There wasn't a lot of news, but there was chatter

Trading Financial Futures and Options


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There wasn't a lot of news, but there was chatter


Ratings agency, Moody's, threatened to cut the U.S. credit rating if Congress doesn't do something about the approaching expiration of the Bush tax cuts...AKA, the "fiscal cliff". You might recall that Standard & Poor's already took action to account for the same concern.  Those that were trading last fall, likely remember the chaos that ensued leading up to, and beyond, Moody's putting the U.S under review with a negative outlook in August of 2011.


Nonetheless, most analysts agree that last year's market volatility in direct relation to the cut from to AA+. After all, there aren't too many debt markets with as much depth, liquidity and stability as U.S. issued and backed Treasuries. Even a slightly higher risk rating, wouldn't make any of the competing securities (global debt) look any more attractive.

Futures Contract, ZB


Chart is still neutral, Fed might change that


Bonds and notes didn't make any progress today, but that is to be expected in light of the upcoming auctions and Fed meeting.  Over the next two day's we'll get details on the demand for 10 year notes and 30-year bonds; judging by today's successful 3-year note auction we suspect they will be relatively positive outings for the Treasury.


Such auctions are often catalysts to a trend reversal, but with Treasury prices settling in the center of support and resistance areas, it is much more difficult to accurately predict direction. Accordingly, all position traders can do from here is wait for the Fed and auction news, and prepare to analyze any clues then.


This is a seasonally bullish time of year, so we prefer to see sharp selling on the news into support which time we'll consider being moderately bullish.


Treasury Market Ideas


Consensus: Potential reversal in the U.S. Dollar and the ES, and Friday's close above 149 make it difficult to get overly bearish, or bullish, Treasuries. Wait for the Fed for better opportunities

Support: 148'17, 145'29 and then again 145'02 (30-year Bond), 132'05 and 129'27(10-year note)
Resistance: 150'18 and 152'12 (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.

Buy the Rumor Sell the Fact?


The equity markets are clearly pricing in a positive outcome from the upcoming Fed meeting and a pending decision on whether Germany can help support its neighbors.


The Fed will begin a two day meeting tomorrow in which traders will be looking for any clues into more stimulus. However, it will be Thursday's conclusion of the meeting and accompanying statement that will eventually guide trade.  Meanwhile, Germany's high court will rule on whether the country will participate in the European bailout fund.


Each of these events point toward more money printing and potentially higher asset prices. Thus, the equity markets are on the climb. Nevertheless, if traders anticipated the move (like we think is the case) and reacted before the fact, we could easily see some profit taking once each of these events are confirmed. On the other hand, if either the Fed or the German government fail the bulls, it could get messy.


We lean toward being bearish on sharp rallies.

ES Futures Trading 

Stock Index Futures Market Ideas

Consensus: 1437ish through 1445 is a potential reversal area. Fed and Germany might have a hard time meeting the market's expectations!
Support: 1409, and 1390
Resistance: 1442, 1449, and 1454

Position Trading Ideas

September 4 : Lottery volatility using cheap ES puts.
September 7 : Sell October 1470 ES call for about $8.00 in premium ($400)

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: 1424 (minor), 1409, and 1396
Sell Levels: 1442, 1449 and 1454  

In other markets....

September 4 : Buy a December DX 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)

DeCarley Trading
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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.


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