Counter-trend Friday doesn't disappoint, sell in May stats

Financial Futures Market Trading Newsletter

Advanced GDP readings look bleak

Today's economic data was mixed, but trade seemed to focus on the much weaker than expected Gross Domestic Product while an optimistic consumer sentiment figure was shrugged off.  Specifically, advanced measures of first quarter GDP are calling for growth of about 2.5% vs. expectations of about 3%.  The Michigan Sentiment came in at 76.4, far better than analyst calls for 72.4. 

This week's data was largely bearish, but, as we know, the S&P moved decisively bullish.  We have a feeling the upside party will be limited, but we still have a few more days of April in which funds and money managers might look to chase performance and adjust month end holdings.  In other words, we could see some buying come in early next week, but we'd certainly prefer to be bears from moderately higher levels than to be bulls in what has become a very lopsided trade.

30-year bond futures contract chart

Once again, Treasuries react to stock market selling,  but not to buying

As noted in yesterday's newsletter, Treasury traders are quick to bid bonds and notes higher on the slightest selling pressure on Wall Street.  However, this week's sharp equity market rally failed to entice any sellers in the bond pits.  This tells us that there is some underlying tension, and plenty of speculation of an economic and equity market swoon. 

Only time will tell whether it is the stock market bulls, or the bond bulls, that are right...but they can't both be.  In the meantime, we'll continue to look for a press toward 150ish in the 30-year bond to find a place to be a short-term bear.

There were rumors of some very large sellers in the 5-year note futures this week.  Although the smart money isn't always right, we certainly pay attention to what they are doing.  


Treasury Market Ideas

**Consensus:** It feels like we are finally shooting for 149'20, but we'll consider turning bearish there.

**Support:** ZB: 146'16 (pivot), 144'20, and 143'17 ZN: 132'21 (pivot), 132'09, 131'23, and 131,01.

**Resistance:** ZB: 149'20 and 150'30 ZN: 133'20 and 133'30

Position Trading Recommendations

*There is unlimited risk in option selling

April 4: Sell a June 5-year note futures contract near 124'14 and buy a June 124.5 call for about 19 ticks to limit the risk on the trade to about $300 to $350 depending on fill prices.  This trad has little, to no, margin and offers theoretically unlimited profit potential.


Sell in May and go away?

Not much has changed from Thursday's session, aside from some back and filling trade.  Here is our overall attitude (taken from yesterday's newsletter):

There are never any guarantees the equity markets are peaking; but being bearish in an overzealous and overbought market at a time in which seasonls tend to turn from bullish to bearish, seems to be a rather high probability proposition.  According to our charts, this rally should find a band of resistance in the 1592 to 1598 area.  However, if the rally gets "out of hand", we can't rule out 1615ish.

We were hoping to see the mid to low 1590s this morning, at which time our plan was to sell some deep out-of-the-money calls using the June options.  Nonetheless, we didn't get what we were looking for.  We'll know early next week if we simply missed the trade, or were wise to be patient. 

If you are interested in seeing some stats and analysis on the "sell in May" phenomenon, our friend Wayne Whaley of Witter Lester wrote a study detailing the study. 

Click here if you would like to review it

*Seasonal tendencies are already priced into markets.  Thus, past performance is not necessarily indicative of future results.

ESM13, ES_f, S&P futures

Stock Index Futures Market Ideas

**Consensus:** 1585 objective reached, we think mid 1590s is possible but could mark the end of this run.

**Support:** 1545 (minor), 1530, 1509 and 1493

**Resistance:** 1592, 1599, 1613

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: Let's see what Monday brings

Sell Levels: Let's see what Monday brings


In other markets....

March 26 - Sell June crude oil 101.50/68.50 strangles for about $1.00, or $1,000.

April 12 - Buy back 101.50 call to lock in about $300 profit on that leg of the trade.

April 15 - Buy back 68.50 put back at a loss of a little over $1,000 (not including profit on call), roll into the July $97/81 strangle.  This adjustment will potentially recoup premium lost on the June puts and turn a nice profit if volatility dies.  It also slows down the trade and spreads the risk

April 26 - Buy back July 81 put and sell the July 86 put to re-balance the strangle.  The resulting trade is a short 97 call and a short 86 put; this trade is has a moderately bearish bias.

(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
This email address is being protected from spambots. You need JavaScript enabled to view it.

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.**

Follow Carley Garner on Twitter