FOMC minutes and the futures markets

Trade ES and ZB Futures

The Fed considered making a change, but didn't

The release of FOMC minutes (basically a transcript of the discussions that took place in the most recent Fed meeting), can't get much more boring than they were today.  There are days the minutes trigger nearly as much volatility than the actual FOMC meeting; obviously, this wasn't one of those occasions. 

The Fed minutes were exactly as most expected them to be.  All but one member supported the end of the quantitative easing program.  Further, there was some consideration of dropping the phrase "for a considerable time" in regards to their time frame to keep rates at record low levels. 

The Fed is expecting market "turbulence" once the decision to increase interest rates is made.  However, I'm not sure that is necessarily the case.  I would argue that most market participants are expecting higher interest rates in 2015, and most of them believe changes in monetary policy will be the culprit.  Thus, there shouldn't be a lot of panic.

According to the CME's Fed Funds Futures contract probability calculator, there is an 86% chance of the Fed increasing rates by December of 2015.

ZB ZN ZF Bond and Note Futures Contracts

Treasury traders are desperately looking for a reason to pick a direction

Bond and note trade continues to struggle for an identity.  Seasonal tendency suggests we should see bearish trade take hold in late November.  Most specifically, the Commodity Trader's Almanac points out that selling in late November and holding for 107 days (likely longer than most of your time horizons) yields relatively attractive prospects.  We aren't advocating that you do so, but it is worth keeping in mind as the next few months unfold. 
 
From a charting perspective, we are getting mixed signals from oscillators but the trading pattern is relatively loud and clear:  As long as prices in the ZB stay below 142'15ish, we should see prices make their way lower.  Simple trend-lines suggest the mid-138s could be possible.

Treasury Market Ideas

**Consensus:** If stocks continue higher, the ZB will likely move into the mid-to-high 138s.

**Support:** ZB: 139'26, 138'27, and 136'29 ZN: 125'24, 125'04, 124'16, and 123'17

**Resistance:** ZB:  142'16, 144'25, 146'04, and 147'29 ZN: 127'01, 128'10, 129'19, and 130'17

Position Trading Recommendations


*There is unlimited risk in option selling

Short January 136 puts and 145 calls for about 56 ticks (see details at bottom of newsletter).



2055 held nicely, but we aren't convinced the rally is over.  Can we get 2077?

In late October, we reminded traders of the swift seasonal bullish pattern that tends to take place in the equity markets going into the Thanksgiving holiday.  You might recall, we mentioned the month of November is ranked second in performance in all three major indices (S&P 500, Dow, and NASDAQ) on midterm election years.  We also mentioned that the week before Thanksgiving has been up  in 15 of the last 20.  For these reasons, we can't justify being in a hurry to get bearish.

Additionally, the day before and after Thanksgiving combined has seen losses in only 13 of the previous 61 occasions (according to the Stock Trader's Almanac). The best strategy appears to be coming into the holiday week with a bullish tilt with expectations of turning neutral to bearish into Friday's strength. Don't ruin your holiday by making big bets going into holiday trade!

ES SP S&P 500 e-mini Futures Contracts


Stock Index Futures Market Ideas

**Consensus:**  The resilience of this market has forced us to revise our upside targets.  We see the possibility of 2072ish. Thanksgiving has traditionally been bullish for stocks!

**Support:** 2012, 1970, and 1947

**Resistance:** 2055, 2072, and 2083

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**

Sell Levels: 2056 (minor), 2072, and 2083

Buy Levels: 2038, 2031, and 2024

In other markets....

June 12 - Buy September mini corn futures near 440.

July 8 - Add on to mini corn scale trade.

August 19 - Add to the mini corn and wheat scale trades by purchasing December mini futures contracts.

August 21 - Sell a December DX futures contract and buy an October 83 call for about $300.  The total risk on the trade should be about $1,000 before commission (depending on your fill prices).  The profit potential is theoretically unlimited.

August 26 - Roll September mini grains (wheat and corn) into December contracts to give the market more time to recover.

September 4 - Sell October DX 83 call to lock in a profit of about $700 before transaction costs.  The futures portion of this trade is underwater, we are hoping for a reversal in the coming week or so.

September 9 - Sell November Euro 133 calls and 125 puts for about 65 ticks ($812.50).

September 10 - Sell December crude oil 82/98 strangles for about $1.10 ($1,100).

September 15 - Buy March 2015 sugar 18.00 calls near 32 ticks.

September 24 - Buy back the November Euro 133 call to lock in a profit.

September 24 - We've reached our pain threshold in the dollar, let's exit the DX and go to the option market. We recommend selling double the quantity of the December Euro 123.50 puts and the 132 calls for about $800 per strangle.

September 29 - Buy back the December crude oil 82 puts to lock in a profit of $370 to $400 per contract, and replace them with short 86 puts.  This brings in more premium and rebalances the trade.

October 2 - Buy back November Euro 125 puts at a small loss (combined with call you should be slightly ahead, or at least breaking even on this venture after commissions).

October 2 - We made a big mistake rolling our 82 puts higher.  Let's rebalance the trade and look for volatility to decline by offsetting the existing strangle and selling the December 95/82.50 strangle.

October 9 - Buy back 95 crude oil calls to lock in gain on that side of the trade.

October 10 - Sell December crude oil 92 calls for about 60 cents to hedge the 82.50 puts. 

October 14 - Sell December bond 147 calls for about 30 ticks.

October 15 - Roll the December crude strangles into a January 70/90 strangle AND a December 74/88 strangle.

October 15 - We were clearly a day early on this one, roll into December 151/142 strangles.

October 17 - Buy back December bond strangles and sell 140/146 strangles to restructure the trade.

October 22 - Buy back December crude strangles to lock in profit of about $1,000 (this goes toward the premium lost on the 82.50 put).

October 29 - Buy back the 30 year bond 146 calls to lock in profit of about $500 per contract before transaction fees (this goes toward loss on original call sale).

October 29 - Buy back Euro 132 calls to lock in profit of about $300 per contract before transaction costs.

November 4 - Sell December Euro 128.50 calls for about 28 ticks.  This re-strangles the market and brings in a little more premium ahead of the employment report.

November 4 - Buy back December bond put at a small profit, then sell a January 145/136 strangle to establish a neutral short option strategy.

November 10 - Sell January crude oil 87 calls for about 40 to 45 cents.

November 17 - Buy back the January crude oil 87 calls to lock in a profit of about $230 to $260 per contract before transaction costs.

(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
Twitter:@carleygarner
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www.DeCarleyTrading.com
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.**


 

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