futures trading newsletter
DeCarley Trading brokerage clients enjoy two newsletters written by futures broker, Carley Garner, Both the DeCarley Perspective and the Financial Futures Report offer readers specific trading recommendations using option trading strategies (commodity option selling), long and short futures contracts, and option spreading techniques.
We are seeing history being made here folks...
One of the fundamental concepts of market characteristics is they generally don't go straight up or straight down, yet that is exactly what we are seeing in the e-mini S&P futures. We are seeing the stock indices achieving record-breaking streaks in regard to new highs and muted volatility levels. For example, yesterday the Dow posted the 10th positive consecutive close for the first time in four years and there have been only four occasions in history in which we've seen more than 10 positive closes in a row. The Dow also closed at a new high for the 10th consecutive day for the first time since January of 1987. Similarly, the annualized volatility thus far in 2017 is 5.9%, the tamest start to a year since 1966. Just as concerning, the S&P has gone 92 days without a 1% decline, this is the longest streak since 2006 and the S&P hasn't had a 1% intraday move since December 15th, this is the longest such streak in history!
The point is, the one directional trade and lack of volatility we are seeing in the ES is rare. And it is also dangerous. You might have noted a few of the years referenced above being on, or just before, significant market declines. We happen to believe this bull has quite a bit of room to run in the long-run, so we aren't looking for an 1987-style crash but it is worth noting that "never-ending" rallies can be unstable once they finally correct. Caution is warranted.
Citizens of Britain opted to take a bold stance, and the financial futures markets paid the price
If you were on the sidelines last night when the news hit, congratulations. It is easy to get sucked into the sorrow of knowing you missed out on some big market moves, but the reality is....most traders attempting to surf the waves of volatility wiped out. Either they were stopped out prematurely on the pre-Brexit realization, or they were too late to react and sold the lows in the ES (or bought the highs in the ZB). Many of my colleagues were watching the futures markets from afar, and happy to be experiencing one of the largest currency and Treasury moves in history with a bowl of popcorn in their lap instead of a bottle of whiskey.
We aren't even going to attempt to predict what Monday will look like. Nor will we make any trading recommendations until the chaos dies down. That said, we will be strongly considering adding to our short Fed Funds futures position early next week.
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The DeCarley Perspective is a trading newsletter with a focus on the commodity futures markets and options on futures trading. It is distributed to commodity trading clients of the DeCarley Trading brokerage service.
This commodity trading newsletter, written by Mad Money on CNBC, Bloomberg, and RFD-TV contributor, Carley Garner, provides a refreshingly honest and comprehensive perspective of the current commodity and financial market environments. The DeCarley Perspective is distributed several times throughout the month to those with an active commodity brokerage account with DeCarley. This newsletter covers both the futures and options markets for commodity products such as grains, meats, softs, metals, energies, currencies, interest rates, and stock indices.
In each edition of the newsletter, futures broker Carley Garner, of DeCarley will share insights into fundamental commodity market analysis in addition to the seasonal outlook of various futures markets. This futures trading newsletters includes a substantial amount of technical analysis performed on the commodity markets, with visual charts to support opinions. "The DeCarley Perspective" may contain specific trading recommendations (primarily option trading strategies) or broad-based commodity trading strategy ideas.
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The Financial Futures Report is a commodity trading newsletter distributed to DeCarley Trading futures brokerage clients, free of charge.
DeCarley Trading newsletters and educational articles are written by experienced futures broker and frequent television contributor, Carley Garner. Carley has managed to "garner" a loyal following in the trading community. Both beginning and experienced futures traders will likely find the content useful and hopefully profitable; particularly those day trading the e-mini S&P. Whether you trade options or futures you will likely be pleased with the guidance provided by The Financial Futures Report. If you are serious about learning to trade futures, this is a must-have!
The Financial Futures Report newsletter includes daily futures market commentary on Treasury futures (futures symbols ZB, ZN, and ZF) and stock index futures (futures symbols ES, NQ, YM), trade recommendations (largely option trading strategies), an insider's perspective, honest and reliable analysis, and commodity market strategy.
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* DeCarley Trading reserves the right to terminate trial subscriptions at any time. If you have already enjoyed a trial subscription, please open a trading account with DeCarley to continue receiving the newsletter.
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Are we finally going to see the correlation between stocks and oil soften?
In overnight trade, it was the same 'ol, same 'ol. Crude and stock index futures moved together in lockstep; we saw the same action in early day session trade. Yet, after the Fed meeting, each market seems to be willing to have it's own reaction to the Fed news. Crude oil squeezed, and held, well into positive territory while the stock market remained under moderate pressure. This probably isn't an immediate game changer, but it is a step in the right direction and is worth noting. Both assets trading as one isn't healthy for the financial markets, or the commodity markets. In fact, it should eventually be bullish for stocks...after all, they've taken a hit at the hands of the crude oil futures slide.
The big news of the day was the Fed meeting. The meeting itself was considered to be "dead" going in. This means that few (nobody) believed there was a chance for a policy change, but traders were hoping for hints regarding the pace of upcoming interest rate hikes. In a nutshell, they were very careful to leave a rate hike in March as a possibility, while simultaneously noting softening conditions that probably won't warrant another immediate tightening of credit. In the end, the news was relatively neutral to slightly bearish for stocks, but seems to have been enough to throw cold water on market volatility, which is a blessing in itself.
Drug Stocks and Homebuilders bring stock indices down
Off the cuff comments made by the President-elect yesterday regarding US drug companies and a realization that higher trending interest rates (despite the recent recovery) is hurting the housing market, soured the equity market rally. As is usually the case, the market wasn't reacting to changes in fundamentals but rather expectations of changes in fundamentals. Accordingly, as we go on traders will either retract their initial reactions to these events or add to them. At the moment we are merely seeing back and fill trade as expectations are tempered. Today's trade wasn't a victory for the bears or a defeat of the bulls, it was simple consolidation.
The economic docket for tomorrow is busy, but we doubt the market will be paying attention to the second-tier reports (PPI, Retail Sales, and Michigan Sentiment). The fireworks will likely be next week with the Presidential inauguration (who knows what types of market-moving comments could be made on both sides of the isle).
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Overnight volatility blamed on a surprise Australian interest rate cut, and weak data in China but...
Most business news stations were attributing the overnight selling in U.S. stock index futures to weak economic data in China, and an unexpected rate hike by central bankers in Australia. However, the Asian markets traded mostly higher on the news because they've fallen into the "bad news is good news" trap (weak data increases the odds of more stimulus). Further, lower rates in Australia should be a positive for the global markets overall.
We think a better explanation for the selling was the sharp move in the currency markets. The dollar index plunged well below 93.00, while the euro soared above $1.16. These are both major milestones, which were passed in volatile trade. Thus, we believe despite the fact that a weaker dollar will boost corporate earnings, the uncertainty of volatile currency trading prompted selling in U.S. and European equities.
Ironically, the seasonal low for the dollar and peak for the euro is due this week...so perhaps the currency markets are in the process of reversing course in the short-run. In short, last night's "break-out" might turn into a trap.
The euro will need to roll over for the ES to attract sellers.
The euro currency has been on an impressive run (much to our dismay) but few have acknowledged the impact the currency markets are having on stocks and commodities. In the last 180 trading sessions, the euro and the e-mini S&P have settled in the same direction roughly 70% of the time. Thus, strength in the euro has helped hold the stock market afloat.
Similarly, commodities such as crude oil and copper have benefited from the change in currency valuation but might not fare so well if the euro finally succumbs to gravity. In short, if the dollar can find a way to reverse course (AKA the euro weaken) we should see bellwether commodities turn south and they could easily bring the S&P 500 with them. Keep an eye on the currency market, it could be ready to turn the corner!
The energy futures market is still in control
It will be difficult for the stock market to get much of anything going on the upside, without stability in the energy market. Both crude oil and natural gas have fallen to levels of despair for energy producers. Further, economies in oil rich areas such as Houston, and parts of New Mexico and Colorado, as well as the Bakken, are slumping significantly.
As is often the case with bubbles, sometimes they are only obvious after the fact. I should have known when my brother, a long-time member of the oil industry disclosed to me that oil field workers were paying New York style rents for run-down trailers near Farmington New Mexico (an oil rich area).
With oil valued above $100 it was clear the there was some exuberance that needed to be worked out, but few would have predicted a $30 handle a year and a half later. Nevertheless, here we are...and ironically, investors are praying for higher energy prices to avoid debt defaults that could send stocks reeling. Luckily, the Euro seems to have put in a long-term bottom..if this is the case, oil should eventually follow suit.
See our thoughts on this in the latest DeCarley Perspective: https://madmimi.com/s/ed5507
Wednesday's long squeeze quickly became the Thursday/Friday short squeeze
Although in the heat of the moment on Wednesday morning, most online and TV chatter suggested the capitulation had yet to come, it seems it already had. The ES has rebounded nearly 100 points from Wednesday's lows and crude oil has bounced nearly $5.00 per barrel. It is unfortunate that margin calls, and fear, likely left a handful of bulls watching the recovery from the sidelines after they had realizing massive loses. Unfortunately, when volatility picks up, so do these types of stories.
Although this type of stop loss running and squeezing out the weak hands has always been a part of the financial and commodity markets, I would argue that computerized trading has increased the frequency of exaggerated moves. In the same manner natural gas futures traded well beyond reasonable fundamentals for three for four days in December prior to a quick snap back rally, we saw the same nonsense in oil and, therefore, equities.
If it weren't for the no crying in commodities rule, we might have shed a tear. Luckily most clients were able to ride the storm with most positions in tact...and at least for today, the S&P, crude oil, and the 10-year note is all moving our way.
North Korea tensions haven't broken the Teflon S&P
We've noticed that (assuming today closes in negative territory), 10 of the last 14 e-mini S&P 500 sessions have closed in negative territory, yet the index hasn't budged in value. In fact, it is a few handles from where it started the "red" streak. Normally, if the market had such a high rate of negative closes it would be a disaster for the value of the major indices. Is this sideways action the new bear market?
Consumer Confidence is at an all time high while stock market complacency is at an all time high. We have to wonder if this will eventually prove to be a dangerous combination; the world is simply too comfortable.
Market participants are high on the benefits of an easy money policy, but where will the next fix come from? Earnings are good but the market is "richly" priced at current levels. It hasn't paid to be a bear, but the risk of being "long and wrong" is growing rapidly.
The Financial Futures Report is a commodity trading newsletter focused on the e-mini S&P futures, the 30-year bond futures market, and the 10-year note futures.
The author, Carley Garner, is an experienced commodity broker with plenty of stories and insight to share. Garner keys off of her decade-plus experience as a futures broker to help readers navigate the options and futures markets. The Financial Futures Report contains general stock index futures and Treasury market commentary, but it also details trading ideas (primarily option trading strategies), technical analysis including support and resistance levels, and commodity trader chatter.
This publication is offered exclusively to DeCarley Trading commodity brokerage clients, but can be obtained temporarily via a trial.
Heavy commodities and light economic data weigh on stocks
Two consecutive days of sharp crude oil declines reminded traders of the chaos energy markets inflict on the financial markets. As a result, the e-mini S&P suffered moderate losses in overnight trade. However, it was weak economic data that kept prices under pressure throughout the session.
February retail sales came in at a a negative .1% for both the headline number and ex-auto. Although this was an improvement from January, it is hardly reason to go out and buy stocks. Similarly, the Empire Manufacturing data improved markedly from last month to a positive 0.6, but simply posting a slightly positive number isn't enough to get investors excited. Today's PPI data, reported a decrease in prices at the producer level of .2%. Thus, last month's hint at inflation was dissolved.
Tomorrow we'll hear about the latest data on consumer prices and housing starts, but I'm not sure it will matter to the market. All eyes are on the FOMC interest rate decision, which will be released at 2:00 Eastern.
The missing piece to the puzzle?
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Investors are on edge ahead of event risk
Thus far the summer of 2016 has been highly volatile, and we don't see any signs of this changing anytime soon. From grains, to energies, to currencies and, of course, the financials, there have been fortunes made and lost in the markets. We suspect this trend will continue well into the fall months. Accordingly, it is generally a good idea to try to keep speculative bets on the small side.
Risk-off assets such as Treasuries and gold are highly overextended despite the fact that equity market are hovering at relatively lofty levels. In our view, this offers a glimpse into the minds of investors; it is clear they are far from comfortable with the current environment. We can't blame them; we've yet to resolve the Brexit vote implications and we will soon be forced to endure the latest US employment report and, more important, it's potential impact on the Fed's interest rate policy. Soon after, the second quarter earnings season will roll out. With all of this in mind, it might be worth unloading some risk where possible.
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.
It has been a busy day in the futures markets, so we will keep things short and sweet.
I hope anybody watching their futures quote board today had a puke bucket sitting next to their desk. It is becoming difficult to stomach the massive volatility we are seeing in financial and commodity markets; except of course if you happened to catch a ride on the right side of the market. I can honestly say, very few are making money in this environment because it takes nerves of steel and plenty of risk capital to stick with a position long enough to enjoy the benefits. On the other hand, option sellers are having a difficult time managing runaway prices in both futures and options. With all of this said, we are likely near the end of the chaos, at least for now.
There comes a point in these types of environments in which the speculators either run out of money, gumption, heart, or all of the above. When this happens pricing will get more reasonable in both the futures and the options markets, and volatility will collapse. If I was a gambler, I'd say that inflection point was either today, or at least in the coming session or two.
Consumer Confidence at 125...are you kidding me?
The Conference Board's Consumer Confidence index for the month of March was reported on Tuesday to be 125.6! If I recall, this index bottomed out near 20 as the stock market was making what we now know as a generational low in 2009. I started to type that the March reading was the highest I've ever seen, before noticing that it printed a 128.6 at the end of 2000. In all fairness, I was a clueless college student in 2000 so even if it happened, I probably didn't actually see it.
The premise behind this index is that consumers are feeling emboldened by a positive view of business, labor market conditions, and the overall economy. On a side note, the survey responsible for this index was taken before the failure of the health care reform bill. Nevertheless, it is clear that consumers are feeling good and as a result, they are putting money to work in the stock market.
If you look at a long-term chart of the Consumer Confidence index, it almost identically coincides with the direction of the stock market. With this in mind, there could be some red flags waving. In the past, we've seen major tops and bottoms in the stock market at times in which the Consumer Confidence index is at extreme highs and lows, respectively. Particularly readings in excess of 100.
For instance, the last time the Consumer Confidence was this high in 2000, the S&P peaked dropping 50% over the next two years. Likewise, the Consumer Confidence was near 110 in 2007 just before the S&P fell 60% in the subsequent two years. Since the election, we've seen the Consumer Confidence index breach and hold above 100 for the first time since 2007 (and prior to that the early 2000s). Will this time be different?
*It is only fair to note that the Consumer Confidence hovered above 100 in the mid-2000s for quite some time before the stock market rolled over and during that time stocks rallied nicely (until they didn't).
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