Brexit breaks the futures markets

the financial futures report

Citizens of Britain opted to take a bold stance, and the financial futures markets paid the price

If you were on the sidelines last night when the news hit, congratulations. It is easy to get sucked into the sorrow of knowing you missed out on some big market moves, but the reality is....most traders attempting to surf the waves of volatility wiped out. Either they were stopped out prematurely on the pre-Brexit realization, or they were too late to react and sold the lows in the ES (or bought the highs in the ZB). Many of my colleagues were watching the futures markets from afar, and happy to be experiencing one of the largest currency and Treasury moves in history with a bowl of popcorn in their lap instead of a bottle of whiskey.

We aren't even going to attempt to predict what Monday will look like. Nor will we make any trading recommendations until the chaos dies down. That said, we will be strongly considering adding to our short Fed Funds futures position early next week.

 

 

30-year bond futures chart

We were hoping for a Brexit fallout to get bullish Treasury futures from better levels, but we got the opposite...stay away for now.

For those up all night watching the fireworks, as we were, the 30-year bond was up about 8 full handles at its peak. If you've done the math, that means a one lot trader could have made or lost $8,000 in a few hours. That's a little steep for most personalities. Of course, the reaction was panic, particularly when the e-mini S&P went locked limit. Traders were buying Treasury futures to hedge against potential further declines in the e-mini S&P future (the CME was scheduled to increase the price limit from 1999 to 1957 on the day session open). As it turns out, there are a lot of bond and note buyers suffering from remorse.

We like the idea of staying on the sidelines until things calm down.

Treasury Futures Market Analysis

**Bond Futures Market Consensus:** Waiting and watching.

**Technical Support:** ZB : 164'16, 162'02 and 159'19 ZN: 130'17, 129'03, and 128'17

**Technical Resistance:** ZB: 171'03 and 172,12 ZN: 132'25, and 133'10

e-mini S&P 500 futures on Brexit Vote

We wanted to be bears in the e-mini S&P at 2125/2130 but it wasn't meant to be.

After printing 2119.50 last night, the ES fell to 1999. The 120 handle drop was fast and was probably mitigated by the CME's circuit breaker. Had the limit down price not been in effect, we could have easily seen a temporary collapse into the 1970s.

To be completely honest, we aren't sure what to do from here other than watch and wait.

Stock Index Futures Market Ideas

**e-mini S&P Futures Market Consensus:** Watch and wait.

**Technical Support:** 1981 and 1951

**Technical Resistance:** 2054, 2084, and 2125

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: Don't try to day trade...wait until things settle down.

ES Day Trade Buy Levels: Don't try to day trade...wait until things settle down.

In other commodity futures and options markets....

June 8 - Sell September corn 520 calls for about 10 cents.

June 14 - Sell September 10-year note 135.50 call for about 18 ticks or $437.50.

June 14 - Sell a November Fed Funds futures contract near 99.57.

June 20 - Sell October live cattle 100 put near 1.20.

June 21 - Buy back September corn 520 calls to lock in profit of anywhere from $300 to $250 per contract before transaction costs.

June 22 - Buy back short ZN calls to lock in small profit and cut risk ahead of Brexit.

June 23 - Go long corn futures near 392 using mini contracts (the beginning of a scale trade). Full-sized contracts can be used if available margin and risk tolerance is appropriate.

(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) 
Twitter:@carleygarner 
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1-866-790-TRADE(8723) 
www.DeCarleyTrading.com  
www.HigherProbabilityCommodityTradingBook.com 
 
**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.

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