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Painfully quiet trade
Traders refused to make any big bets ahead of the ECB meeting and the U.S. employment report...and we can't blame them. Today's directionless float might turn out to be the calm before the storm but speculating on event risk is tricky. For those that bet on the wrong side of the news, it can be an expensive lesson.
Payroll giant ADP will release its "Employment Change" report early tomorrow morning. This is intended to be a precursor (prediction of sort) to the government's data released on Friday. However, ADP has been challenged in regard to accuracy. Nonetheless, analysts believe ADP will report an addition of about 143,000 jobs in the private sector.
Traders have become accustomed to reacting to this report almost as much as they do the official employment report. Accordingly, look for a figure 120,000 or below to provide a bullish boost to Treasuries and bearish to equities. On the other hand, 150,000 or higher should see the opposite reaction.
Treasuries are slightly toppy, but news determines
Bonds and notes are teetering between technical resistance and fundamental uncertainty. The near-term direction will be highly dependent no upcoming event risk. We don't have a crystal ball, but we can tell you that there will be plenty of action.
If you are a bear, current levels are for nibbling. According to our models, there is a better than 50% chance that we'll see some sort of buy stop running before prices roll over. You never want to bet the farm in a quiet market!
If the news is bullish, we could easily see 153 in the December 30-year, if seen this would be a better place to consider more aggressive positions.
Keep in mind, if the ECB blows it or the non-farm payroll figure comes in sub 100,000 the intensely light volume could lead to a dramatic move into the 155 area in the December 30-year bond future. We aren't counting on this, but anyone with open-ended bearish exposure should take note.
Treasury Market Ideas
Consensus: Things could start getting near-term toppy up here. Preparing to look for bearish positions above 153 in the December 30-year bond knowing 155'15ish is possible. Similar levels in the December 10-year are 134, and 135'07.
Support: 149'03, 147'22 and then again 146'03 (30-year Bond), 134'01 and 133'13(10-year note)
Resistance: 153'03 and 155'16 (30-year Bond), 134'02 and 135'07 (10-year note)
Position Trading Recommendations
*There is unlimited risk in option selling
August 31 - Sell December 5-year note near 124'18, buy the 124.50 call for about 19 ticks for insurance. Total risk on the trade is approximately $220 before commissions and fees.
Yawn....ES going nowhere fast
The ES (S&P futures) have become unbelievably tame. For the most part, the September futures contract has traded in a 20 handle range since mid August.
September is notorious for being the worst month of the year for the S&P 500, so being overly bullish is a tough pill to swallow (especially with a historically low VIX); nonetheless, the market is putting off mixed signals.
In yesterday's newsletter we mentioned the best position trade ahead of the news might simply be to buy into volatility (buy cheap puts).This is nothing more than playing the CME lottery, but there just aren't any high probability trades to speak of. We are hoping for more clarity within the next week or so.
Stock Index Futures Market Ideas
Consensus: The chart is "clear as mud", we'll wait before making any bold calls...but being long volatility (via options) might not be a bad idea.
Support: 1386, 1372, and 1354
Resistance: 1418, 1427, and 1436
Position Trading Ideas
September 4 : Lottery tickets...buy volatility using cheap ES puts.
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: 1396 and 1388
Sell Levels: 1415 and 1429
In other markets....
September 4 : Buy a December futures contract near 81.65 and purchase an October 81 put for insurance. The max risk = premium paid for put and difference between futures entry and strike price of put (a little over $1,000 before commissions and fees). Profit potential is theoretically unlimited.
(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.
