Medium term
Trade view / 22 October 2014 at 10:30 GMT

US 5-year note consolidates

Chief Investment Officer / ACIES Asset Management
Switzerland
Instrument: ZFZ4
Price target:
Market price:
Background

The treasury markets have been very exciting lately. Throughout the turbulence last week, we saw sharp spikes up on all durations. It was extremely overbought, and many trading models took their profits off the tables during this extreme phase. Now, however, we have backed off the overbought levels but remain in a very strong bullish phase. This current consolidation may prove to be a safer entry point.

Daily back adjusted futures continuation for the five-year treasury note
FV

Source: CSI Data

In the chart above, trade points are marked out for a counter trend trading model. This model enters into the direction of the main trend but only after a significant pullback. The model measures this pullback from the last peak and normalises the distance to current volatility. 

The last two trades this model did on the US 5Y ended profitably. It's now signalling that it's time to re-enter on the long side.

Management and risk description

This trading model uses a fixed stop and target in the market. This way, the potential gain or loss is known in advance. 

Buy into the December contract of the US 5Y. The ticker is normally ZFZ4. Set the stop and target in the market.

US 5 year treasury note dashboard
US5


Note that this market is traded in 32th.

Parameters

Entry: Enter on current levels, around 120'10.

Stop: Firm stop at 119'20.

Target: Take profits at 121'22.

Time horizon: Around two weeks.

December contract of US 5-year treasury
ZFZ4
 
Source: ThomsonReuters


-- Edited by Kevin McIndoe

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