 March 2014

Short on T-Bond M14 covered on target

I covered my last short on T-Bond M14 on the first target at 132 24/32 , for a 1-12/32 gain. The US stocks indexes opened leaving a considerable gap in the charts, with a strong possibility that they're gong to cover it later today. For this reason I decided not to wait 132 to cover one of my 2 T-Bond shorts.
I keep going with one short on T-Bond M14, at new average price 134 16/32 and one long on Bund M14.

Friday, 28 March 2014

Short second T-Bond M14 at 134 4/32

I am short a second T-Bond M14 from 134 4/32 , one figure above the other short. With Stocks up, the Bonds should take a respite. No stop here. First target 132 24/32.

Friday, 7 March 2014

Long 1 Bund M14 at 141.85 (S1)

As planned , I went long 1 Bund M14 this afternoon just after the release of the US payrolls data, at 141.85, today's S1.
I am now in the position wanted:  short 1 T-Bond M4 and long 1 Bund M14. Will keep going on with this spread in the new quarter , using the same old trading method of mine.

Wednesday, 5 March 2014

Roll-over day on EUREX Bonds

Bund March14 is to expire very soon and I sold my historic long at 144.70, for a final 6.54 figures gain. Very good indeed!
I now plan to long the new Bund M14 around 142, if conditions are right.

Friday, 28 February 2014

Roll-over day on the CBOT Bonds

It's roll-over day on the Bonds futures listed on the old CBOT. I covered my only short on T-Bond H14 at 133 30/32, for a final 12 ticks gain.Technically I should have covered this short when the future broke 132 up, but I needed a short to edge my other longs on the Bonds sector.
I am going to short the new T-Bond M14 above 133.
I keep going with one long on Bund H14.

Update: I am short 1 T-Bond M14 from 133 4/32

Wednesday, 5 February 2014

One short on T-Bond covered after ISM report

I covered one short on T-Bond H14 at 133 20/32 , for a good 1 12/32 profit. The ISM Report on US non-manufactoring sector has been relatively good . The reaction from the markets: $ down, stocks down, Bonds down !
I am now with one short on T-Bond H14 , from 134 11/32, much better than yesterday but yet far from being in a safe harbour. My regret is to have sold the long on the 10y T-Note too soon. I still have the long on Bund anyway.

Tuesday, 4 February 2014

Too Few Bears Out There

Bank Of America Warns: "Too Few Bears Out There", "

There is one main reason why complacency is bad: selloffs. Because as Bank of America explains, in an environment in which there are "too few bears", and where investors are "not prepared for a downside correction", when you do finally get a sell off for whatever reason, with nobody hedged and otherwise prepared for such an outcome, the only logical continuation is piling on until one gets selling exhaustion. And in a world in which hedge fund leverage is about 500%, by the time exhaustion comes, there will be very few left standing.
From Bank of America:
Sentiment an equity market risk: II % Bears dropped to 14.1% = too few bears
Even with the increased volatility since mid-January, there are still too few bears out there based on Investors Intelligence (II) % Bears. The most recent survey reading as of January 24 was 15.3% vs. 15.1% the prior week. This is complacent and contrarian bearish from a sentiment standpoint. With II % Bulls moving down to 53.1% from 57.6%, the bulls did reign in their horns, but not enough to move II % Correction to a contrarian bullish level that would suggest that too many investors are looking for a correction. As of December 20, 2013, Investors Intelligence (II) % Bears extended deep into contrarian bearish territory below the 20% level hitting a 14.1% - the lowest level for II % Bears since March 1987. II % Bulls moved up to 61.6% as of December 27, 2013 - the highest level since October 2007. Sentiment is an equity market risk and confirms the complacent readings for the 5-day put/call ratios .

Put-call ratios are complacent & contrarian bearish
Both the 5-day and 25-day CBOE Total put/call ratios are overbought and contrarian bearish. The 5-day total put/call ratio reached the lowest level since early 2010 while the 25-day total put/call reached the lowest level since early late 2004. These put/call ratios are at levels that suggest investors are not prepared for a downside correction. In terms of market sentiment, this is contrarian bearish.

Short second T-Bond H14 at 135

I shorted a second T-Bond H14 at 135. I should have stopped my precedent short at 135.25 but something didn't work and here I am trying to wade against the current!
Stop at 135.25. First target at 134.