September 5th, 2008
Lan Turner of Gecko Software interviewed by CFRA, now posted on www.CarleyGarnerTrading.com !
Blow of top in Treasuries, or simply another stepping stone?
The Treasury complex is well known for a "blow-off top", whether that is what we witnessed in today's session or not is yet to be seen. However, the potential is certainly there. Technical oscillators and indicators are screaming overbought but the steady influx of flight to quality money, along with seasonal tendencies and trend traders, have managed to leave bonds and notes at unexplainable levels. This isn't the first time that such extremes have occurred and it won't be the last. Our job isn't to question why a market is doing what it is doing, rather it is to trade it, survive it, and ultimately do so successfully.
With that said, it is unproductive to marry your assumption of Treasuries being overvalued. While that seems to be the common opinion that doesn't necessarily mean that the market will listen. In fact, it is arguably a reason for Treasury futures to continue the rally. The reversal will occur when the last bulls have entered the market and the drying essentially dries up. In the meantime, it is important that as a bear you are practicing responsible risk management. Regardless of how strongly you (and everyone else) may feel about the fundamental direction of a market, it isn't worth risking it all. Unfortunately, I have seen too many traders make this fatal mistake. It is an easy trap to fall into, but a difficult one to get out of.
Monday will be much more telling in terms of the direction of the bond market. I continue to lean toward the downside but respect this market's resiliency. In previous reports we had pointed out the possibility of a rally to the high 119's and have now seen it. Both the daily and weekly charts suggest that today's spike fulfilled much of the markets technical needs on the upside and may have been enough to wash out the fickle shorts. If this is the case, we should see lower prices in the coming sessions. I have my eye on 115'31.
Have a great weekend!
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 followed our recommendation on the 2 Year Note, you would be short a December futures from 106'15.
September 4 - Clients were advised to sell the 5 year note at 112'23 and to purchase an October 113 call option for about 45 ticks as an insurance policy against a possible rally. This is a synthetic put and has limited risk in the amount of the premium paid for the call and the distance between the futures entry and the strike price, plus commissions and fees of course. The trade involves unlimited profit potential. Call me for additional details.
Carley Garner
Senior Analyst / Commodity 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.
