S&P topping, similar to September 2012?

Financial Futures Report by DeCarley Trading
  

Is the S&P putting in an intermediate term high, similar to September 2012?

 

The news continues to impress


This week has been stellar in terms of economic news and today didn't disappoint.  The latest estimate of fourth quarter GDP was an increase of .1%.  Clearly this is not a great number in itself, but it is better than most expected and in a market that has set the bar low that is enough reason to celebrate.  The Chicago PMI was reported at a better than expected 56.8 and jobless claims were over 20,000 less than most were looking for. Accordingly, the stock market bulls maintained an edge in today's session. 

From yesterday, but still valid

Being a Las Vegas resident, and an unlucky owner of a rental property in what has been called as "the hardest hit zip code" in the country...seeing sharply better housing numbers brings a smile to my face.  Apparently, the market likes it too!

We mentioned the blockbuster new home sales and Cash-Shiller data yesterday, but confirmation came with today's pending home sales.   For the money of January, pending home sales were up 4.5%.  Obviously, the housing market has a long way to go before crawling out of the hole that has been dug but this is a good start.  Eventually, higher home prices will encourage consumer spending as the "wealth effect" kicks in.  Naturally, this will take several months to progress.

  30-year Treasury Bond futures chart


Treasury bulls were overwhelmed by bearish news


Italian bonds posted gains for the second session in a row on widespread expectations of government stability.  After an inconclusive election, lawmakers are working to form a broad coalition government.  However, we've seen this movie before; although the outcome will likely be a positive one markets can be susceptible to violent reactions to the smallest of headlines.  In other words, this is no time to be complacently short Treasuries.  If you are playing the downside, it is best to have a hedge in place...despite the opportunity cost of doing so. 

Similarly, the markets have essentially ignored tomorrow's sequester in the U.S., perhaps rightfully so.  The sequester will amount to $85 billion in automatic federal spending cuts which the current administration warns will cut off the recovery.  Any surprises surrounding this event could breed investor panic. 

We'd rather wait for more clarity in this market before picking a direction.

Our opinion hasn't changed from yesterday:


We aren't willing to sell naked options in this market because implied volatility is rather low.  But we'll take a peek at the five year notes in the morning; it might make sense to have a synthetic put )long a call and short a futures contract.  Stay tuned.

**You should be trading the June contract, March is going into delivery.

 

Treasury Market Ideas
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**Consensus:** The market fell short of 147, we'll plead the fifth and see what tomorrow brings.

**Support:** 143'18, 142'06 and 141'23(30-year Bond),  131'18 and 130'28(10-year note)

**Resistance:** 146'28 and 148'23 (30-year Bond), 133'02 and 133'18(10-year note)

Position Trading Recommendations


*There is unlimited risk in option selling

Flat

March S&P futures contract technical analysis

1530ish will be the real test


Shorts have been squeezed, nearly to death, in the ES; and late comer bulls are scrambling to get long.  The current pattern feels a lot like what turned out to be an intermediate term top in September.  There were wild swings in both directions before the S&P finally succumbed to a 100+ point correction.  Accordingly, as great as the market has looked in recent sessions we've got to lean lower into rallies into the mid to high 1220s (possibly as high as 1230). 

We distributed a DeCarley Perspective newsletter this morning highlighting the risk of a Euro currency fall-out; if we are right about the Euro breaking below $1.30, it will likely take the S&P down with it.

Not much has changed from yesterday


Bernanke's testimony essentially re-filled the "free money" punch bowl.  We all know that the Fed can't continue with this policy forever, but according to the Fed chair there are no signs of inflation...and thus no reason to stop.  Accordingly, it seems reasonable to call this the "Bernanke Bounce".

We cannot deny there was some technical damage done to the equity market in recent days, but we also cannot deny the fact that it might not matter in the short-run.  Investors tend to have a tendency to satisfy their cravings now, rather than look ahead to the consequences.

I wish we had a crystal ball, and the magic words to go with it...but we don't.  All we can say is that futures traders MUST be willing to take profits, or at least protect them, when they present themselves.  In recent sessions the market has traveled 140 points in the S&P, or $7,000 to an e-mini trader, yet it is only 15 points from where it started!

Stock Index Futures Market Ideas

**Consensus:** 1530 is possible, but we can't help but grow bearish from there.

**Support:** 1482, 1474, and 1466,

**Resistance:** 1526, 1535 and 1544

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: 1501 and 1495, 1482

Sell Levels: 1527 and 1534

In other markets....


**February 21 -** Sell May crude oil $102 calls and $82 puts for about $1.40 in premium, or $1,400 (some clients were filled much better).

**February 27 -** We advised clients to offset their short crude oil strangles to lock in a profit of about $500 (or higher for some with better fills on the way in).   We'll consider reselling the strangles if volatility picks back up.

(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.**

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