August 27th, 2008
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Bulls regain control after early losses...
Treasury bears were beaten down by the markets buy all dips mentality and light trading volume. With little in the way of order flow, prices looked to be artificially broken down in early trade then recovered following a lack of sellers and discounted prices. With each passing day, I am finding less and less to talk about. The markets are extremely quiet ahead of the Labor Day weekend, please bear with us.
Early morning selling was in part due to a much better than expected durable goods number and upward revisions to the previous reading. Economists were looking for durable orders to be unchanged on the month but in reality they increased by 1.3%. The news took a hit at the bond market perception of a crumbling economy but the selling wouldn't last as many argue that a look beyond the headline figure told a different story.
The waffling buy arguably stable greenback looks to be keeping a floor under Treasuries, but that likely wasn't much of a contributing factor for interest rates recovering from the daily lows. Also supplementing the bond bid is yesterday's news that the list of troubled banks has risen t o17 in the second quarter, up from 12 in the first quarter.
By simply looking at chart of the long bond, it is easy to see that the market is facing technically overbought levels and may be due for a correction. The problem is that bond trade doesn't always follow the "rules". I see significant resistance on the September bond at 119'08.5 but I also see relentless buying pressure. When you throw thin volume into the mix, we could be in store for a sizable spike high before finally succumbing to a correction. Don't forget that this is a seasonally strong time of year for this market; it isn't wise to be in directly in its way. Accordingly, if you are short the 121 bond calls recommended below it may be a good idea to offset them on a quick reversal lower. Ideally we are looking for a correction to 116'27. At that point there should be little premium left in the options and the market may forge a swift recovery.
Note traders, the long awaited 117'17 seems as if it could soon be a reality. I still like selling futures at this level.
Treasury Option Trading Recommendations
**There is unlimited risk in naked option selling.
August 12 - If I am right, you may be able to sell the October 121 calls for 20 or better. Be patient and let the market come to you...if it doesn't it wasn't meant to be.
August 15 - This order would have been filled today. I am looking for an opportunity to buy this back quickly, contact me for details.
August 25 - Should the market have another day like today, it may be a good idea to add on. If you are properly margined and willing to take on the additional risk, look to sell the 122 call for 20 ticks or better.
Treasury Futures Trading Recommendations
**There is unlimited risk in trading futures.
August 18 - Sell 1 Sept. T-Note @ 117'17 GTC, contact me for guidance or if you have questions.
Carley Garner
Senior Analyst/Broker
DeCarley Trading
1-866-790-TRADE
Local : 702-947-0701
http://www.decarleytrading.com/
There is substantial risk of loss in trading futures and options.
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 and the giving of the same is not to be deemed as an offer or solicitation on our part with respect to the sale or purchase of any securities or commodities. 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.
