A short and sweet look ahead at the week in the ES and ZB

 

Greek debt impact on stock market

 

G-20 meeting and Greek debt negotiations on the forefront

There weren't any economic reports on Monday's schedule, but that doesn't mean there was a shortage of news.  Traders are focusing on The European Union's debt negotiations with Greece, and are hoping to get more insight into the EU climate via the G-20 meeting in Turkey. 

Despite solid economic data in the U.S., there is concern that an already struggling Euro zone will be further damaged by a potential "showdown" with Greece.  For the sake of our retirement accounts, we'd prefer not to see a lot of drama play out.  Nevertheless, there will eventually be some sort of solution both parties can live with, because neither can afford the alternative. 

In the meantime, weak data in China and prospects of a Fed rate hike in June, has stopped the equity rally short (for now). 

In case you missed Friday's data, here is a recap:

According to the U.S. government, the economy added 257,000 jobs in the month of January.  However, the real headline was the upward revisions to the December and November reports.  Impressively, the November non-farm payrolls was adjusted to 423,000!  The December now sits at a "not too shabby" 329,000; further, the January figure is expected to be revised higher.

The unemployment rate ticked higher to 5.7%, despite analyst expectations of a stand-still at 5.6%  Some might be wondering how the unemployment rate could go up at the same time jobs are being added in droves.  The explanation is a positive sign for the economy; it means that the "civilian labor force" has increased.  In other words, U.S. citizens who were previously content being unemployed are now seeking employment and, as a result, they dilute the employment rate calculation.  Another optimistic aspect of today's data was a surge in wage growth.

We are a little surprised to see sluggish traded in the ES on the heels of such a hot report.  After all, the Treasury market wasn't shy in pricing in the new-found stability in employment.

Treasury Bond Technical Analysis

Treasuries bounce, but the bears have an edge.

Last week's Treasury bond sell-off was a mere drop in the bucket relative to the massive 2014 rally. Nevertheless, it was the biggest four-day sell-off in the complex since June of 2013. In our opinion, this might only be the beginning of a much larger selling spree...and possibly even a full blown bear market in Treasuries.

Ironically, many of the same analysts that were calling for a Treasury top in 2014 are now calling for a continuation of the bond bull.  They site arguments such as dramatically low yields in sovereign debt securities(dragging U.S. bonds higher), EU money printing to put upward pressure on Treasury pricing, and the strong U.S. dollar.  However, we believe fundamentals will change abruptly should the dollar falter; which is our expectation. 

The Euro tends to see seasonal strength through mid-March, thus the dollar should trade weaker in this time frame. If the currency market rolls over, the bond market should follow.  After all, the 30-year bond and the greenback have been moving together 93% of the time!

The bears will need to keep the March long bond below 149'20ish to keep the edge.


Don't forget the Fed Funds futures stats (as of Friday):

The Fed Funds futures contracts traded at the Chicago Mercantile Exchange, have adjusted expectations of the first Federal Reserve rate hike.  Specifically, the probability of the first rate hike taking place at the July meeting is now being priced in at 46% vs 31% yesterday.  The September contract is pricing the first rate hike odds at 63%, up from 47% yesterday.

 

 Treasury Market Ideas

**Consensus:**  That could have been "the turn".  Look for resistance near 149'20 to hold on any bounces to keep the bears in control.
 

**Support:** ZB : 146'30, 145'14, and 143'17 ZN: 128'15, 127'31, 127'10, and 126'05

**Resistance:** ZB : 149'20, 151'28, and 152'17 ZN: 129'30, 131'03, and 131'23

Position Trading Recommendations
*There is unlimited risk in option selling

Long March 138 puts near 20 ticks.

S&P 500 Futures Technical Analysis

The ES chart doesn't look so great, but the near-term direction is contingent on Greece and seasonals

We've lived (and traded) through a Greece fiasco before; the uncertainty over Greece finding funding and complying to terms leaves the market vulnerable to "chop suey" trade; but once a resolution is found the bulls quickly run over the bears. At least that is how it has played out in the past.

We have no way of guessing at the time frame, or the extreme, the chop suey will extend to but our guess is a resolution will happen.  When it does, the markets will likely celebrate.

According to historical stats available to us, the March S&P is a seasonal buy on or about February 7th through the 16th.  In the previous 15 years, timing such a trade would have netted a profit on 12 occasions (leaving 3 losing years).  The average profit was approximately $1550.  Although additional stats weren't readily available to us, we would like to point out that there could have been large draw downs at some point after trade entry, but before exit, that doesn't show up in this data.  Further, the 3 of 15 losing years might have been substantial...in other words, there isn't any easy money.  Nevertheless, the odds are calling for firmer pricing this week; accordingly, we believe that is the best way to approach the market 


Stock Index Futures Market Ideas

**Consensus:** The market hasn't proven it has what it takes to break out to the upside, but we believe it will.  If so, short squeezing and performance chasing should lead the market to 2100ish.  Seasonal stats are saying, "buy" this week.

**Support:** 2022 (minor), 1978, and 1965

**Resistance:** 2069, 2088, 2117, and 2132

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), 2069, and 2093

Buy Levels: 2033 (minor), 2015, 2002, and 1984

In other markets....

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

December 19 - Buy the March bond 138 put for 20 (or the 139 put for 25. 

December 19 - Get long the Aussie Dollar in a small way using e-micro futures.  We were buying near .8120 to .8080.

January 13 - Buy back March crude 40/58 strangles and sell the March 39/54 strangles using half the quantity to reduce risk.

January 14 - Sell March 30-year bond 156 calls for about 30.

January 22 - Buy back the March 30-year bond 156 calls to lock in a quick profit ($250 to $300 per contract for most before transaction costs).

January 22 - Sell March Euro 109 puts near 34ish.

January 23 - Sell March Euro 117 calls near 40 ticks to hedge the existing puts.

January 28 - Buy back the March 39/54 strangles, sell April 56/36 strangles.

February 3 - Buy back existing April crude oil strangles and replace them with April 42/63 strangles.

February 3 - Buy back existing March euro strangles, replace them with short March 111/118.50 strangles.


(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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1-866-790-TRADE(8723
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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