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Slow news dayWe meant non-existent. There were absolutely no scheduled economic reports scheduled for today. The only piece if "fresh" information traders had to guide their actions was a circulated article from a German magazine that suggests the European Central Bank is considering a plan to cap relative yields on the debt of distressed Euro Zone members. Simply put, the borrowing costs for nations such as Greece and Spain, would be tied to some sort of "German rate plus determined risk premium". However, the next central bank meeting isn't until September 6th, so we likely won't get clarity until them.
Did we say slow?
Yields across the curve were relatively unchanged on the session. The unsubstantiated news of EU yield caps likely took some of the safe haven bid away from U.S. issued Treasuries. However, as the day progressed the impact of the news lessened.
Although we have nearly three weeks until the next FOMC meeting, there is already plenty of speculation. We are hearing widespread expectations for policy makers will extend their pledge for historically low interest rates into 2015, rather than the original 2014. Even further, it seems nearly half of analysts are looking for further credit easing of some kind by the Fed (possibly as early as the upcoming meeting).
We are slightly disheartened by the lack of a timely reversal in Treasuries, but that doesn't mean we have changed our mind. We continue to look for some sort of "rally out of the hole". If you don't want to be long, we suggest you avoid being a naked short...if things turn around, the squeeze will be swift and unforgiving.
Treasury Market IdeasConsensus: We aren't giving up on a fall rally, this large dip could prove to be a great buy. A 'normal' market bounce would see 149'22ish first.
Support: 144'02 is the next major support area, but 144'21 will provide a moderate floor(30-year Bond), 131'26 and 131'09(10-year note)
Resistance: 149'22 and 152'05 (30-year Bond), 133'26 and 134'25 (10-year note)
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.
ES and NQ trending higher, but can the rally last?Just as the idea of an ECB intervention of rates worked against Treasuries, it worked in favor of equities. Similar to last week's COT data, this week's CFTC report on net long and short speculative positions offered only minimal help. Both large and small speculators are comfortably neutral in regard to the large S&P futures contract. However, the e-mini stats reveal that small speculators are getting rather comfortable on the long side. This should warrant some caution for the bulls simply because there might not be many buyers left.
The NASDAQ has quietly rallied to nosebleed territory. As many traders learned earlier this year, high flying tech stocks (namely Apple) can often surpass the most optimistic expectations. Accordingly, it is typically a good idea to have protection. We noticed that it might be worthwhile to construct a bearish put spread using the September NQ options (e-mini NASDAQ).
For instance, it is possible to buy the 2770 put and sell the 2700 put for a combined premium of $400. This provides a trader with risk limited to $400 plus transaction costs, and a max profit potential of $1,000 if the futures price is below 2700 at expiration.
Alternatively, a trader could go short a futures contract, while purchasing an at the money call option (2780 strike), and selling a 2700 put to help pay for it. This trade offers a max risk of $480, and a max profit of $1,120 before transaction costs are considered. The net result of the two ventures is similar, but it is easier to offset futures in the after market or in volatile conditions (relative to the put spread).
Contact us if you have questions, comments or concerns about implementing such a trade.
Stock Index Futures Market IdeasConsensus: Bearish on rallies. The squeeze is on! Resistance at 1416 is holding, but we can't rule out the mid to high 1428's before things possibly roll over.
Support: 1383 and 1358
Resistance: 1416 was reached, the next significant level will be 1428
Position Trading IdeasPut spreads and synthetics in the NQ and the ES, call us for details
Day Trading IdeasThese are counter-trend entry ideas, the more distant the level the more reliable but the less likely to get filled
Buy Levels: 1408 (minor), 1401 and 1396
Sell Levels: 1419, 1428 and 1434
In other markets....Flat
(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)
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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.**
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.