Economic news was thick, but futures trading volume was thin

30 year bond E-mini S&P Strategy Report

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Economic news was thick, but trading volume was thin

It was a rather eventful news day for financial futures traders, yet in the end had little impact on equity and currency trade but managed to move the bond market.Inflation data was reported to be relatively inline with expectations; the CPI for August sits at .2% with core at .1%. Empire manufacturing data is localized and therefore doesn't get much credence, unless it is a large miss. Ironically, today's report was decisively bearish for stocks and bullish for Treasuries, but failed to get the attention it deserved.Despite today's news events, trading volume remains sluggish. In fact, the average daily trading levels on the NYSE have fallen to the lowest levels since December of 2007! Christmas-like volume in August is hard to swallow and should be a clue for traders to stay on their toes. Any irrational reaction to news could be largely exaggerated.


Here's the dip, will 146 hold?

We've been patiently waiting for the Treasury market to "dump", so that we could be comfortably bullish from what we felt were better levels. Selling in the previous two sessions gave us what we were asking for; accordingly we issued a short option recommendation to try to take advantage of the dip (expensive puts).

The chart suggests that the down trend channel, and the 100 day moving average, meet near 146 and this "should" provide support. We are looking for a rally out of the hole, but at minimum we "should" see a moderate bounce.

Treasury Market Ideas

Consensus: Bullish on dips, possible eventual retest of July highs but looking for a moderate bounce to 149'24ish first


Support: 146ish and 144'02, then again near 143'30 (30-year Bond), 132'14 and 131'26(10-year note)


Resistance: 149'24 and 152'05 (30-year Bond), 134'02 and 135'01 (10-year note)


Position Trading Recommendations

*There is unlimited risk in option selling

August 14 - Buy the 5-year note futures contract near 124 and simultaneously purchase a 124 put for insurance. The put protects the trade absolutely beneath the strike resulting in a total risk of under $300 per contract. The profit potential is theoretically unlimited, but we are looking for a possible rally to the 125 area (which would net between $700 to $900 per contract depending on fill prices, etc.)


August 15 - Sell 1 October 30 year bond 142 put near 25 ticks or $390. 


The door is open to squeeze complacent shorts in the ES

We said it yesterday, and we'll say it again today...things are just too darn quiet. If trading from the short side of the market was as easy as selling a stalled rally, we'd all be rich.

Unfortunately, trading is much more difficult than that. In most trend exhaustion scenarios there is some sort of "I can't believe it" move that pushes prices further than most imagined. We think that is what could be happening in the e-mini S&P futures.

If you are looking to establish a bearish position trade, the best odds might be from higher levels (of course there are never any guarantees we'll see them, we are at the mercy of headline risk).

Don't forget about the VIX, it is extremely discounted...and markets don't stay content "forever"; a reading under 15 has often been accompanied with a market reversal. 

Stock Index Futures Market Ideas

Consensus: Bearish on rallies. Look for possible short squeeze above 1400 toward technical resistance (noted below) in the ES to be a bear.Support: 1375 and 1354Resistance: 1416 and 1428


Position Trading Ideas



Day Trading Ideas

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


Buy Levels: 1394 and 1386


Sell Levels: 1410, 1418, and 1424 



In other markets....

August 6th - Sell October crude oil 106 calls and 80 puts. Premium collected = 93 cents ($930)ยง  We recommend taking a quick profit on this trade, depending on fill prices it should be between $300 and $400 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) 
If you are enjoying this trial, click here to open a trading account to work with DeCarley Trading and/or use the state of the art futures and options platforms available to our brokerage clients.

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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. Please see full disclosure below.

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