How to Manage A Short Position In The T-Bond Futures

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The CBT/Globex December T-Bonds reached a significant trend line of support and the reaction off of that has been a strong one rallying more than a full point. It also sets up as a two-bar low formation going into tomorrow. The rule of thumb initial target of this type of formation is the length of the two bars and in this case makes it approximately 120-11. Fibonacci retracement resistance levels are approx.: 120-17; 120-24; 121-15.

It is impressive too that they have performed this way with the huge supply of Treasury paper being auctioned this week. So far the first tranche has been well received both from a demand and rate perspective. The $44 billion in 2-yr notes auctioned today came off with a yield of 1.020 pct. with a bid to cover of 3.63. The average for the previous six 2-yr auctions was a bid to cover of 2.92.

It is action like this that would cause us to suggest to holders of short entries to reduce their exposure by liquidating some portion of their position. It is also the type of event that provides reasons for those wanting to place long entries to take action. Our most recent Trade Focus has active short entries in the T-Bonds and this action has given us reason to discuss the position with individual clients.

Good trading to all

Jeff and Diego

Futures and options trading contain substantial risk of loss and may not be suitable for all investors.