The Bond Bulletin by Carley Garner

[carleygarner]

November 7th, 2008


Treasury Futures meet technical selling despite weak data.


Treasury traders had priced in a terrible jobs report prior to this morning's official announcement and as it turns out they were right to do so. After a quick knee jerk reaction to the upside, bonds and notes slid sharply from the highs to eventually trade nearly two and a half handles from the early highs. Those caught in the middle of the volatility, likely paid the price. Some traders note that the bond market had set the bar "very low" in terms of jobs expectations and simply ran out of buying following the announcement. This was a text book buy the rumor sell the fact example.

Non-farm payrolls dropped by an astonishing 240,000 last month with large downward revisions to the previous reading; in the same timeframe the unemployment rate jumped from 6.1% to 6.5%.

Despite selling pressure in longer maturities, the shortest end of the curve is still showing strength. In fact, the Fed funds futures are now pricing in another 50 basis points in target rate cuts by the January meeting. This is from a more measured quarter point priced in about a week ago.

Volume picked up today in light of the economic events but remains on the light side. Post employment report trade seemed to be all about covering and adjusting positions ahead of the weekend. Fridays have seen little trading volume in afternoon action as many have become accustomed to "long" weekends.

Treasuries have reached (or nearly reached in the case of the long bond and the 10 year note) our upside target levels and experienced subsequent selling pressure. As mentioned, much of the selling was end of the week squaring but technical traders certainly played a part.

From here we are less decisive on the overall direction but do see potential for another attempt at the highs and maybe even higher. I have found Friday's tend to be counter-trend days and can often mislead traders into believing that the trend has changed. Rather than falling into this trap, I prefer to see what Monday brings.

In terms of support and resistance; the 30 year bond is facing a roadblock on the upside near 118'03 and on the downside near 115'08. I believe that a close below 115'08 could mean another slide to 112. However, the 10 year note trade seems much more healthy. Resistance will likely be found near 116'19.5 and it seems as though we could see such levels early next week.

The five year note remains overbought, but nearly unresponsive to the fact. If you are nervous about the position recommended below, feel free to contact me. I am still confident in the long term prospects of the trade which was nearly breaking even at the time of this report.




Treasury Bond Option Trading Recommendations
**There is unlimited risk in naked option selling.

Flat

Treasury Bond and Note Futures Trading Recommendations
**There is unlimited risk in trading futures.

November 4 - Sell 1 December Five year note futures at 115'16.

Eurodollar Futures Trading Recommendations
**There is unlimited risk in trading futures.

October 29 - Sell 1 December Eurodollar at 97.79
• October 31 - Our clients were advised to buy the November 97.75 call for 17 ticks as an insurance policy. Assuming a fill at 97.79 the net risk on this trade is limited to $325 plus commissions and fees. The profit potential is theoretically unlimited!!





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.

 

[carleygarner]

November 10th, 2008


U.S. Treasury demand remains high in the face of low yields.


After being held down on supply concerns, the Treasury market enjoyed a shift in the demand side of the equation. Healthy demand in a 3 year auction led players to believe that the upcoming auction of $30 billion in 10 and 30 year issues will also see some buying interest.

Additional support likely came from this morning's round of corporate bankruptcy and going concern announcements. As domestic corporations scramble to raise cash, they have become sharply out of favor to the default risk free Treasury alternatives. Investors seem to be content with much smaller yields in exchange for less heartache.

The Fed Funds futures continue to price in a 50 basis point cut by the December meeting, and seem to be probing for even more cuts by early next year. I can't help but believe that the short end of the curve has completely outdone itself. Eurodollar prices are implying a yield of under 2% making a correction seem imminent. If you participated in the trade below, be thankful that you purchased the call as insurance and be patient. Assuming that you leave the spread intact, it can only get better from here. However, the long call expires on Friday and it may be necessary to adjust the trade in order to remain exposed to the market. Stay tuned for details.

Volume was extremely light ahead of the Veteran's day holiday. While electronic Treasury futures remain open for business as usual, the cash market securities and open outcry futures and options closed early today and will re-open on
Wednesday.


On Friday we noted that we weren't putting too much into the Treasury selling as it was believed to be driven by end of the week position squaring as opposed to market fundamentals. We also pointed out support in the 30 year bond futures near 115'08 and mentioned that it was necessary to hold above this area to keep the bulls in control. So far this has been the case leaving the next upside target in the long bond at 118'14. However, should equities attempt to retest the lows we could see 30 year bond futures rally to 120'24.

The 10 year note futures look to be well on their way to 116'24 with a longer term target of 117'30 should stocks spike lower in the coming sessions. I still believe that the five year note is largely overbought, but you may want to consider buying the 116 calls for insurance. They are running about $500; call me for details.




Treasury Bond Option Trading Recommendations
**There is unlimited risk in naked option selling.

Flat

Treasury Bond and Note Futures Trading Recommendations
**There is unlimited risk in trading futures.

November 4 - Sell 1 December Five year note futures at 115'16.

Eurodollar Futures Trading Recommendations
**There is unlimited risk in trading futures.

October 29 - Sell 1 December Eurodollar at 97.79
• October 31 - Our clients were advised to buy the November 97.75 call for 17 ticks as an insurance policy. Assuming a fill at 97.79 the net risk on this trade is limited to $325 plus commissions and fees. The profit potential is theoretically unlimited!!





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.

 

[carleygarner]

November 11th, 2008


Bonds and notes rally in thin trade.


For all intensive purposes, U.S. Treasury markets were closed in observance of Veterans Day. For futures traders, this simply means that the open outcry trading pits were closed but electronic execution was possible. As you can imagine, although the markets were moving the volume was extremely light. Nonetheless, there were significant price changes so I felt compelled to write a newsletter.

Economic data and news was non-existent so we will jump right into the technical aspect of fixed income security futures. The December 30 year bond futures contract reached and breached my original target of 118'14 and looks to be headed higher. Immediate resistance comes into play near 119 and at that point we may see a digestive pullback. However, should equities continue to struggle I believe that the long bond will see prices near 121 in the coming days.

The 10 year note looks promising for the bulls in the next handful of trading sessions; 116'24 looks to be a realistic target but depending on volatility on Wall Street we may be in store for even higher prices and lower yields.

I still believe that the five year note is largely overbought, but you may want to consider buying the 116 calls for insurance. They are running about $500; call me for details.




Treasury Bond Option Trading Recommendations
**There is unlimited risk in naked option selling.

Flat

Treasury Bond and Note Futures Trading Recommendations
**There is unlimited risk in trading futures.

November 4 - Sell 1 December Five year note futures at 115'16.

Eurodollar Futures Trading Recommendations
**There is unlimited risk in trading futures.

October 29 - Sell 1 December Eurodollar at 97.79
• October 31 - Our clients were advised to buy the November 97.75 call for 17 ticks as an insurance policy. Assuming a fill at 97.79 the net risk on this trade is limited to $325 plus commissions and fees. The profit potential is theoretically unlimited!!






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.

 

[carleygarner]

November 13th, 2008


Bond trade stalls, another rally looming?


Incredibly low yields have lured Treasury market bears back to the markets. According to the latest COT (Commitment of Traders) data, both small and large speculators are heavily short. Given the lack of upward momentum in the long bond in light of the equity selling and dismal economic news, I can see the appeal. However, there seems to be more at play than can be seen on the surface. While I suspect that bonds are much closer to a high than a low, I also believe that we may be in store for another run higher in the 30 year futures. Shorter maturities on the other hand may have trouble making any significant moves higher.

The market was finally provided some economic data to chew on. This morning's weekly jobless claims suggested that the employment picture is worsening. This week's claims jumped to 516k, well above estimates of 479. The trade balance acted as a "balance" for the market by coming in a little better than consensus forecasts.

Revisions to the infamous TARP plan has left many in the investing and trading community with an increased sense of uncertainty. The bond market loves uncertainly just as much as equities dislike it. Along with this theme, the long bond may be looking at temporarily lower yields and higher prices.

Tomorrow and next week is loaded with data and could be the excuse that Treasuries need to begin the "blow off top" that we have become so accustomed to. Along with the potential retail sales bombshell, we will hear about the latest inflation data, Michigan Sentiment and import/export prices.

I am less confident in my analysis of the direction of Treasuries over the coming sessions due to geopolitical risk, end of week position squaring and next week's option expiration in equities. However, from a purely technical standpoint, today's weakness in the 30 year bond futures may extend to 115'29 but could simply be the building of momentum to test resistance levels at 119*'14 and again at 119'29.

The 10 year note seems to be heading toward a corrective move to 114'24. However, longer term models are showing the potential for an exhaustion spike to 118.




Treasury Bond Option Trading Recommendations
**There is unlimited risk in naked option selling.

Flat

Treasury Bond and Note Futures Trading Recommendations
**There is unlimited risk in trading futures.

November 4 - Sell 1 December Five year note futures at 115'16.

Eurodollar Futures Trading Recommendations
**There is unlimited risk in trading futures.

October 29 - Sell 1 December Eurodollar at 97.79
• October 31 - Our clients were advised to buy the November 97.75 call for 17 ticks as an insurance policy. Assuming a fill at 97.79 the net risk on this trade is limited to $325 plus commissions and fees. The profit potential is theoretically unlimited!!





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.

 

[carleygarner]

November 14th, 2008

U.S. backed Treasuries fall into favor.


Yesterday's lull in light of swiftly moving equities seemed suspect; today's trade in the interest rate arena made up for lost time. What started out as a meager bid on weak economic data turned into a full-fledged rally in longer term maturities. Also, portfolio managers may have taken advantage of yesterday's large equity rally to shift exposure from stocks to bonds.

Retail sales were notably worse than analysts' estimates. The headline figure was reported to be a negative 2.8% despite expectations for a draw of 2.1%. Removing the struggling auto industry from the data suggests that sales dropped 2.2%. On a slightly brighter note, the University of Michigan's consumer sentiment index was reported to be slightly higher than many were looking for at 57.9.

In yesterday's newsletter I mentioned that we were likely in store for another run higher in the 30 year bond futures, and today we got it. The question is now whether or not the highs have been set. While logic may say that we have, my instinct tells me that this rally isn't over.

I see resistance in the 30 year Treasury futures near 119'15 and again near 120. However, should the light volume and negative economic data environment continue we could see prices as high as 121. Likewise, the 10 year note may be on its way to 118.

Should we see prices at such elevated levels, I will become significantly bearish. I like the idea of selling calls against rallies in the long bond and possibly selling futures in some of the shorter maturities.
Those short the 5 year note as recommended previously are likely getting a bit impatient. Some of you may have purchased the 116 calls as suggested earlier in the week, and are thankful for doing so. In my opinion prices and yields in the shorter maturities have overdone themselves and the odds of a correction seem likely. I regret the timing of the recommendation but feel as though patience will be a virtue.

Have a nice weekend!





Treasury Bond Option Trading Recommendations
**There is unlimited risk in naked option selling.

Flat

Treasury Bond and Note Futures Trading Recommendations
**There is unlimited risk in trading futures.

November 4 - Sell 1 December Five year note futures at 115'16.
• November 11 - Some of you may have acted on the suggestion to buy the 116 calls for protection, the cost was $500. If not, don't panic...patience is a virtue.

Eurodollar Futures Trading Recommendations
**There is unlimited risk in trading futures.

October 29 - Sell 1 December Eurodollar at 97.79
• October 31 - Our clients were advised to buy the November 97.75 call for 17 ticks as an insurance policy. Assuming a fill at 97.79 the net risk on this trade is limited to $325 plus commissions and fees. The profit potential is theoretically unlimited!!
• November 14 - We ran out of time on this trade, clients were advised to liquidate the entire spread this morning with the futures near 97.665 and the option worth 1 tick. Assuming these fills (and those shown above as entry) the loss is about $112.50 before (2) commissions and fees.





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.

 

[carleygarner]

November 17th, 2008


Low yields but high demand for Treasuries


Another bout of weak economic news sparked a wave of safe haven buying interest in Treasuries but the market failed to hold the bid. The intraday upward momentum in equities shaved some of the bond bull enthusiasm but interest rate trade looks to be becoming independent in some aspects. It is highly possible that bonds and stocks could rise together; however the window of opportunity for significant gains in Treasuries seems to be limited.

We are looking for some type of spike high in prices across the curve (spike low in yields) but also believe that if such a move is going to materialize it must do so in the near-term. Some are calling the recent string of financial market and economic turmoil the largest flow of fundamental bullish information in history. Unfortunately for the bulls, bond and note prices have been weighed by supply concerns in light of the Fed's relentless attempt at funding bailouts with Treasury issues and one of the quickest inflationary implosions ever witnessed.

Also favoring the upside in Treasuries is the exploding U.S. greenback as traders are always forward looking. If you recall the early 1980's, near the end of a period of hyperinflation, the dollar rallied to eventually attract foreign buyers into Treasuries. While it is possible that some foreign assets will make their way to real estate and equities, fixed income securities will likely be a favorite.

In Friday's newsletter, we noted resistance in the long bond near 119'15. Today's high of 119'20 was enough to satisfy the market's need to test statistical resistance but didn't quite retest the highs set in late October. My models and instincts tell me that we will see a high of at minimum 121 in the December futures before this move exhausts itself.

We also set a target of 118 in the 10 year note and that seems to be becoming a reality with the next major area of resistance near 118'15. In the case of the note, 118'15 appears to be an attractive selling point.




Treasury Bond Option Trading Recommendations
**There is unlimited risk in naked option selling.

Flat

Treasury Bond and Note Futures Trading Recommendations
**There is unlimited risk in trading futures.

November 17 - Sell 1 December 10 Year Note futures at 118'15.

November 4 - Sell 1 December Five year note futures at 115'16.
• November 11 - Some of you may have acted on the suggestion to buy the 116 calls for protection, the cost was $500. If not, don't panic...patience is a virtue.

Eurodollar Futures Trading Recommendations
**There is unlimited risk in trading futures.

Flat





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.

 

[carleygarner]

November 18th, 2008


TIC data suggests foreign buyers are looking to U.S. assets again.


Despite the recent rally, Large supplies of Treasury securities seems to have kept a lid on bond and note prices. However, stability in the U.S. dollar has attracted attention to the demand side of the equation. This morning's Treasury International Capital System data suggests that foreign investors were largely net buyers of U.S. backed securities.

If overseas capital continues to flow into domestic markets, Treasuries will likely benefit. While we are likely approaching a near term top in bonds and notes, there will be a floor in pricing and wouldn't expect a break of the 112 long bond lows anytime soon.

In the near-term however, Treasuries are getting close to technical levels that may spark a corrective move lower. We stand by our resistance level of 118'15 in the 10 year note as well as our recommendation to sell at this level. However, we may look to hedge this position as events materialize.

The 30 year bond futures contract may ultimately be headed for 121, but we are shopping around for short call option opportunities. I like selling the January 130 calls for 25 ticks or better, but slightly more aggressive traders may look at the129 calls for 30 (this was getting filled today).

Traders described volume as light with some pockets of size. The financial markets have arguably been plagued with a lack of volume since the beginning of the summer. While summer doldrums may have caused the lack of action in the third quarter, recent inactivity seems to be the direct result of speculators cutting back. For example, many individual traders and hedge funds were likely hurt in the massive stock market implosion and possibly the September Treasury spike that caught many by surprise. It isn't hard to imagine that some are simply out of risk capital and others have a bad taste in their mouths.

We strongly believe that traders should be approaching the markets with capital preservation in mind. If you have been following this newsletter throughout this time, you likely noticed that we have scaled back a bit on the recommendations provided in an attempt to take a step toward conservatism. We have been comfortable with the associated risks and believe them to be appropriate given market conditions. Better yet, we have been pleased with the outcome in this challenging environment.





Treasury Bond Option Trading Recommendations
**There is unlimited risk in naked option selling.

November 18 - I like selling the January 130 calls for 30 ticks or better, but slightly more aggressive traders may look at the129 calls for 30 (this was getting filled today).

Treasury Bond and Note Futures Trading Recommendations
**There is unlimited risk in trading futures.

November 17 - Sell 1 December 10 Year Note futures at 118'15.

November 4 - Sell 1 December Five year note futures at 115'16.
• November 11 - Some of you may have acted on the suggestion to buy the 116 calls for protection, the cost was $500. If not, don't panic...patience is a virtue.

Eurodollar Futures Trading Recommendations
**There is unlimited risk in trading futures.

Flat





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.

 

[carleygarner]

November 24th, 2008


Treasury bonds relax, but "this" may not be over.


Unfortunately I wasn't able to keep up with my newsletters last week due to, among other things, the Las Vegas Money show and extreme market conditions. During times like this we are forced to prioritize and our clients always come first, newsletters second. With that said, those that are following this newsletter via a free email subscription was provided with briefings. If you are reading this from one of the various websites in which this content is posted, you may be interested in signing up for our free e-blast subscription at DeCarley Trading - Futures, Options, Integrity- Commodity Broker Redefined to ensure more timely delivery of our comments and recommendations.

Thursday's rally was nothing less that shocking. I had been anticipating some sort of spike high in Treasuries due to the large numbers of net short positions being held by both big and small speculators, but I was way off the mark when it comes to the size of the spike. In Wednesday's newsletter we pointed out the possibility for 122'16 in the long bond, and we now know that the December bond traded over 7 handles higher than our target in a single session. I think that it is fair to say that we have just witnessed a move that none of us have ever seen before and only a handful could have possibly imagined.

Throughout history, Treasuries have spent very little time trading at or near current levels. The longer term prospects of such prices holding seem bleak, however, it seems as though there is potential for another round of short covering. Imagine if you were holding short futures going into Thursday or even sold into the rally on Thursday only to get caught on the wrong side of one of the biggest bond rallies ever.

Had you had enough money and guts to still be holding a short position in the market, you may look at today's dip as a chance to cover at horrible levels but at levels much better than seen on Thursday. Likewise, those short January call options may be in the same predicament and will be looking to buy futures against their naked option exposure.

A relatively soft Two Year Note auction and a swiftly higher equity market kept selling in U.S. backed Treasury futures steady. Should stocks continue to make progress, the bond market may avoid another short covering rally as sellers pile back on at attractive prices.

We have a healthy line up of economic data going into the Thanksgiving holiday. Tomorrow will kick off with the preliminary GDP figures, market expectations seem to be relatively low so it shouldn't be hard to generate a positive outcome for stocks and a somewhat negative impact on bonds and notes.

With the exception of a possible last attempt at the recent highs, we are overall bearish in Treasuries. If you took our recommendation to sell the January 129 and 130 call options you are likely wishing that you hadn't. However, when constructing that particular trade we were leaving room for the possibility of an irrational spike in bonds. Accordingly, the strike prices are somewhat distant from the market despite the dramatic rally. We are recommending that those participating in this trade sit tight for now as we do not see the March long bond trading above 129 or 130 at expiration a month from now.

In our last newsletter, dated Wednesday November 19th, we noted that the 10 year note could see an irrational spike near 121. The next day the note trade as high as 121'25.5. I hope that anyone participating in the short note trades bought the protective call options as insurance. Failure to have done so would have been painful. Even those that did, likely let them expire to offset the entire position at a disappointing but manageable loss. The original intent was to sell the calls and hold on to the short futures, but it would have taken nerves of steel to do so. Our clients were recommended to leave the trade intact and accept the loss. Adding risk didn't seem to be the right thing to do in such a challenging situation.



Treasury Bond Option Trading Recommendations
**There is unlimited risk in naked option selling.

November 18 - I like selling the January 130 calls for 30 ticks or better, but slightly more aggressive traders may look at the129 calls for 30 (this was getting filled today).

• These are both well underwater, but we haven't given up on the long-term prospects. We recommend holding on for now.

November 20 - We were recommending to buy the December T- note 112 puts for about 19 ticks.
• November 24 - You can get in at a better price, you may want to buy the 113's.

Treasury Bond and Note Futures Trading Recommendations
**There is unlimited risk in trading futures.

Flat

Eurodollar Futures Trading Recommendations
**There is unlimited risk in trading futures.

Flat





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.

 

[carleygarner]

November 25th, 2008

Tuesday's Treasury rally may have been the last hurrah!


As suggested in yesterday's newsletter, short Treasury traders scrambled to buy back short positions. The short covering sparked another impressive rally but failing to reach Thursday's cataclysmic highs. In addition to panicked shorts, the market bid was fueled by a reminder of negative GDP, flailing home prices, and the announcement of a massive injection of funds to asset backed markets by the Fed.

The preliminary GDP was revised to a negative .5% with a much bigger drop in personal consumption than expected. However, Treasuries seemed to find a solid bid on the deflator which continues to show deflation. The interest rate markets are now seemingly expecting a rate cut of 75 basis points by the December meeting.

Contrary to what we have been seeing in recent months, U.S. Treasuries and the greenback took opposite paths. The Dollar has traded swiftly lower in the previous two sessions, but bond and note prices failed to follow. The disconnect can be argued from many angles, but it is my belief that the bond rally was somewhat artificial due to short covering and may be to blame for the lack of correlation.

The relationship between stocks and bonds also shifted during today's trade. Treasury futures were highly reluctant to react to early morning and late afternoon strength in the equity markets but had no opposition to reacting to the mid-day selling pressure in stocks.

Consumer confidence data was reported to be better than expected but didn't play a role in the outcome of today's trade. The index was reported at 44.9 despite most analyst predictions of a number below 40.

Picking an exact top is nearly impossible, I think that Thursday's trade offered proof for those that think that they may be talented enough to do so. However, it seems as though Treasuries are due for a large correction. While a retest of Thursday's highs can be ruled out, I think that we will see bonds and notes trade lower from here. If I am right, we could see the December 30 year fall just below 119 in the coming weeks. Likewise, the 10 year note should see 117 soon.



Treasury Bond Option Trading Recommendations
**There is unlimited risk in naked option selling.

November 18 - I like selling the January 130 calls for 30 ticks or better, but slightly more aggressive traders may look at the129 calls for 30 (this was getting filled today).

• These are both well underwater, but we haven't given up on the long-term prospects. We recommend holding on for now.

November 20 - We were recommending to buy the December T- note 112 puts for about 19 ticks.
• November 24 - You can get in at a better price, you may want to buy the 113's.

Treasury Bond and Note Futures Trading Recommendations
**There is unlimited risk in trading futures.

Flat

Eurodollar Futures Trading Recommendations
**There is unlimited risk in trading futures.

Flat




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.

 

[carleygarner]

November 26th, 2008


Thin trade and an early close ahead of Turkey Day.


The Treasury trading pits were open for a partial session on the Wednesday before Thanksgiving, but traders seemed to have opted out. Reasonably so, traders weren't comfortable holding positions into the biggest travel day of the year and began offsetting trades on Tuesday and continued to do so today. In my opinion, it was this position squaring that led to the most recent four handle rally in the December 30 year bond.

As I have been saying, hugely net short speculators took advantage of Monday's dip to reduce position size (by buying back futures or buying futures against short calls). One thing that many may be unaware of is the dismal condition of the bond option market. Last Thursday's spike left many short call option traders with deep in the money options and nobody willing to take the other side of their trade. In other words, they couldn't offset their short options. Instead, they were forced to buy futures contracts to eliminate intrinsic risk. This forced futures buying added fuel to the fire and caused one of the biggest one day bond rallies on record. For those with deep in the money short calls, conditions haven't gotten better. From what I have been seeing, the typical bid/ask spread for some of the further in the money calls are as high as a full handle. Thus, short option traders are being enticed to buy futures as opposed to buy their option back.

The market is always right, but as you spend the holiday wondering how Treasury prices could have ever gotten to this level you may want to incorporate the artificial futures buying from short call holders and the snowballing effect of a massive short squeeze. If our assumptions are correct, and a majority of the recent rally is based on factors mentioned in this newsletter we should be seeing a high in bonds and notes in the very near future. Once the shorts are out, there may be nobody left to buy at such low yields.

I think that it is also fair to note that there has been some talk in regards to whether or not the U.S. government is partaking in activities similar to that used by the Bank of Japan earlier in the decade known as "Quantitative Easing" as a means of fighting deflation. Quantitative easing involves maintaining interest rates as close to zero as possible and flooding commercial banks with excess liquidity through the massive purchase of government bonds. This flood of liquidity should in theory add stimulus that exaggerates the effects of lower interest rates. In a nutshell, the increased money supply is intended to lower long-term interest rates.

I am not convinced that the U.S. government has adopted such a policy, but it does seem that market speculation as to whether they are now, or will in the future, has been enough to push long term rates to what seem to be ridiculous levels.

I don't expect Treasuries to maintain lofty levels for long, but it is nearly impossible to predict how far this market can go before turning around. I would prefer not to see it, but a retest of the highs may be underway. I see resistance in the December long bond at 127'20 and again at 128'13.5.

Buy note puts! I like the January 10 year 115 puts, they are running about 15 ticks.





Treasury Bond and Note Option Trading Recommendations
**There is unlimited risk in naked option selling.

November 26 - Buy the January 10 year note 115 puts for about 15 ticks.

November 18 - I like selling the January 130 calls for 30 ticks or better, but slightly more aggressive traders may look at the129 calls for 30 (this was getting filled today).

• These are both well underwater, but we haven't given up on the long-term prospects. We recommend holding on for now.

November 20 - We were recommending to buy the December T- note 112 puts for about 19 ticks.
• November 24 - You can get in at a better price, you may want to buy the 113's.

Treasury Bond and Note Futures Trading Recommendations
**There is unlimited risk in trading futures.

Flat

Eurodollar Futures Trading Recommendations
**There is unlimited risk in trading futures.

Flat







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.

 

[carleygarner]

December 1st, 2008


U.S. Treasury yields plummet on bond friendly headlines.


"There is nothing so disastrous than a rational investment policy in an irrational world" - John Maynard Keynes

Treasuries have been relentlessly moving higher regardless of the typical inter-market relationships or remarkably low yields. It is clear that interest rate products have been committed to higher prices despite last week's equity rally, choppy trade in the greenback and lower gold prices. This market has developed an agenda of its own, but it can't last forever.

Bond and note futures have experienced similar heights a small handful of times in the past, but have never managed to trade at such levels for long periods of time. Picking an exact top is nearly impossible but I think that it is fair to say that we are approaching some sort of blow of ending to one of the most memorable bond rallies in history.

The day's news was forgettable at best. The ISM manufacturing index was reported to be below forecasts with a reading of 36.2. Similarly, construction spending was expected to see a draw of .9% but the headline number came out at -1.2%.

The National Bureau of Economic Research claims that the current recession officially began in December of 2007. Some are considering this to be good news in that they often announce a recession only months before it comes to end.

Futures trade has effectively rolled into the March contract. The last trading date for December futures isn't until the 19th, but for the sake of liquidity you should be moving into March by week's end. Perhaps "the roll" is adding to the upward momentum, but from the sense of confusion that I am getting from many traders there doesn't seem to be a sound explanation for a 2.80% yield in the 10 year note. However, it is hard to argue with a runaway freight train.

If you are like me, your appetite for risk has likely diminished. The best way to play an irrational rally is to buy cheap out of the money puts and wait for the reversal. It will come...eventually.

If you are still holding the short calls as recommended below, depending on your account capital etc. you may want to consider rolling them into the March 136 calls for even money. Another idea is to buy the calls back and buy puts instead. However, if you have the fortitude and the money to try to ride this one out I think that rolling into March or holding the existing position will ultimately result in a much more comfortable scenario.




Treasury Bond and Note Option Trading Recommendations
**There is unlimited risk in naked option selling.

November 26 - Buy the January 10 year note 115 puts for about 15 ticks.

November 18 - I like selling the January 130 calls for 30 ticks or better, but slightly more aggressive traders may look at the129 calls for 30 (this was getting filled today).

• These are both well underwater, but we haven't given up on the long-term prospects. We recommend holding on for now.

November 20 - We were recommending to buy the December T- note 112 puts for about 19 ticks.
• November 24 - You can get in at a better price, you may want to buy the 113's.

Treasury Bond and Note Futures Trading Recommendations
**There is unlimited risk in trading futures.

Flat

Eurodollar Futures Trading Recommendations
**There is unlimited risk in trading futures.

Flat





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.

 

[carleygarner]

December 2nd, 2008

The Treasury freight train chugs on.


"There is nothing so disastrous than a rational investment policy in an irrational world" - John Maynard Keynes

U.S. backed fixed income securities have enjoyed one of the largest bull runs in history, yet looking at the COT data it seems that many futures traders were less than thrilled. In fact, most speculators (small and large) have been decisively short the market while commercials are heavily long.

This doesn't mean that commercial traders are "smarter" than the rest, they are simply hedging their risk and happen to be on the right side this time around. Remember, COT data suggests that commercial traders were also heavily long during the October bond plunge. What we can get out of the COT data is the fact that if there are too many speculative shorts, the market is susceptible to buy stop running and short traders buying positions back on dips, which was evident in today's early morning comeback from negative territory. In my opinion, short covering is in large part the driving force behind the current rally. If commercials aren't budging and speculators are already short the market is left with few sellers. At a time that people were looking to the stock market for what was supposed to have been the "mother" of short squeezes, bond shorts didn't see it coming.

Insiders say that today's trade was dominated by spread trading and it was noted that call option sellers were active. Volume was incredibly light and this leaves the market vulnerable to large price moves with little warning.

The March bond is due for a ten handle correction to 121 (if you think that it sounds crazy, try typing it). However, if you are "caught" in this move, don't get greedy. I would look to downsize on dips, it is better to lose some than lose it all. Likewise, the 10-year note should see a move much lower. My first target is 116'16, but don't jump in front of the freight train. I like buying out of the money puts, or lottery tickets a I often call them. You should be able to get the 119 puts for about 20 ticks.




Treasury Bond and Note Option Trading Recommendations
**There is unlimited risk in naked option selling.

November 26 - Buy the January 10 year note 115 puts for about 15 ticks.

November 18 - I like selling the January 130 calls for 30 ticks or better, but slightly more aggressive traders may look at the129 calls for 30 (this was getting filled today).

• These are both well underwater, but we haven't given up on the long-term prospects. We recommend holding on for now.
• You may have taken our advice to roll into the March 136 calls for even money. This lowers the delta and the margin, hopefully improving the odds of riding this out.

November 20 - We were recommending to buy the December T- note 112 puts for about 19 ticks.
• November 24 - You can get in at a better price, you may want to buy the 113's.

Treasury Bond and Note Futures Trading Recommendations
**There is unlimited risk in trading futures.

Flat

Eurodollar Futures Trading Recommendations
**There is unlimited risk in trading futures.

Flat






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.

 

[carleygarner]

December 4th, 2008


Bond buyers aren't shy, bulls dominate trade.


If you shoot a bullet into the air, it will eventually come down. However, the timing and the magnitude of the rise and fall are questionable. The same can be said of the Treasury market.

I am getting tired of writing about the bond rally, or bubble if you prefer, and I am sure that readers are equally as bored with reading about it. I have been following the markets long enough to know that there is virtually no limit to the potential devastation that a runaway market poses. If you recall the 2007/2008 commodity rally and subsequent meltdown, trade was similar. The markets rallied to levels many believed to be impossible and eventually fundamentals caught up with price. However, the eventual decline doesn't begin to satisfy those that sustained unimaginable losses. I am afraid that by the time the Treasury rally ends, many of the bears won't be around to share in the glory.

Unfortunately, this is a vicious cycle played out from time to time; all that we can do is learn from it. A similar spike in Treasuries occurred in October of 1998. Based on a continuous chart (which has its limitations due to contract roll overs), the long bond has only been at such levels one other time during its reign at the CBOT. After a sharp rally to the mid-130's the 30-year Treasury futures underwent an immediate plunge from grace. History will likely repeat itself in some form, but there is no way to predict how high the market will go before coming to a more realistic level. At this stage in the game it is important to position yourself in a way that you can stay in the game.



Some are asking me why I have been bearish, not bullish. The answer is that I was bullish, at 111/112 and looking for a rally. I became bearish near 122/123. Based on the information that we had at that time, seemed to be a reasonable stance. I don't have a problem admitting when I am wrong, and I was wrong about the magnitude of this rally. In the past, we have called the markets relatively well but we don't have a crystal ball and this time around it would have been even more handy than I had ever imagined.

The possibility of government intervention continues to drive prices on the long end higher and the 10-year note looks to be on for the ride. Conversely, there are signs that the short end of the curve is having trouble keeping up. With jobs data looming, the market seemed vulnerable to a corrective pullback but it simply wasn't meant to be. Instead, panicked short specs continue to cover.

Tomorrow's employment report could be surprisingly volatile. Perhaps we will see a blow off top that could extend to 135 in the March 30 year bond or 125'15 in the 10-year note. Playing the upside seems like suicide, but so does playing the downside. Unless you have deep pockets and a heart of steel, keep it simple and your risk limited.




Treasury Bond and Note Option Trading Recommendations
**There is unlimited risk in naked option selling.

December 2 - We recommended buying the January 119 puts for 20 or better.

November 26 - Buy the January 10 year note 115 puts for about 15 ticks.

November 18 - I like selling the January 130 calls for 30 ticks or better, but slightly more aggressive traders may look at the129 calls for 30 (this was getting filled today).

• These are both well underwater, but we haven't given up on the long-term prospects. We recommend holding on for now.
• You may have taken our advice to roll into the March 136 calls for even money. This lowers the delta and the margin, hopefully improving the odds of riding this out.

November 20 - We were recommending to buy the December T- note 112 puts for about 19 ticks.
• November 24 - You can get in at a better price, you may want to buy the 113's.

Treasury Bond and Note Futures Trading Recommendations
**There is unlimited risk in trading futures.

Flat

Eurodollar Futures Trading Recommendations
**There is unlimited risk in trading futures.

Flat





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.

 

[carleygarner]

December 8th, 2008


New week, but same story.


Interest rate products continue to avoid significant selling pressure despite technical vulnerability. After trading considerably lower in overnight trade, the Treasury complex pared losses to trade near unchanged for a majority of the session. Much of the weight on pricing stemmed from news that the Fed will issue $94 billion in securities. While this wasn't necessarily a surprise, supply issues looming in the back of investor minds may keep some sort of cap on the buying.

It was a slow news day, and tomorrow won't be any better. The only scheduled release is pending home sales at 10 am Eastern. However, retail sales and PPI figures due later in the week may bring traders back to the markets.

Bond traders haven't forgotten last week's dismal jobs numbers and some analysts point out that things may be worse than the headlines show. For example, 637,000 were reported to have left the work force last month simply because they could not find work. Accordingly, the shrinking labor pool may be allowing the unemployment rate to appear better than it actually is. Some are even calling for an unemployment rate of 9.5 to 10% before the recession comes to an end.

Light action seems to favor the upside, at least for now. I see potential for the long bond to reach 137'07 but would prefer to see an immediate correction to 124'15. However, failure of bonds to trade lower as equities enjoy a swift rally tells me that this market may see higher prices before a major trend reversal.

I was hoping for more of a correction in the 10 year note, but it just isn't time. While my downside target us under 119 in the March contract, I see the potential for another leg up to 125'28.



Treasury Bond and Note Option Trading Recommendations
**There is unlimited risk in naked option selling.

December 2 - We recommended buying the January 119 puts for 20 or better.

November 26 - Buy the January 10 year note 115 puts for about 15 ticks.

November 18 - I like selling the January 130 calls for 30 ticks or better, but slightly more aggressive traders may look at the129 calls for 30 (this was getting filled today).

• These are both well underwater, but we haven't given up on the long-term prospects. We recommend holding on for now.
• You may have taken our advice to roll into the March 136 calls for even money. This lowers the delta and the margin, hopefully improving the odds of riding this out.

November 20 - We were recommending to buy the December T- note 112 puts for about 19 ticks.
• November 24 - You can get in at a better price, you may want to buy the 113's.

Treasury Bond and Note Futures Trading Recommendations
**There is unlimited risk in trading futures.

Flat

Eurodollar Futures Trading Recommendations
**There is unlimited risk in trading futures.

Flat






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.

 

[carleygarner]

the Jan 130 calls , that was in the 30 year? Is that right?

Yes, those were in the 30 Year calls. We later recommended to roll them into March 136 calls for even money. The position as a whole is considerably underwater; however, they are approximately 3 handles out of the money. I am still concerned about the possibility of another run higher, so we are very cautiously optimistic regarding this recommendation.

Let me know if you have any other questions.

Thanks,
Carley Garner

 

[carleygarner]

December 9th, 2008


Notes and Bonds soar, not sour.


Safe haven buying in Treasuries continues to push yields to arguably ridiculous levels, but there is no denying that investors are eager to simply get their principle back. During the trading day, the three-month T-Bill had a yield of below zero.

The disconnect between the typical stock and bond relationship is becoming increasingly interesting. It is like bond traders are taking on a "selective correlation" trade. Treasuries are quick to rally on stock weakness, but strength in equities is seemingly ignored. Apparently, bond buyers aren't "buying" into the current stock market rally.

The bank of Canada cut rates by 75 basis points to 1.5%, this was more than expected and keeps the lower interest rate premise in favor for now. The only economic number to speak of was pending home sales, which was reported to be worse than expected at -.7%. The data doesn't start flowing until Thursday, traders are hoping that some size will come back to the markets.

Also keeping Treasuries in favor is a stable U.S. dollar. Although the currency has made little headway in recent weeks, the greenback has managed to hold the gains achieved in September and October of this year. That is quite an accomplishment given the current state of the economy, interest rates and the massive pessimism that plagued the dollar in previous years. A stable dollar and the backing of the U.S. government has made Treasuries an attractive place to park idle cash for domestic and foreign investors.


Light volumes typically have a profound impact on trade in December, and this year is shaping up to be the same. In recent years, we have seen sharp November and December rallies met with sharp December declines. I think that we may be in store for a similar sell off. However, it doesn't look like the selling will be immediate. Based on my technical models, we could see prices as high as 138 in the long bond and a little over 126 in the 10-year note before a reversal occurs.

If the market proves me wrong, and drops from here the first significant support in the 30-year bond will be 125'12, in the 10-year note it will be 119'03.




Treasury Bond and Note Option Trading Recommendations
**There is unlimited risk in naked option selling.

December 2 - We recommended buying the January 119 puts for 20 or better.
• Clients were recommended to liquidate these this morning near 11 ticks.

November 26 - Buy the January 10 year note 115 puts for about 15 ticks.

November 18 - I like selling the January 130 calls for 30 ticks or better, but slightly more aggressive traders may look at the129 calls for 30 (this was getting filled today).

• These are both well underwater, but we haven't given up on the long-term prospects. We recommend holding on for now.
• You may have taken our advice to roll into the March 136 calls for even money. This lowers the delta and the margin, hopefully improving the odds of riding this out.

November 20 - We were recommending to buy the December T- note 112 puts for about 19 ticks.
• November 24 - You can get in at a better price, you may want to buy the 113's.

Treasury Bond and Note Futures Trading Recommendations
**There is unlimited risk in trading futures.

Flat

Eurodollar Futures Trading Recommendations
**There is unlimited risk in trading futures.

Flat





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.

 

[carleygarner]

December 10th, 2008

Happy Holidays from DeCarley Trading!

Early selling met with buying...again.

Trading volume is incredibly light in terms of Treasury futures and options. It is clear that many traders have opted to step away from the markets at an attempt to enjoy the holidays following one of the largest interest rate moves in history. Technical selling and speculative shorts ahead of the day's 3 year note auction put bonds and notes in the red in early trade but, once again, follow through selling was absent. Despite today's glimmer of hope for the bears (I am one too) I expect another run at the highs and beyond before a major trend reversal occurs.

The 3-year note auction turned out to be the decent, but not the gangbuster buying that has been seen in recent Treasury issues. Eventually, Treasury supply will make its way back into the headlines and once again put pressure on the complex. If you recall the sharp decline in October, it was almost entirely attributable to the massive amount of debt being issued by the U.S. government. With that said, the realization of supply may not become a factor immediately. In fact, it seems as though the 30-year bond futures could be in store for nearly 138 and the 10-year note 126'13. However, I wouldn't recommend trying to play the long side as I have a hard time being a bull and all time highs; remember crude oil and wheat? Perhaps there will be a more opportune time to be a bear.

Although the Treasuries have failed to attract sellers on the equity rally, falling stocks will be likely to trigger more buying. With all of the major indices at or near major resistance levels, we could see the window of opportunity open up for another bond rally. If this assessment proves to be accurate, I expect that the move will be somewhat swift yet temporary. As mentioned in yesterday's newsletter, Decembers have been known to be bond bull killers and this seems to be the perfect set up. Once the rug is pulled from underneath the market, the long bond could quickly fall to the mid-120's and the note to just under 120.

Meanwhile, March Eurodollars are becoming an attractive short but I will give it a bit more time...stay tuned for details.




Treasury Bond and Note Option Trading Recommendations
**There is unlimited risk in naked option selling.

December 2 - We recommended buying the January 119 puts for 20 or better.
• December 9 -Clients were recommended to liquidate these this morning near 11 ticks.

November 26 - Buy the January 10 year note 115 puts for about 15 ticks.

November 18 - I like selling the January 130 calls for 30 ticks or better, but slightly more aggressive traders may look at the129 calls for 30 (this was getting filled today).

• These are both well underwater, but we haven't given up on the long-term prospects. We recommend holding on for now.
• You may have taken our advice to roll into the March 136 calls for even money. This lowers the delta and the margin, hopefully improving the odds of riding this out.
• If you aren't willing to rid this out to 138, you should be out of this trade. The risks are high, taking deep pockets to ride this one out.

November 20 - We were recommending to buy the December T- note 112 puts for about 19 ticks.
• November 24 - You can get in at a better price, you may want to buy the 113's.

Treasury Bond and Note Futures Trading Recommendations
**There is unlimited risk in trading futures.

Flat

Eurodollar Futures Trading Recommendations
**There is unlimited risk in trading futures.

Flat






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.

 

[carleygarner]

December 11th, 2008

Happy Holidays from DeCarley Trading!

Bulls are still in control of Treasury trade.

A decent 10-year note auction and auto-bailout uncertainty kept some of the safe haven buyers in the market. The massive supply of government issues down the road has yet to become a concern, but must eventually. In the meantime, light volume paves the way for a highly volatile holiday trading season and seems to favor the upside in the near term.

Keep in mind that many of the professional traders take off the month of December in order to regain their sanity, but more importantly to avoid the typically irrational trade. Perhaps the sidelines, or at least a scaled down amount of trading would be prudent as the lack of economic data in the coming weeks will likely add to the large price swings.

According to insiders, talk of a "Treasury bubble" have kept a temporary cap on the rally. However, they also point out that continuous short covering is helping to keep the complex afloat. As mentioned in previous newsletters, prior to the rally a majority of speculators were short the market...we all know that the only way to get out of a short position is to buy. As painful as it is to be a buyer here, I would assume that there are still traders with short futures or short calls that don't have a choice due to margin or capital limitations.

The Fed funds market looks to be pricing in a rate of 25 to 50 basis points going into next summer, while there are some that are calling for a target rate of 0%. They are the fringe, but the thought is in the back of the mind of many traders.

From a strictly technical standpoint, I can't help but think that the recent handful of consolidation sessions will eventually be another platform for a rally. However, I do feel if this prediction is going to become a reality the market will make its move sooner rather than later. The March 30-year bond futures are still looking higher toward 138'0 but my models are now suggesting that a little over 139'0 is a possibility (ouch!). Projections in the note are pointing toward 126'11 but the possibility of 126'25. If you are a 5-year note trader, look out for 119'24 in the March contract.

Meanwhile, March Eurodollars are becoming an attractive short but I will give it a bit more time...we may see 98.50 soon at which point it could be a great shorting opportunity (with protection of course).



Treasury Bond and Note Option Trading Recommendations
**There is unlimited risk in naked option selling.

November 26 - Buy the January 10 year note 115 puts for about 15 ticks.

November 18 - I like selling the January 130 calls for 30 ticks or better, but slightly more aggressive traders may look at the129 calls for 30 (this was getting filled today).

• These are both well underwater, but we haven't given up on the long-term prospects. We recommend holding on for now.
• You may have taken our advice to roll into the March 136 calls for even money. This lowers the delta and the margin, hopefully improving the odds of riding this out.
• If you aren't willing to rid this out to 138, you should be out of this trade. The risks are high, taking deep pockets to ride this one out.

November 20 - We were recommending to buy the December T- note 112 puts for about 19 ticks.
• November 24 - You can get in at a better price, you may want to buy the 113's.

Treasury Bond and Note Futures Trading Recommendations
**There is unlimited risk in trading futures.

Flat

Eurodollar Futures Trading Recommendations
**There is unlimited risk in trading futures.

Flat






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.

 

[carleygarner]

December 15th, 2008

Happy Holidays from DeCarley Trading!

The trend is your friend until it ends.

Treasury bonds and notes posted considerable gains...again. Economic data is a bit sparse, but the news continues to support the uptrend in fixed income products and light volume could help to propel the move.

The New York Empire Index was reported better than expected, but it is hard to argue that -25.8 is a good reading. Industrial production wasn't as devastating, but it was much weaker than the previous reading. Another Treasury friendly report was the Net Foreign Purchases. The headline figure of $1.5 billion suggests that money flowing into U.S. backed assets has dropped off significantly, but Treasuries was still receiving considerable interest from foreign investors.

While the dollar was given credit for some of the recent success in Treasuries, its violent correction hasn't deterred bond and note buying. The March dollar index has plunged nearly six handles since December 4th.

Traders are bracing themselves for tomorrow's FOMC announcement. A 50 basis point cut is expected, but some futures contracts appear to be looking for a 75 basis point cut. The big news tomorrow won't necessarily be the cut itself, but any hints as to how long they expect to leave the overnight target rate near zero.

Trading volume remains light and could make tomorrow even more exciting than a typical interest rate decision may otherwise be. Accordingly, those with a low tolerance for risk are likely better off sitting this one out.

Treasuries have been trading sideways, likely setting up for a large break-out in one direction or the other. We continue to hold a higher bias in Treasuries despite what seem to be fundamentally unsustainable levels. The technical momentum remains higher and a lack of volume may work to squeeze the remaining shorts. Once this occurs, a trend reversal will be possible...remember, the trend is only your friend until it ends. While being a bull may pay off for the next couple of handles in the bonds and notes, things could quickly change. Caution is warranted.

We are sticking with our initial targets of 138 (maybe even 140) in the long bond and just under 127 in the ten year note. However, we also recognize that if a continuation of the rally is in fact going to take place it must do so sooner rather than later.




Treasury Bond and Note Option Trading Recommendations
**There is unlimited risk in naked option selling.

November 26 - Buy the January 10 year note 115 puts for about 15 ticks.

November 18 - I like selling the January 130 calls for 30 ticks or better, but slightly more aggressive traders may look at the129 calls for 30 (this was getting filled today).

• These are both well underwater, but we haven't given up on the long-term prospects. We recommend holding on for now.
• You may have taken our advice to roll into the March 136 calls for even money. This lowers the delta and the margin, hopefully improving the odds of riding this out.
• If you aren't willing to rid this out to 138, you should be out of this trade. The risks are high, taking deep pockets to ride this one out.

November 20 - We were recommending to buy the December T- note 112 puts for about 19 ticks.
• November 24 - You can get in at a better price, you may want to buy the 113's.

Treasury Bond and Note Futures Trading Recommendations
**There is unlimited risk in trading futures.

Flat

Eurodollar Futures Trading Recommendations
**There is unlimited risk in trading futures.

Flat





*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.

 

[carleygarner]

December 16th, 2008

Happy Holidays from DeCarley Trading!

"Shock and Awe" from the Fed.

The Fed shocked the markets with a cut much larger than the expected 50 basis points. In fact, the Fed didn't even cut 75 basis points. Instead, they have announced a new target "range" between 0% and .25%. With the Fed Funds rate essentially at zero, the Fed finds itself in uncharted territory.

Richard Yamerone, economist at Argus Research commented on the move, "The message is simply the Fed stands ready to do everything in its power to stop the economy's free fall."

Despite contrary opinion, the Fed claims that they still have ample ammunition to combat what could be the most significant recession since the Depression. They insist that they are exploring tools other than rate cuts, to revive the struggling economy. Some are expecting to hear more details as the meeting wraps up.

Bond traders are assuming that the additional actions taken by the Fed is through the practice of "quantitative easing" in which the Fed actually buys its own fixed income securities as a means of lowering longer-term rates. Keep in mind that the market has spent the previous several weeks accounting for the possibility of this phenomenon and commentary within the Fed's accompanying statement merely said that they would consider doing so. Therefore, it seems as though a majority of such action is already incorporated into current pricing.

Adding to the Treasury euphoria, the Fed also made it clear that based on challenges in the domestic economy, interest rates will likely remain low for "some time".



In yesterday's report we made the following call:

We are sticking with our initial targets of 138 (maybe even 140) in the long bond and just under 127 in the ten year note. However, we also recognize that if a continuation of the rally is in fact going to take place it must do so sooner rather than later.

The prediction turned out to be relatively accurate but we are now forced to look ahead to the remainder of the week, and this is a much more difficult call. While the 10-year note looks to be approaching major resistance levels the long bond looks to have potential to move to 140 before finally hitting a ceiling.

The note should run into trouble near 127'15 but bears should be cautious, as this isn't the same market that existed a few short months ago. The risks are much, much higher and so is the difficulty level. Aggressive traders may look to buy puts and sell calls on a move to the mid 127's. Risk averse traders may look to simply buy out of the money puts. For example, should the market rally a bit more it may be possible to buy the February 122 puts and sell the February 132 calls for close to even money. Stay tuned for more specific ideas or call for guidance.

We were right to be patient with our bearish stance in the Eurodollar. The March contract is becoming an attractive short, but I prefer to give it a little more time.




Treasury Bond and Note Option Trading Recommendations
**There is unlimited risk in naked option selling.

November 26 - Buy the January 10 year note 115 puts for about 15 ticks.

November 18 - I like selling the January 130 calls for 30 ticks or better, but slightly more aggressive traders may look at the129 calls for 30 (this was getting filled today).

• These are both well underwater, but we haven't given up on the long-term prospects. We recommend holding on for now.
• You may have taken our advice to roll into the March 136 calls for even money. This lowers the delta and the margin, hopefully improving the odds of riding this out.
• If you aren't willing to rid this out to 138, you should be out of this trade. The risks are high, taking deep pockets to ride this one out.

November 20 - We were recommending to buy the December T- note 112 puts for about 19 ticks.
• November 24 - You can get in at a better price, you may want to buy the 113's.

Treasury Bond and Note Futures Trading Recommendations
**There is unlimited risk in trading futures.

Flat

Eurodollar Futures Trading Recommendations
**There is unlimited risk in trading futures.

Flat





*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.