Traders brace for further ABX technical squeeze

Traders are anticipating another week of strong action in ABX HE, after the unimpeded continuation of the index’s rally last week. Series 06-1 triple-A is now quoted at 74 - over eight points up from where it traded two weeks ago.

 Traders note there has been a technical squeeze on the index, driven by dealers but increasingly pulling in a wider array of hedge fund and proprietary trading desk participation. Subprime cash is also up some five points on average, they note, prompted by various bwics placed in the market.

 Initial short-covering on the ABX index soon developed into new long position plays as last week progressed, say traders. However, Friday saw good two way flow and volatility, with prices rising nearly four points only to return to near flat by the session’s close.

 Despite this retrenchment, dealers say that a further rally is the likely scenario this week, with activity strongest in 06-1 and 06-2 triple As and Pen triple-As.