MrTopStep contributor George Cavaligos of MF Global gives us a unique look into how floor traders at the CME and other trading desks off the floor are approaching the treasury futures trade for this month's NonFarm Payrolls (NFP) employment report. This is a great example and explanation of why market history matters, but there are different ways you have to analyze it.
Tomorrow's NFP is the key.
Last month's NonFarm Payroll data, the market had been breaking and breaking until the NFP data release. The market was expecting a very large increase in the NFP numbers. We got a decent increase and the market initially sold off quite hard and quite quickly, but then it snapped back in a vicscious short covering move. This made it hard for traders to made adjustments to their trades and George thinks it hurt a lot of traders with short positions last time.
What does this mean for this month?
Traders are afraid something similar might happen again. They are covering their short positions ahead of the NFP number instead of waiting to react to the data when it comes out.
George Cavaligos thinks that opens up the downside for some risk and there may be several neat ways to play the short side with all those short sellers having already covered and stepping back from the market.
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