The U.S. Five-year Treasury Note futures market (CBT.FV) collapsed on Monday, plummeting 1.1% to close at 114-12. The move took the note two handles from last week's high, an incredible move and one denoted by the large five-day decline. Monday's very big decline came after Good Friday, a holiday that itself was preceded by shortened trading hours in the bond market thus perhaps all that happened was two and a half days of selling had to take place in one. If so, can we expect a Five-year bounce and if so, when?
Q: What happens when CBT.FV futures experience a very big decline a day after any Holiday?
A: Of the eight previous instances of the above event, all eight have rallied over the next four trading days with the result being a gain of 0.58% on average. The largest rally was 1.28% (which would regain all of Monday’s losses), with the meekest being .09%. The trade's Sharpe Ratio is 1.35 reflecting the trade's low standard deviation of 0.43%.
If you would like to see more details of this historical edge, go to www.markethistory.com
Jason Thompson is a Chicago-based speculator focusing on electronically traded derivatives and their underlying instruments.
