FOMC and option expiration on deck, back and filling in ES futures?

Heavy commodities and light economic data weigh on stocks

Two consecutive days of sharp crude oil declines reminded traders of the chaos energy markets inflict on the financial markets. As a result, the e-mini S&P suffered moderate losses in overnight trade. However, it was weak economic data that kept prices under pressure throughout the session.

February retail sales came in at a a negative .1% for both the headline number and ex-auto. Although this was an improvement from January, it is hardly reason to go out and buy stocks. Similarly, the Empire Manufacturing data improved markedly from last month to a positive 0.6, but simply posting a slightly positive number isn't enough to get investors excited. Today's PPI data, reported a decrease in prices at the producer level of .2%. Thus, last month's hint at inflation was dissolved.

Tomorrow we'll hear about the latest data on consumer prices and housing starts, but I'm not sure it will matter to the market. All eyes are on the FOMC interest rate decision, which will be released at 2:00 Eastern.


Treasury Futures Markets

June 30 Year Bond Futures Contract

Large speculators are going long interest rate futures, small specs are getting shorter 

We found the latest CFTC COT Report interesting in that it paints a picture of bullish large speculators in Treasuries (10-year note), at a time in which small speculators are getting slightly shorter. Neither of these groups of traders are holding substantial positions, but it is clear they are leaning in opposite directions. Further, we have to side with the "big boys" on this one. As we know, small speculators haven't fared will in their bearish Treasury bets for quite some time.

It "feels" like the Treasury market has priced in a chance for a Fed rate hike or two, in 2016. Any inclination by the Fed that they are "on hold" indefinitely, should send bonds and notes higher in tomorrow's session. On the contrary, if the Fed insists it is on track for multiple hikes this year, the Treasury complex might sag slightly (even in this scenario, we don't expect big sellers to come in as much of the bearish tilt is likely built into pricing).

Treasury Futures Market Analysis

**Bond Futures Market Consensus:** Treasuries suffered at the hands of the ECB, but they are still "cheap" relative to global bonds. Can we get a mercy bounce?

**Technical Support:** ZB : 160'27, 156'25, and 153'26 ZN: 128'07 and 127'23

**Technical Resistance:** ZB : 163'06, 165'14, 167'14, and 169'14 ZN: 129'20, 131'29, and 132'20

Stock Index Futures

e-mini S&P 500 futures technical analysis

**We used the March ES futures for charting and technical levels today, but we'll be moving into the June contract tomorrow!**

The ES is neutral going into the Fed, we could see 2040 or 1965 in short order

It is a relative "given" the Fed won't raise rates tomorrow. However, guessing the market's reaction to accompanying commentary is a complete crapshoot. We doubt prices will simply stay put; we believe the ES is destined for 2040 or 1965...but unfortunately, it is impossible to know which we'll see in the coming days.

Our best guess is for a move to the mid-1960s. This assumption is based on the premise of slightly overbought pricing, and the fact that the "smart money" (large speculators) is net short the ES, while the "dumb money" (small speculators) is long.

With that said, if you are looking to be a bear ahead of the Fed, don't get greedy. Seasonals in late March are positive, so any dip might be relatively shallow. We still believe 2040 will be seen.

Stock Index Futures Market Ideas

**e-mini S&P Futures Market Consensus:** Trend line resistance lies near 2040 (March), we'll probably see it sooner rather than later but the chart is suggesting a possible dip into the 1960 area first.

**Technical Support:** 1965, 1920, 1867, 1821, and 1798

**Technical Resistance:** 2043 and 2075

e-mini S&P Futures Day Trading Ideas

**These are counter-trend entry ideas, the more distant the level the more reliable but the less likely to get filled**

ES Day Trade Sell Levels: 2019, 2026, and 2042

ES Day Trade Buy Levels: 2004, 1987, 1971, and 1964


In other commodity futures and options markets....

November 24 - Roll long December corn into March to avoid delivery.

January 7 - Sell April crude oil 26.00 puts near 41 cents ($410).

January 14 - Sell March 10-year note 129.50 calls for about 19 ticks, or $300.

January 20 - Roll the April crude oil 26 put into the May 23 put to lower risk and margin.

January 28 - Buy back the May 23 crude oil puts to lock in profit, which went toward recouping losses on the original stab at it.

January 28 - Sell May crude oil strangles using the 25.50 puts and the 53 calls, collecting roughly $1,000.

February 3 - Buy back the March 10-year note 129.50 call, and replace it with a 2 short April 132 calls and 1 short 128 put. This spreads the risk out on both sides of the market, and slows things down.

February 3 - Buy back March ES 1600 put to lock in small profit and reduce risk ahead of payroll report.

February 9 - Buy back 53 crude oil call to lock in gain, sell 45 call to bring in more premium and give the position more balance (hedge the downside risk).

February 9 - Buy back the short ZN 128 put, replace it with 2 (double the quantity) of the 129 puts. This brings in more premium, and offers a better hedge to the upside risk.

February 11 - Roll ZN strangles higher to the 133.50/130.50 strikes to try to keep up with the rally and volatility.

February 17 - Buy back April ZN 133.50 calls to lock in a gain.

February 18 - Sell April ZN 131.50 calls for about 28 ticks to hedge the short 130.50 puts remaining from the original strangle.

March 2 - Buy back April ZN 131.50 calls near 8 ticks to lock in a gain.

March 3 - Sell April 130 calls for about 29 ticks to bring in more premium and hedge our short put position.

March 8 - Sell a May ZN 131 call for about 29 ticks. This brings our trade to only slightly bullish.

March 10 - Buy back the May ZN 131 call and all of the April 130 calls. This locks in profits on the call side of the trade, we'll hold the puts in hopes of a bounce.

March 14 - Sell May ZN 129 calls for about 40 ticks, to bring in more premium and hedge our downside risk.

(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)

Carley Garner

DeCarley Trading (a division of Zaner) 
This email address is being protected from spambots. You need JavaScript enabled to view it. 
**There is substantial risk of loss in trading futures and options.** These recommendations are a solicitation for entering into derivatives transactions. All known news and events have already been factored into the price of the underlying derivatives discussed. From time to time persons affiliated with Zaner, or its associated companies, may have positions in recommended and other derivatives. Past performance is not indicative of future results. The information and data in this report were obtained from sources considered reliable. Their accuracy or completeness is not guaranteed. Any decision to purchase or sell as a result of the opinions expressed in this report will be the full responsibility of the person authorizing such transaction. Seasonal tendencies are a composite of some of the more consistent commodity futures seasonals that have occurred over the past 15 or more years. There are usually underlying, fundamental circumstances that occur annually that tend to cause the futures markets to react in similar directional manner during a certain calendar year. While seasonal trends may potentially impact supply and demand in certain commodities, seasonal aspects of supply and demand have been factored into futures & options market pricing. Even if a seasonal tendency occurs in the future, it may not result in a profitable transaction as fees and the timing of the entry and liquidation may impact on the results. No representation is being made that any account has in the past, or will in the future, achieve profits using these recommendations. No representation is being made that price patterns will recur in the future.

Follow Carley Garner on Twitter