Futures markets are recalibrating to China, but most of the pain is probably over

the financial futures report

Holiday futures markets didn't disappoint, but the Santa Claus rally did

As is almost always the case, thinly traded holiday markets made for some exciting trades. Perhaps they were most exciting for those on the sidelines watching from afar. A smart colleague summed up his trading in December with the following statement, "The holiday markets giveth, then they taketh away...and then some."

Volume on Monday was on the skimpy side as traders were still enjoying the holiday environment, but China essentially forced traders back to the markets. The Chinese government quietly implemented circuit breaker rules that forced the Chinese stock market to halt trading for two sessions in a row. In fact, today's session (which occurred last night for us) lasted only minutes before trade was halted.

Failure of the Chinese government to allow the markets to properly react to market conditions triggered a global sell-off. At times like this it is important to remember that the Chinese stock market is in its infancy, and is being regulated by an entity that detests capitalism. Nevertheless, they seem to be learning that markets cannot be controlled. The circuit breakers will be bypassed on tonight's market open. In our opinion, this is a big step toward stabilization; after all, with circuit breakers in place buyers were not allowed to step in to cushion the fall.


Treasury Futures Markets

t bond futures zb jan7

Bond Futures have been essentially directionless

The ZB and ZN have hovered in a tight range for several weeks (months in the case of the ZN). As a result, trend traders have been pulverized and swing traders have probably fared pretty well. Yet, we have a feeling the environment will see a dramatic change sooner, rather than later. If so, swing traders could be in store for frustration, while trend-traders might have a nice run. This is because, interests rates rarely stay quiet for long. We are expecting a rather large breakout at some point in the first quarter of 2016. Unfortunately, pinpointing the timing and direction will be tricky.

Treasury Futures Market Analysis

**Bond Futures Market Consensus:** We think there are bearish opportunities in notes and bonds near 128 and 158 respectively.

**Technical Support:** ZB : 152'30, 151'11, and 150'10 ZN: 126'10, 125'15 and 124'16

**Technical Resistance:** ZB : 157'14, 158'05, and 159'19 ZN: 127'10, 128'19, and 129'28

Both bonds and notes are hovering near levels which have previously triggered reversals. Thus, it is difficult to be bullish yet, the prices to be comfortably bearish won't come into play without a substantial rally. For now, we'll look for a potential run into the 158 area in the ZB, and the 128 area in the ZN to turn bearish.

Stock Index Futures

emini S&P 500 CME Group

China policies are breeding panic, but they might also be breeding opportunity

Price controls don't work, even in a communist country, because they prevent market participants from price discovery. Luckily, the Chinese government realized this relatively quickly and will open the flood gates in the next trading session. The most likely result will be swift selling on the open, but we suspect it will attract some buyers. Thus, get ready for plenty of overnight volatility.

To make things even wilder, the market will be digesting the latest U.S. employment data tomorrow morning. Perhaps, the positive light it sheds will "save" the S&P. Look for large dips overnight and tomorrow morning to try to get bullish, once the lows are found, the rally will be sharp!

If we get another round of selling in the morning, we'll likely be shopping around for short put opportunities.

Stock Index Futures Market Ideas

**e-mini S&P Futures Market Consensus:** This market is a mess, but in the end the bulls will probably show up. Look for a probing low following the jobs numbers tomorrow morning.

**Technical Support:** 1926, 1894, 1852, and 1823

**Technical Resistance:** 2026, 2083, and 2120

e-mini S&P Futures Day Trading Ideas

**These are counter-trend entry ideas, the more distant the level the more reliable but the less likely to get filled**

ES Day Trade Sell Levels: 1953 (minor), 1968, 1979, and 2005

ES Day Trade Buy Levels: 1926 (minor), 1894, and 1888

In other commodity futures and options markets....

November 24 - Roll long December corn into March to avoid delivery.

January 7 - Sell April crude oil 26.00 puts near 41 cents ($410).

(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)


Carley Garner

DeCarley Trading (a division of Zaner) 
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**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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