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Hi Im new here, someone showed me correlation trading on ZB and ES , and looks interesting. any material i can start with by reading for the new kid on the block?
I wanted to see if I could maybe get this thread moving again because I've been very interested in the bond futures recently.
I am no expert, but to answer your question on ES/ZB correlation I can tell you how I am reading things recently and justify my trade I put on today.
From what I have been seeing, bonds (ZT, ZF, ZN, ZB) have been showing a very inverse correlation with stocks. On a no-news day I will often see big spikes in the ES mirrored with an inverse spike on the bonds. So I have been trading ZN inversely to ES quite frequently when I think ES is tipping off a strong move that's about to happen in ZN. I assume this relationship has been holding recently due to a risk-on/risk-off mentality. I am a bit new to trading bonds so I welcome any additional perspectives on their relationship to stocks and any fundamentals influencing price.
However, today we saw bonds and stocks move up hard after the fed rate announcement and conference. I wasn't expecting this so I started thinking about the reasons why. I believe it was due to their comments on their balance sheet roll off intentions. They are now hinting at stopping the roll off sooner than before and ending with a higher balance. As someone who loves looking for correlations, I decided to go back in time and see how the balance sheet adjustments affected the price of the bonds.
As you can see, from sep through nov 2008 is when the fed started massively increasing their balance sheet. On about Nov 19 2008 you can see that ZB really started breaking out and rallying up hard. You could say that the uptrend intensified from this point on. There were big swings up and down, but overall we have been in an uptrend since then until about the beginning of 2018 when ZB broke sharply below the weekly 200ma.
So, bonds seem to rise when the fed increases the balance sheet and today they rallied when the fed signaled that it would not be decreasing it's balance sheet as much as they had thought previously.
The fact that stocks and bonds moved higher and held their gains today made me very bullish on bonds. The move in bond prices tells me that the fed's balance sheet has a higher weighting on bond pricing than the inverse correlation with stocks.
With all this in mind, I went long ZB today at 4pm ET. This is a swing trade that I intend to hold 1-3 weeks with a target of about 149. I'll follow up with an explanation of the trade from a charting perspective in a few here.
