QE squeeze ahead of holiday in Treasury and equity futures

Carley Garner Futures Market Strategist
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Supportive data, and the Bernanke put

 

The overall bias of today's economic data was moderately supportive. Factory orders were up an impressive 2.8%, the final reading of the August Michigan Sentiment was a better than expected 74.3 and Chicago PMI held it's own at 53.0. Nevertheless, traders had all eyes on Jackson Hole Wyoming and Bernanke's speech.

 

The Fed Chair didn't really offer anything new and exciting, but the markets reacted anyway. Perhaps traders were satisfied with simply consistency. Once again, the markets were reassured that the central bank stood ready to take action if necessary.

  

$ZB_f ZB-f Bond Futures Chart

  

We are still looking for 152 in the long bond

 

The Treasury complex is moving toward what we will soon consider a little over-extended. However, we continue to believe the September 30 year bond will see 152 by mid-next week. Nonetheless, traders might start wanting to prepare for bearish positions, or at least delta neutral short option strategies.

 

While the long bond might drag the 10 year and the 5 year a little higher, it seems the market could have significant troubles making gains above 135 "halfish" in the 10-year.

If you are long, you should be locking in or hedging your profits; if you are thinking about going short, we are at nibble areas but chances are we'll see better prices to be bearish from.

We have been using September figures for charting and noted levels, but all new trades should be done in the December contract. Beginning next week, we'll migrate to December charting.

  

Treasury Market Ideas

 

Consensus: Things could start getting near-term toppy up here. Preparing to look for bearish positions above 152 in the 30-year bond knowing 154ish is possible.

 

Support: 148'03, 147'01, and then again 145'09 (30-year Bond), 134'01 and 133'13(10-year note)

 

Resistance: 151'12 and 152'03 (30-year Bond), 135'02 and 135'16 (10-year note)

 

Position Trading Recommendations

 

*There is unlimited risk in option selling

 

August 31 - Sell December 5-year note near 124'18, buy the 124.50 call for about 19 ticks for insurance. Total risk on the trade is approximately $220 before commissions and fees.

 

5-year note technically overbought

 

Post Labor Day trade is statistically bullish

 

As mentioned yesterday, according to the Stock Trader's Almanac, post holiday Tuesday has been up 12 of the last 16 occasions. In 1997 the Dow was up 3.4% and in 1998 it was up over 5%.

Stats also point toward a tendency in the S&P to see strength early in September, only to close weak due to end-of-quarter mutual fund selling.

 

As horrible as the markets looked yesterday, they looked nearly as good today. The choppy, yet dangerously low volatility trade is often a precursor to much bigger things to come.

As position traders, we can't justify being overly bullish or bearish at this juncture but history suggests Tuesday is supportive. Perhaps day traders, or very short-term swing traders, might look to sell into a sharp Tuesday rally.

  

ES e-mini futures, snp, spoos

 

Stock Index Futures Market Ideas

 

Consensus: The chart is "clear as mud", we'll wait before making any bold calls.

 

Support: 1386, 1372, and 1354

 

Resistance: 1418, 1427, and 1434

 

Position Trading Ideas

 

Flat

 

Day Trading Ideas

 These are counter-trend entry ideas, the more distant the level the more reliable but the less likely to get filled 

Buy Levels: It is a long weekend, contact us on Tuesday

 

Sell Levels: It is a long weekend, contact us on Tuesday

  In other markets.... 

Flat

 

(Our clients receive short option trading ideas in other markets such as gold, crude oil, corn, soybeans, Euro, Yen, and more. Email us for more information)

   
DeCarley Trading
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 Due to time constraints and our fiduciary duty to put clients first, the charts provided in this newsletter may not reflect the current session data. 

**Seasonality is already factored into current prices, any references to such does not indicate future market action.

  

**There is substantial risk of loss in trading futures and options.** These recommendations are a solicitation for entering into derivatives transactions. All known news and events have already been factored into the price of the underlying derivatives discussed. From time to time persons affiliated with Zaner, or its associated companies, may have positions in recommended and other derivatives. Past performance is not indicative of future results. The information and data in this report were obtained from sources considered reliable. Their accuracy or completeness is not guaranteed. Any decision to purchase or sell as a result of the opinions expressed in this report will be the full responsibility of the person authorizing such transaction. Seasonal tendencies are a composite of some of the more consistent commodity futures seasonals that have occurred over the past 15 or more years. There are usually underlying, fundamental circumstances that occur annually that tend to cause the futures markets to react in similar directional manner during a certain calendar year. While seasonal trends may potentially impact supply and demand in certain commodities, seasonal aspects of supply and demand have been factored into futures & options market pricing. Even if a seasonal tendency occurs in the future, it may not result in a profitable transaction as fees and the timing of the entry and liquidation may impact on the results. No representation is being made that any account has in the past, or will in the future, achieve profits using these recommendations. No representation is being made that price patterns will recur in the future.

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