February 1st, 2010
Carley's new book, "A Trader's First Book on Commodities" is now available at all major book outlets!
Treasuries waiting on equities
The Treasury market has lost some of its independence in the last few sessions. As the equity markets have been grinding lower, the inverse relationship between stocks and bonds is beginning to flare up. However, given the size of last week's stock market drop it is a bit surprising that bonds and notes didn't get more a of a lift.
Another relationship that shouldn't be ignored is the positive correlation between Treasuries and the U.S. Dollar index. A rally in the greenback has helped Treasuries maintain much of the recent rally. However, we feel as though the dollar might be overdue for some digestion trade. This could take some of the wind out of the sails of Treasury bulls.
On the other hand, the seasonal pattern for Treasuries this time of year points higher overall. Aside from a temporary dip in late January (I guess the recent consolidation was it), the market tends to grind higher.
After weighing all of these factors, it has become glaringly obvious to us that the technical and fundamental picture is mixed in the near-term and therefore we favor the sidelines. Accordingly, we recommended that those of our clients that participated in the short bond call recommendation get flat this afternoon. After-all, a majority of the premium had been made and there appears to be more risk than reward for those with open short option positions. Fills were coming back at 11 and 12 to lock in a profit of anywhere from 15 to 11 ticks per contract. Nobody will get rich trading this strategy, but we feel like a "base hits" approach to the markets offers better long-terms odds of success....of course there are no guarantees.
While we are waiting for a clearer picture, we see support in the 30-year near 117 and again in the mid-116's. However, we aren't sure that the bears will be able to take prices much lower. The 10-year note could see just over 117 but we caution those that are tempted to become overly bearish. The market might have a difficult time breaking through support in the absence of a full blown stock rally.
* 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. However, market analysis and commentary does. Charts provided by Track 'n Trade, Gecko software.
**Seasonality is already be factored into current prices, any references to such does not indicate future market action.
Treasury Bond and Note Option Trading Recommendations
**There is unlimited risk in naked option selling.
January 20 - Our clients were recommended to sell call options this morning against the rally. Specifically, we like the idea of being short the March 30-year bond 121 calls. Fills were being reported anywhere from 23 to 26 ticks or $395 - $406.
- February 1 - We recommended buying back this option for 11 or 12 ticks, fills came in accordingly and locked in a profit ranging from 11 to 15 ticks per contract minus commissions and fees.
Treasury Bond and Note Futures Trading Recommendations
**There is unlimited risk in trading futures.
Flat
Carley Garner
Senior Analyst / Commodity Broker
DeCarley Trading
1-866-790-TRADE
Local : 702-947-0701
http://www.decarleytrading.com/
http://www.commodityoptionsthebook.com/
*Due to the volatile nature of the futures markets some information and charts in this report may not be timely.
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.
