Green screens headed into the weekend

 

Futures Trading Newsletter and Commentary by Carley Garner

 

Nearly all asset classes enjoyed gains

A much weaker than expected home sales figure sparked a QE rally that impacted the financial markets, as well as the commodity markets.  As we've come to learn, "bad numbers are good" when it comes to asset prices simply because weak economic data encourages the Fed to keep fueling the stimulus fire.  Today was no exception. 

New home sales were reported to be 394,000 in the month of July.  This is down from 455,000 in June, and well below expectations of 485,000.  It is clear that the recent run in interest rates has had a toll on home sales, but we doubt weak home sales will be a new trend. 

As the resident of one of the biggest boom and bust cities in the country, Las Vegas, I get the pleasure of seeing economic trends in a magnified state.

Home buyers are scrambling into purchases out of fear that the current relatively high rates, will be even higher in the future.

Similarly, those that foreclosed or sold their homes short at what turned out to be the lows in the real estate market, are trying to get their foot back in the door.

It is a full-on real estate short squeeze!

If Treasuries find an intermediate low (as we believe they will) and interest rates peak out, home buyers could easily flush the markets.  Of course, this could take a few months to play out. 

Bond futures contract chart

Bottoming or just a bounce?

We'll know by the middle of next week whether Friday's action was a legitimate low, or if it was another head fake in a treacherous bear market. 

For what it is worth, we've noticed that major bear market moves in the 30-year bond futures have had a tendency to run their course after a 20 handle decline.  In this scenario, we've seen the long bond fall from about 150ish to 130ish. You probably don't need a calculator to conclude the spread from peak to valley is at the magic 20 handle mark.  Obviously this is an overly simple view, there are an unlimited number of factors in play.  Nonetheless, markets like patterns and this is one we've noticed. 

If we are dead wrong, and the market isn't finding an intermediate low near the 130 level the slide could see prices as low as 126.  Nonetheless, yields are higher than they've been in years; we believe at some point soon investors will opt for safety and a guaranteed coupon. 


We agree with our friend, Larry McDonald...

Click here for Larry's thoughts: http://www.cnbc.com/id/100977871

Treasury Market Ideas


**Consensus:** The relief rally is finally here.  We are looking for follow through buying next week.  We'll need a break and hold above 133 to give the bulls an edge.

**Support:** ZB: 129'10 and 128'18 ZN: 124'11 and 123'30

**Resistance:** ZB: 132'29, 134'12, and 135'13  ZN: 125'27, 126'08 and 127'11

Position Trading Recommendations

*There is unlimited risk in option selling

August 15 - Sell October 30-year bond 126 puts near 29/30 ticks, or $468.

August 22 - Buy November 10-year note 127 calls for about 13 ticks.  These are limited risk "lottery tickets" or "flyers" just in case the rally gets hot!

S&P 500 Futures Price Chart Trading Analysis

The oversold technicals will soon be alleviated

There has been a lot of talk about the massive re-balancing of portfolios in which investors move into stocks and out of bonds.  Many have spent the last several months clamoring to buy stocks and sell bonds with seemingly little preference in regard to price.  Most TV pundits seem to believe this will continue, but we have our doubts.  Stock yields are no longer paying more than Treasuries and investors perception of risk seems to be distorted.  In other words, the market is scared of bonds and too comfortable with stocks (which is the opposite of historical norms).

We remain overall bearish the equity market in the near-term, but the bounces will be big on the way down (assuming that is where we are going).

This bounce was needed for the market to digest the sell-off from the 1700 level (which involved little back and filling trade).  We were looking for the mid 1660s, today's high near 1663 was pretty close but it might not have been was quite enough to satisfy the market's "needs". 

If the mid 1660s don't hold, it is possible we see 1673 through 1676 but we have to think the upside is limited to these technical levels. 


Stock Index Futures Market Ideas

**Consensus:** We think this is the beginning of a bear, the bounce might be short-lived. Look for resistance near 1665 and then again from 1673 to 1676. 

**Support:** 1636, 1626 and 1592

**Resistance:** 1665, 1676 and 1696

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: Let's see what Monday brings

Sell Levels: Let's see what Monday brings


In other markets....
----------

June 24 - Sell September 85/101 crude oil strangle for about $1.60, or $1,600.

July 1 - Buy back the September 85 put to lock in a profit of anywhere from 60 to 65 cents (depending on fills) before commission and fees.  We'll hold the short 101 call for now and will consider re-selling puts to re-balance in the coming days.

July 5 - Roll 101 crude oil calls into September 109/93 strangles and October 110/89 strangles.  This slows the trade down and spreads the risk to both sides of the market at distant prices.

July 16 - Buy back September crude 93 puts (some have 92s and 93s) to lock in profit of anywhere from $400 to $650 depending on strike price and fills before transaction costs.

July 24 - Sell September crude oil 99 put for about 58 cents or $580 to re-strangle the oil market.

July 25 - Roll October crude puts into 94 puts (buy back existing put and sell the 94).  Depending on exact strike and fill prices, most clients were locking in anywhere from $400 to $600 per contract before transaction costs.  This moves re-balances the strangle to make it neutral. 

July 26 - We like the idea of nibbling on bullish positions in corn via either long mini futures (near 495) or long September corn 520 calls for about 5 cents.  Both are low risk ways to play a possible 20 to 30 cent recovery in prices.

July 30 - The seasonal low in natural gas is looming, we like the idea of buying a mini futures contract near 3.45.

July 30 - Buy back all September crude oil calls. If you are holding the $111s your profit should be somewhere between $450 to $500 before transaction costs, if you have the $110s it should be somewhere between $550 and $600 before transaction costs, if you have the 109s it should be somewhere between $500 and $550 before transaction costs.

July 31 - Buy back September crude oil 99 puts near-break even (they were put on to hedge our short calls and are no longer needed).

August 13 - Buy back October crude 94 puts near 20 cents to lock in a profit of 50 cents or $500 per contract before commissions and fees.  We'll hold the short calls for now.

August 20 - Sell the October 98 put for about 48 cents ($480).  This brings the position back to a neutral strangle).

(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 (a division of Zaner)
Twitter:@carleygarner
This email address is being protected from spambots. You need JavaScript enabled to view it.
1-866-790-TRADE(8723)
http://www.decarleytrading.com
http://www.atradersfirstbookoncommodities.com


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.**

Follow Carley Garner on Twitter