September 4th, 2008
Lan Turner of Gecko Software interviewed by CFRA, now posted on www.CarleyGarnerTrading.com !
Weaker stocks and the non-farm looming keeps Treasury bond futures bid.
Treasury bond trading was diverted into "anti-stock" trading as the flight to quality bid picked up in light of another down day on Wall Street. The Treasury markets have relentlessly marching higher as commodity prices as well as inflationary concerns dissipate. In recent months we have seen a dramatic shift in mentality in the interest rate markets from inflation focused trade to growth focused trade. It seems as though the coin is due to flip once again, but timing will be everything.
The yield on the 10 Year Note seems to be destined for the March/ April levels of 3.62%. This is arguably at an extreme level and seems to be unsustainable in the long-run, but we have all seen that in the short-run there are really no rules in terms of pricing or sustainability.
I can't help but feel as though the Treasuries have priced in a catastrophically negative employment report and that reality will have a tough time delivering. According to ADP's, typically off the mark, prediction the U.S. economy has lost approximately 33,000 jobs in the recent month. This considerably better than analyst estimates which are calling for a draw of about 70,000 jobs.
Based on current pricing in the Treasury markets, I feel as though it will take a much weaker than expected jobs number to prevent profit taking and keep short sellers on the sidelines. If I am wrong and we do see a sharp rally following the data, it will most likely become a great opportunity for the bears to position themselves on the short side of the market.
Some of the session buying may have been at the hand of a short squeeze. Given the lofty prices interest rate products are seeing, there looks to have been a large influx of small spec selling. Unfortunately, many were too early and are now paying the price by being forced to cover at elevated levels going into tomorrow's data.
The daily price action suggests that the 30 year bond futures should be nearing a high point; resistance can be found at 119'08.5. 117 should be a ceiling for the 10 year note...let's see what happens.
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.
August 29 - Put in an order in to buy the October 121 Bond calls back for 6 ticks or less.
September 2 - Hopefully, you were able to liquidate the position this morning at a nice profit. The low of the day was 7 ticks, had you followed the recommendation exactly you are still short the 121 call. If that is the case, continue to work the order at 6, but contact me for intraday guidance. It is better to pay a little more for it and get out, than to hang onto a trade to squeeze out a few extra bucks.
Treasury Futures Trading Recommendations
**There is unlimited risk in trading futures.
September 3 - If you followed our recommendation, you would be short a December 10 year note from 116'13.
September 2 - If you are looking for something a little "slower" in terms of profit and loss volatility, try selling the December 2 year note at 106'15.
Carley Garner
Senior Analyst/Broker
DeCarley Trading
cgarner@DeCarleyTrading.com
1-866-790-TRADE
Local : 702-947-0701
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.
