Earnings keeping stocks up, while bonds retreat

Financial Futures Trading Recommendations and Commentary

A blowout initial claims report was offset by a weak home sales figure

This week's economic data has been relatively neutral. Despite a few surprises this morning, the net effect was a wash. 

Initial claims were reported at 284,000; far less than expectations of about 308,000 and the first print in the 200s we can recall in quite some time.  On the other hand, last month's new home sales figures were revised dramatically lower and this month's reading was well under analyst estimates.

Not surprisingly, markets viewed today's economic news as a non-event.  Tomorrow we'll hear the latest in Durable Goods orders, which are expected to be slightly positive.

Treasuries finally broke down, the bulls will likely want to be patient

The Treasury complex finally relaxed following several days of a Ukraine/Gaza induced flight to quality bid.  With the equity markets all but ignoring political tensions, bond traders couldn't justify further buying. We all know the mood can shift quickly, but for now the global markets are sighing with relief.

Seasonally, the Treasury market tends to move higher through the late summer and fall months.  In fact, over the previous 10 years the 10-year note has developed a pattern in which a mid-June low bleeds into an October high.  In the meantime, there is often a temporary high in early August; thus, traders are likely best off begin overall bullish in their trades (on large dips of course). 

Normal back and filling seems to be in the works.  If so, the September ZB should see 137 in the coming days.  However, this price will act as the pivot.  If it holds, the bulls will be seeking 139'24 but if it fails the bears will be eyeing 134'01.  The determining factor could very well be the direction of stocks.

It is clear that the equity market is in a severe bull-trend, but it is also at all-time highs. Should there ever be a shift in sentiment in stocks the Treasury market will be a direct beneficiary.

ZB 30-year Treasry Bond Futures Chart

Treasury Market Ideas

**Consensus:**  We'll be tabbing for clues near 137; it will be the pivot price.

 

**Support:** ZB: 136'24, 134'29, and 134'01 ZN: 124'27, 124'05, 123'27

**Resistance:** ZB: 138'27 and 139'24 ZN: 125'29, 126'13

Position Trading Recommendations
*There is unlimited risk in option selling

Flat

The Spoos are hugging the up-trend line...

The resiliency of stocks has been nothing less than breath taking.  The ES futures contract has defied gravity as it climbs the wall of worry (all the while being pinned to the up-trend line). 

A driver of higher equity prices has been upbeat earnings and positive economic data. Ironically, less tangible bearish news has been brushed to the side.  In any case, the market is always right and in this case we were wrong (or ridiculously early). 

Nonetheless, this is exactly why we opt for trading options rather than futures.  Although our option trades have been less than pleasant, and highly frustrating, the losses have been relatively moderate.  In addition, with option trading there is room for adjusting market risk and odds of success in mid-trade; futures traders are not afforded this luxury.  A futures trader is generally left to suffer or celebrate their trade from the get-go with little room for error. Option traders on the other hand, can be wrong and still, possibly, find a way to salvage a bad trade, or even make money on it.

ES, e-mini S&P 500, Futures Trading Chart

Stock Index Futures Market Ideas

**Consensus:** We prefer to be bears on rallies, but keep in mind that less is more.  Things could get wild from here...look for resistance near 1985 and 1996

**Support:** 1942, 1929, and 1915

**Resistance:** 1985 and 1996


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: 1974 (minor), 1962, 1954, and 1942

Sell Levels: 1986 and 1997

In other markets....

May 28 - Sell July ES 1950 calls for about $9.00. 

May 29 - Sell August 30-year bond 142 calls near 30 ticks.

June 3 - Buy June VIX near 13.30.

June 9 - Roll July ES 1950 calls into August 1970 calls for even money.

June 12 - Buy September mini corn futures near 440.

June 12 - Roll June VIX into the July futures contract.

July 2 - Roll August 1970 calls into 2 August 1995 calls.

July 3 - Roll July 1970 into September 2010 calls.

July 8 - Add on to mini corn scale trade.

July 14 - Roll July VIX into August (we are giving this one more shot).

July 17 - Sell October crude oil 108/95 strangles for about $1.00 ($1,000). 


(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)

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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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