July 16th, 2008
**See my monthly column, "Futures for You" in Stocks and Commodities Magazine.
Bond futures erased Monday's gains on a late reaction to this morning's hot CPI reading. According to the Labor Department, price pressures at the consumer level have risen at the 2nd fastest pace in 26 years. Naturally, approximately two thirds of the increase is directly attributable to energy prices. Although the initial reaction was relatively muted, the long bond worked its way lower (much lower) as the day progressed.
The headline CPI was reported to have jumped 1.1% last month to dwarf analyst estimates. Adding salt to the wound, the earning power of consumer's was dramatically crippled. After adjusting for inflation, earning power dropped .9%. This was the biggest monthly decline since September of 2005.
Today's trade seemed to primarily be the result of spread trading. A steeper yield curve looks to be the "flavor of the week" and that likely led to dramatically lower prices on the long end of the curve and relatively stable trade on the short end.
Are bonds a buy here? I think so, but I am not willing to recommend that you put your money on the line. The long bond sits on significant support between 115'0 and 115'10 but failure at this level, although I don't anticipate happening, could leave the 30 year vulnerable to a slide to 112'15. Given the recent volatility and uncertainty in the financial markets, the risk of being long seems too high to justify. If you are looking to be a buyer, tight stops are recommended.
The 10 year note appears to have a much healthier chart. Significant support can be found at 113'31 but my up side target is just over 116.
Option Recommendations
**There is unlimited risk in naked option selling.
June 27 - Sell the August 119 calls for 15 ticks or better, be careful with this!!
- June 30th - Place a GTC order to buy this back for 5 ticks or better
- July 14th - This order was filled in the overnight at 5 ticks, you should be out with a profit!!
Futures Recommendations
**There is unlimited risk in trading futures.
July 8th - Aggressive traders may look to sell a September bond at 117'07
July 9th - If you missed this one, change this order to 117'20
- July 11- Place a limit order to take a profit at 114'25 and a stop order at 116'09 to lock in a profit of about $900 before commissions and fees.
- July 14th - Hopefully you were able to take profits prior to the stop being filled. Had you followed this recommendation through to the end you would have been stopped out at 116'09 to take a profit of $937.50 before commissions and fees.
Carley Garner
Research Analyst
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. Alaron Trading Corp. its officers, directors, employees and brokers may in the normal course of business have positions, which may or may not agree with the opinions expressed in this report. 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.
