More QE in Japan, markets rally

Trading the E-mini S&P and Treasury Futures

QE might be ending in the U.S. but the BOJ and the EU are taking the reigns

A few days ago U.S. investors considered the idea of selling equity shares on news of the end of the government's quantitative easing program.  However, they quickly changed their minds and opted to continue aggressively buying stocks.  As it turns out, that was a great move....QE isn't dead after all, we are simply going to let other countries do the dirty work from here.

Last night's BOJ QE bomb shell, and hints at the EU doing something similar, should keep the buyers in motion in the short run.   However, should the S&P start approaching our 2044 technical resistance area, we'll strongly consider turning bearish.

 ZB 30-year bond futures chart

Stocks are soaring, why aren't Treasuries selling off?

There is clearly some underlying concern over the sanity of the equity market. You can see substantial investor doubt built into Treasuries. 

In theory, we should have seen money flow from Treasuries into equities on this move.  Instead, we are seeing very little outflow from bonds.  This tells us that "Main Street" is still nervous...They refuse to leave the safety of bonds, despite the "riches" that are being made by those long the stock market over the previous two weeks. 

Until this changes, Treasuries will avoid what many believe to be the inevitable. We were hoping we'd see some sharp bouncing going into the weekend, but we were wrong.  Nonetheless, now that the BOJ action has been reacted do we believe the Treasury market has a shot at a short covering rally early next week.  If we get it, we'll likely look to sell calls against our short puts.

Treasury Market Ideas

**Consensus:** Support near 141 held, we'd like to see a rally from here.  Look for resistance near 144'25.

**Support:** ZB: 139'26, and 136'29 ZN: 125'29, 125'04, 124'16, and 123'17

**Resistance:** ZB:  144'25, 146'04, and 147'29 ZN: 128'25, 129'19, and 130'17

Position Trading Recommendations

*There is unlimited risk in option selling


e-mini S&P futures trading

This is a short squeeze, not an "investment" rally, thus it probably isn't done

We've been bullish in the S&P since the middle of October; but even the bullish of the bulls couldn't have seen this coming.  As fabulous as this rally has been for those that had plenty of ammo to act while prices were discounted, we can see in the price action that most of the "mom and pops" did the exact opposite.  On the morning of October 15th, most of the "folks" likely capitulated through equity selling and bond buying.  Meanwhile, speculators were clearly piling on the bearish trades in hopes of this correction being the "big one". 

Fast forward two weeks and we now now that these were ill-timed moves.  I'd venture to say that most of the buying on the way up in recent weeks has been at the hands of short covering.  Although some investors are clamoring to get back into stocks, it is clear they still have a lot of ammo (in the form of Treasury holdings that can eventually be sold with the proceeds used to buy equities).  With this in mind, we suspect that this rally could reach 2044ish before finding any significant resistance.  Should this price be seen, we'll strongly consider turning bearish.

Stock Index Futures Market Ideas

**Consensus:**   This might be too far too fast, but it probably won't matter.  We wouldn't be willing to consider getting bearish until prices see 2044ish in the ES.

**Support:** 1958, 1927, 1910, and 1882

**Resistance:** 2018, 2028, and 2044

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**

Sell Levels: Let's see what Monday brings.

Buy Levels: Let's see what Monday brings.

In other markets....

June 12 - Buy September mini corn futures near 440.

July 8 - Add on to mini corn scale trade.

August 19 - Add to the mini corn and wheat scale trades by purchasing December mini futures contracts.

August 21 - Sell a December DX futures contract and buy an October 83 call for about $300.  The total risk on the trade should be about $1,000 before commission (depending on your fill prices).  The profit potential is theoretically unlimited.

August 26 - Roll September mini grains (wheat and corn) into December contracts to give the market more time to recover.

September 4 - Sell October DX 83 call to lock in a profit of about $700 before transaction costs.  The futures portion of this trade is underwater, we are hoping for a reversal in the coming week or so.

September 9 - Sell November Euro 133 calls and 125 puts for about 65 ticks ($812.50).

September 10 - Sell December crude oil 82/98 strangles for about $1.10 ($1,100).

September 15 - Buy March 2015 sugar 18.00 calls near 32 ticks.

September 24 - Buy back the November Euro 133 call to lock in a profit.

September 24 - We've reached our pain threshold in the dollar, let's exit the DX and go to the option market. We recommend selling double the quantity of the December Euro 123.50 puts and the 132 calls for about $800 per strangle.

September 29 - Buy back the December crude oil 82 puts to lock in a profit of $370 to $400 per contract, and replace them with short 86 puts.  This brings in more premium and rebalances the trade.

October 2 - Buy back November Euro 125 puts at a small loss (combined with call you should be slightly ahead, or at least breaking even on this venture after commissions).

October 2 - We made a big mistake rolling our 82 puts higher.  Let's rebalance the trade and look for volatility to decline by offsetting the existing strangle and selling the December 95/82.50 strangle.

October 9 - Buy back 95 crude oil calls to lock in gain on that side of the trade.

October 10 - Sell December crude oil 92 calls for about 60 cents to hedge the 82.50 puts. 

October 14 - Sell December bond 147 calls for about 30 ticks.

October 15 - Roll the December crude strangles into a January 70/90 strangle AND a December 74/88 strangle.

October 15 - We were clearly a day early on this one, roll into December 151/142 strangles.

October 17 - Buy back December bond strangles and sell 140/146 strangles to restructure the trade.

October 22 - Buy back December crude strangles to lock in profit of about $1,000 (this goes toward the premium lost on the 82.50 put).

October 29 - Buy back the 30 year bond 146 calls to lock in profit of about $500 per contract before transaction fees (this goes toward loss on original call sale).

October 29 - Buy back Euro 132 calls to lock in profit of about $300 per contract 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)

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.**


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