Using Treasuries As A Shadow Chart

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Using Treasuries As A Shadow Chart
As the market bottomed weeks ago, so did ProShares UltraShort 20+ Year Treasury (TBT). Coincidentally, the same day the markets bottomed, so did TBT. Treasuries have continued to sell off, which seemingly has helped fuel ...
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Using Treasuries As A Shadow Chart by Michael Kudrna | This entry was posted on Monday, October 31st, 2011 and filed under Stock Market Comments Off

As the market bottomed weeks ago, so did ProShares UltraShort 20+ Year Treasury (TBT). Coincidentally, the same day the markets bottomed, so did TBT. Treasuries have continued to sell off, which seemingly has helped fuel this recent rally. When TBT pulls back, the markets have followed suit. When TBT starts to rise (treasuries being sold), the markets start to rise as well. With this being said, I have started using TBT as my shadow chart during the day. This is giving me an extra indicator on where the market may be moving, before it does. If TBT starts to sell-off, I tighten up my day trade stops and when TBT looks to be acting bullish, I can feel more confident pressing my longs. With TBT selling off strong all day, the markets followed and took a dive into the close then continued into the after-hours.

I don’t expect this trend will last forever, I simply believe it is working in the short-term, so I will stick with it. TBT can continue to sell-off, but because so many bulls are anxious to join after they missed the recent rally, they will probably create an additional support level that could see TBT falling and the markets finally not following. That may be when the correlation between the markets and TBT is no more. In the meantime, consider using it to improve your day trading speed and efficiency.

Obviously, you can use ProShares Short 20+ Year Treasury (TBF) since TBT is a 200% inverse while TBF is 100% inverse. I personally prefer to use TBT because the moves are more easily identifiable as a shadow chart. It’s all about personal preference though.

You can follow my trades alongside the 36,000 plus market players who follow me on SeekingAlpha (Shameless promotion). As always, do your own homework to see if you agree. Good luck out there.

Mike

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CMHTraders

(Thursday, May 10. 2012 11:16 AM)

No one jumping the bids today… so no sense of excitement. From the sell side you see large block orders come in on the limit and sellers can’t front run them fast enough. A lot of it might have to do with the punishment that has been doled out to any stock who even thought about posting a weak guidance. Seeing high PE stocks that were the next “it” taken to the wood shed to be slaughter for 50% in a day shows how bloated we were at the top. This is not remotely the market I pictured today. After such a sound beating one would think bulls would be value hunting. The only stocks show relative strength are the market leaders with low PE’s… and even they aren’t up big. This price action makes me think that 1343 was just a support breach, not a firm bottom that one could trade against.

[reply]

Michael Kudrna

(Wednesday, May 9. 2012 12:35 PM)

For CMHTraders – I’m prepared this summer for bad trading and keeping higher levels of cash than usual. Europe situation as you noted and the fear of another US Debt Downgrade/Debt struggles, among others.

[reply]

CMHTraders

(Wednesday, May 9. 2012 8:29 AM)

Remember a few years ago? The Euro currency gets pounded and our markets nosedive? The Euro rallies and we shoot up? Looks like that trade is reemerging with vengeance. The Euro is FIRMLY weaker here….

[reply]

CMHTraders

(Wednesday, May 9. 2012 8:18 AM)

AAPL/AMZN: I was able to cover my AMZN short near the lows yesterday and enjoy a rebound towards the close into which I re-initiated the short. This trade is acting more as a hedge against AAPL than a true pairs trade but I still stand by the thesis. These are the only two positions that I have on pre market.

[reply]

CMHTraders

(Wednesday, May 9. 2012 8:11 AM)

Euro back in the headlines. We really don’t have any of our own macro data to dig us out of the whole so buyers will have to step up to reverse the loss. Yesterday we got a turn after lunch. I wouldn’t look for that turn today if the markets violate yesterday’s lows. Bonds are approaching record highs… The problem is that indicator has diverged so much it’s tough to call a top. We were trading at these levels back in September but the market and volatility was infinitely higher. Should the market return to those levels both on a volatility level and absolute value level where are bonds supposed to go? Zero? The 10 year is already trading below inflation rate…. I wouldn’t listen too much to the chatter about bonds MUST come down. Some of the twits saying that are the same ones saying that there must be more QE. Which is akin to having your cake and eating it too.

[reply]

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