In the most recent Commitment of Traders report, small traders in the Chicago Board of Trade’s two-year Treasury note futures market shifted their net position from long short. Historically, when this crowd takes such an action, it is usually prudent to act in the opposite direction. With a closing price on Monday at 105'27, let us look closer at the details of what happens after this event, according to history.
Q: How has the Two-year note futures market responded in the past when, while trading above its 100 and 50-day averages, small traders shift their net position from long to short?
A: According to the 11 previous occurrences of this event, omitting repeat occurrences within 10 trading days, two-year notes have shown a strong bullish edge that peaks six trading days after the event. Thus, the projected date for the peak of the bullish edge relative to the most recent occurrence of the event (Monday, Dec. 3, 2007) is Tuesday, Dec. 11, 2007.
The two-year rallies in 73% of the cases (8 of 11) by an average of 0.3% relative to the close on the event date. The average of the three declines is 0.1%. The overall return of the 11 cases is 0.2%, which, based on the close on the event date (105'27), provides a target price of 105'54.
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HYPERLINK "http://www.markethistory.com/staff/detail.html?s=rsoudan" Ryan Soudan is an analyst with MarketHistory.com.
