treasury notes

  • 30-year Treasury futures short squeeze and never-ending ES rally

    the financial futures report

    We are seeing history being made here folks...

    One of the fundamental concepts of market characteristics is they generally don't go straight up or straight down, yet that is exactly what we are seeing in the e-mini S&P futures. We are seeing the stock indices achieving record-breaking streaks in regard to new highs and muted volatility levels. For example, yesterday the Dow posted the 10th positive consecutive close for the first time in four years and there have been only four occasions in history in which we've seen more than 10 positive closes in a row. The Dow also closed at a new high for the 10th consecutive day for the first time since January of 1987. Similarly, the annualized volatility thus far in 2017 is 5.9%, the tamest start to a year since 1966. Just as concerning, the S&P has gone 92 days without a 1% decline, this is the longest streak since 2006 and the S&P hasn't had a 1% intraday move since December 15th, this is the longest such streak in history!

    The point is, the one directional trade and lack of volatility we are seeing in the ES is rare. And it is also dangerous. You might have noted a few of the years referenced above being on, or just before, significant market declines. We happen to believe this bull has quite a bit of room to run in the long-run, so we aren't looking for an 1987-style crash but it is worth noting that "never-ending" rallies can be unstable once they finally correct. Caution is warranted.

  • e-mini S&P 500 futures bears need a currency market reversal

    the financial futures report

    The euro will need to roll over for the ES to attract sellers.

    The euro currency has been on an impressive run (much to our dismay) but few have acknowledged the impact the currency markets are having on stocks and commodities. In the last 180 trading sessions, the euro and the e-mini S&P have settled in the same direction roughly 70% of the time. Thus, strength in the euro has helped hold the stock market afloat.

    Similarly, commodities such as crude oil and copper have benefited from the change in currency valuation but might not fare so well if the euro finally succumbs to gravity. In short, if the dollar can find a way to reverse course (AKA the euro weaken) we should see bellwether commodities turn south and they could easily bring the S&P 500 with them. Keep an eye on the currency market, it could be ready to turn the corner!

  • The $ES_f couldn't make it three in a row

    the financial futures report

    The E-mini S&P traded lower two days in a row for the first time since late September.

    Although losses were minimal, the ES managed to settle in the red on two consecutive trading sessions to close out last week. In a normal market this wouldn't be worth a mention, but in this market, it is a rare occurrence. The last consecutive negative closes took place on September 25th and 26th. Before that, you have to scroll the chart back to early August!

    I doubt the _bulls_ are concerned in light of the fact that the ES is within 15 points of its all-time-highs. On the flip side, the _bears_ must be growing concerned over the fact that the seasonal tendencies from Thanksgiving through the end of the year generally call for higher stock prices.

    That said E-mini S&P futures traders are holding one of the longest positions we've seen this year. Thus, one has to wonder if the bulls will soon run out of capital. After all, most of the bears have already been squeezed out of positions. This is true even in the stock market, the percentage of outstanding short positions on individual equity products is near record lows.

  • Treasury futures might have found a bottom

    the financial futures report

    Inflation in check and economic data steady

    Yesterday we learned that October retail sales ticked to .8% beating expectations of .6%. We saw similarly positive news from the Empire Manufacturing index which was a positive 1.5 for the month of November despite a negative reading of 6.8 in the previous month. This morning, the government released the latest Producer Price Index (PPI) suggesting that inflation was stagnant. We'll get a clearer picture tomorrow morning with the CPI (Consumer Price Index) report, but if it is similarly benign we expect Treasuries to move higher on the news.

    From yesterday's newsletter just in case you missed it:

    Although it isn't grabbing headlines like the Treasury market is, the US dollar index likely holds the key to our financial future. If you recall, a stronger dollar puts pressure on commodity prices such as gold, crude oil and even the grains. We are also seeing money from overseas investors rotate into the greenback in search of yield and equity market performance. However, if the dollar continues higher, there could be trouble ahead for domestic asset prices.

    For instance, if the dollar index breaks above 101.50 it would likely result in a breakdown in commodities (below support levels which have been in place for months, and in some cases years). Similarly, Treasuries could continue to plunge. After all, if foreign investors are paying "top dollar" to exchange their currency to purchase securities, current Treasury yields won't be worth their while. They'll be looking to the equity market for gains.

     

  • We have an E-mini futures breakout on our hands!

    the financial futures report

    The market is pricing in a good payroll number as it reverses pessimism over North Korea

    Late Monday afternoon I was watching a business news station. The panel was discussing the implications of a North Korea missile being fired (they were still trying to confirm the rumor that it had occurred). There was talk of a limit down opening to the E-mini S&P (the news broke during the daily afternoon pause of trading). They were right about sharp selling on the open but the bearish tone was quickly forgotten by tax reform talk. Even a 500-year flood couldn't deter the fiscal policy bulls. By Thursday's close all of this week's bearish headlines had been forgotten.

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