The Bond Bulletin by Carley Garner

[carleygarner]

September 2nd, 2008

Treasury liquidity picks up (slightly) post-Labor Day and so do prices

The Treasury complex enjoyed a healthy bid after being weighed down in early trade buy stronger equities and plummeting crude oil. The failure of Gustav led to the unwinding of hedges and speculations of the opposite outcome in last week's trade. However, once position squaring took place fresh buying took place.

Continued signs of slowing global growth may have been a contributor to lower crude oil prices but it gave bond traders reason to buy. Additionally, lower energy prices are lifting some of the inflation concerns in the bond trading pit and have accordingly paved the way for higher prices.

Aside from the implications of hurricane Gustav, there was little economic news to speak of. The release of the day was the ISM index which suggested a moderate contraction in manufacturing but was relatively on target with most analysts expectations.

Traders are already looking forward to Friday's jobs data. Perhaps this is the event that is needed to pull traders and liquidity back to the markets. Most analysts are expecting the number to be in negative territory which has been the trend over the past several months. Along with bringing volume, this may be the market's opportunity for a short squeeze. Given the circumstances, there may be a relatively violent spike high before or immediately following the release of the non-farm payrolls. However, if this prediction becomes a reality it should also be a great time to be a bear.

I have a target in the December Treasury bond futures at 118'30, but welcome the opportunity to get positioned on the short side at much better prices (keep in mind that the December contract is trading at a premium of about a handle to the September). The December 10 year note futures, may see prices as high as 116'15 but would be comfortable recommending short positions at, or near, this level. Please see revision to earlier recommendation below.





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.

August 18 - Sell 1 Sept. T-Note @ 117'17 GTC, contact me for guidance or if you have questions.

September 2 - Cancel the order above, sell 1 December Treasury Note Futures contract at 116'13 or better.

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.





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]

September 3rd, 2008


Trade focused on the Fed Beige Book but is looking forward to payroll data.


The last release of the Fed Beige Book came with the controversy of a possible information leak prior to the official release time. This time around, that didn't seem to be the case. However, even those with inside information on the Beige Book likely wouldn't have benefited as the market had very little reaction to the news.



As we all know by looking at Treasury prices, the bond market is still under the impression that the weak economy will over shadow inflation implications. Thus, ahead of the Beige Book the market had likely already priced in much of the insight provided by the report.



Following the Beige Book release, there was a small drag on prices due to ongoing price pressures in a majority of districts. However, the overall theme of slow growth leaves the path of least resistance temporarily higher.



Looking ahead to Friday's employment data, most are expecting a draw of 60,000 jobs in the U.S. economy while the unemployment rate is expected to remain steady at 5.7%. Once again, the market the market has already incorporated this information into current pricing. A reading that is in-line or slightly better than expectations should be bearish for bonds. On the other hand, if the numbers are reported to be weaker than what the market is looking for it may be the reason that many longs are looking for to take profits. In other words, a weak number may spark a short lived rally but once the longs are flushed we should see a price reversal which could be as soon as next week.



It is becoming more and more evident that investors are moving agency holdings into "safer" securities such as U.S. backed Treasuries. This phenomenon can, in part, explain the relentless nature of the recent rally.



I was hoping for volume after Labor Day, but it has failed to materialize. Perhaps Friday's non-farm payrolls will be what the market needs to bring speculators back to bonds.








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.






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]

September 4th, 2008


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.







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]

September 5th, 2008


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.







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]

September 8th, 2008


Stronger dollar and failed equity rally brings bonds back from large overnight losses.


News of a Fannie and Freddie government bailout more than made up for a lack of economic news in today's session. A knee jerk Treasury reaction on the Sunday night open was slowly but surely erased as the trading day progressed.



Treasuries opened lower in a dramatic fashion in overnight trade but it simply wasn't meant to be. The large drop seemed to be the result of several sell orders awaiting the open following the Fed's announcement regarding the GSE's and from there stop running took hold. Once the weak handed longs were out of the market by means of triggered sell stops or simply panic position liquidation buyers stepped in.



Let's not forget that the Treasury market marches resiliently higher during this time of year and will likely do so until we get closer to October. The recovery from the overnight lows suggests that the liquidation selling can be attributed more to circumstance than fundamental fact and that another run at the highs may be imminent. There are likely many out there looking for the long bond to reach levels attained in January in the March contract neat 123. I would prefer not to see it, but have come to the conclusion that it is also likely.



Much of the Treasury selling was a bi-product of a swift equity futures rally in overnight trade. Once again, the move seemed to be made on built up speculative buys ahead of the open in combination with the running of buy stop orders. I have said it before and I will say it again, I am a long-term equity bull but the odds of a move higher immediately may not be promising. I don't expect the major indices to get any substantial footing until much closer to, or even beyond the Presidential election. If my analysis is correct, the bond and note markets should have a price floor which will support moderately higher pricing.



I was expecting a correction, but didn't necessarily expect it to come and go in a matter of hours. However, looking forward there may be an opportunity to reposition on the short side of the market. I will be looking to sell calls, and if the circumstances are right maybe even buy puts should the long bond see additional strength to the tune of 122 +.



Those trading with me were advised to take profits last night on the dip (see recommendations below). If you are still holding these trades I recommend using tight stops or simply liquidating them at current levels as they are no longer as attractive as they originally were.










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.

· September 8 - You should be out of this by now, there have been two opportunities to liquidate at a sizeable profit. If you are still holding I recommend liquidating and re-evaluating. Feel free to contact me with questions.




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 8 - Hopefully you were able to take a large profit on this in the overnight session or early this morning. If you are still in the trade we recommend that you liquidate now near breakeven and re-evaluate.



September 2 - If you followed our recommendation on the 2 Year Note, you would be short a December futures from 106'15.

· September 8 - You should be out of this trade, if not I recommend liquidating here and re-evaluating. At the time of this report you would be profitable by approximately $350.



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.

· Those trading with me were advised to take profits on the futures last night on the dip near 111'13.5. The long call was liquidated later in the day for approximately 25. Assuming these fills, the trade would have been profitable by $1,296.87 on the futures and would have lost $312.50 on the long call. This nets $984.37 before commissions and fees (keep in mind that there are two round turns and thus two commissions).








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]

September 9th, 2008


Treasuries soar as traders digest the Fannie / Freddie bailout.


While Sunday night looked to be the end of the bond bull market, Tuesday morning suggested that there was still some steam behind the bond rally. In yesterday's newsletter I pointed out that the long bond appeared to be looking toward 123 and I stand by that statement.



Whether or not such prices can be explained with market fundamentals doesn't really matter. As a trader it is important to let the market guide your actions instead of letting your opinions guide them. This can be hard to do, but may be the difference between success and failure.



Following the biggest government bailout ever, many investors and bond traders are asking themselves "why did they have to do that?" Such a dramatic action, seems to be an indication of just how bad things had gotten or could have gotten. As a result, the flight to quality bid has come back to the Treasury market with the long bond leading the way.



Also aiding the Treasury futures rally, pending home sales data disappointed to the downside and hints that Lehman has ceased talks with its potential Korean bank rescuer. Additionally, sharply lower equities paved the way for a move higher.



The market mentality has been that of buying all dips and until this theory falls out of fashion, Treasury futures will make their way higher. With that said, I think that a longer term high is imminent and will looking for better opportunities to play the downside. For now, I am looking for the December 30 year treasury futures to see near 123, the 10 year note may see prices as high as 120'26 (no that is not a typo). The five year note futures could see about 116'08 or so on the upside. I know that it sounds a bit far-fetched, but this is what my charts are telling me. In the meantime, I will be patiently waiting for a bearish opportunity.










Treasury Option Trading Recommendations

**There is unlimited risk in naked option selling.



Flat



Treasury Futures Trading Recommendations

**There is unlimited risk in trading futures.



We recommend being flat, but hope that you were involved in the most recent recommendation made on this newsletter:



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.



· September 8 - Those trading with me were advised to take profits on the futures last night on the dip near 111'13.5. The long call was liquidated later in the day for approximately 25. Assuming these fills, the trade would have been profitable by $1,296.87 on the futures and would have lost $312.50 on the long call. This nets $984.37 before commissions and fees (keep in mind that there are two round turns and thus two commissions).







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]

September 11th, 2008


Running out of steam, or just building momentum?


Treasury trade is being dominated by action in the equity markets. Unfortunately for bond traders, stability is not a word to describe the current stock environment. As a result, we are seeing choppy and indecisive trade in the bond pits. With that said, the overall tone remains positive despite lofty levels. I am not a bull, but I am not a bear (yet) either.



The weekly jobless claims were slightly disappointing this time around, giving bond traders a moderate amount of motivation to buy, but the real buying came on strength in the dollar, slouching stocks and looming uncertainly surrounding the Lehman Brothers fiasco. However, gains were pared going into the close as equities moved into positive territory.



Base on my experience, I sense that if the Treasury complex were climaxing today's reversal from the highs would have been made in a much more dramatic fashion. Additionally, while interest rate products across the curve were attracted to unchanged levels there was an obvious hesitance to trade in negative territory.



If you are long this market, you should be using stops or options to mitigate risk. A swift reversal is imminent but could very well be weeks from now. Based on the seasonal tendency of this market, Treasuries should find strength well into October.



I like the idea of selling calls above this market on a spike higher. On a big enough move, it may be possible to sell the October 124 calls for 20 ticks or more. If you are looking to play the shorter end of the curve, you can get more aggressive. Synthetic puts, or aggressive option spreads involving long puts and short calls may be possible in the 5 and 10 year notes. We will have to see how things play out before determining what we think may be the optimal strategy.









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



September 11 - This is a bit of a long shot, but certainly not out of the question should the volatility pick up in the next few trading days. Sell the October 124 calls for 20 ticks or better.



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








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]

September 12th, 2008


Friday's trade disheartened the bulls but Monday will be more telling.


Interest rate products traded sharply weaker across the board. The selling came from technical trade, but ironically looked to be primarily triggered by a tamer than expected PPI reading but the highest year over year core rate since 1981. The headline PPI was reported to be down .9%, much more promising than expectations, but ex-food and energy were in line with consensus.



It is normally not wise to put too much credibility into price action on a Friday. End of week position squaring sometimes creates counter-trend, or out of the ordinary, trading.



Perhaps the market will be making its shift away from slow growth trade and back to inflationary trade as we have been looking for. While I am a supporter of this theory and ultimately bearish bonds, I have not seen evidence that we have seen the highs. For now, I recommend simply waiting for a better opportunity to get short the market via futures, options or both. The trend is your friend until it ends, and I am not convinced that we have seen the end. Naturally, being patient may mean missing a trade but more importantly it may mean missing the agony involved in entering early.



Should the decline continue on Monday, support may be found at 118'04 in the December 30 year bond futures. I see support in the 10 year note futures at 115'28 and again at 114'16.



It is Friday and I am exhausted...sorry so brief. Have a great weekend!








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



September 11 - This is a bit of a long shot, but certainly not out of the question should the volatility pick up in the next few trading days. Sell the October 124 calls for 20 ticks or better.



· This is looking less and less possible, but Monday may be a different story, keep it working.



Treasury 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]

I guess the answer to that depends on your personality along with trading strategy and skill. I have found day trading to be a difficult venture. Instead, I prefer options, option spreads or even synthetic positions that involve both options and futures. I have recently completed a book titled "Commodity Options" that provide detailed option trading strategies, this may give you some ideas....Or feel free to send me a private message and I will point you to some educational sources.

Treasuries have been relatively volatile lately but there are times in which the market is quite boring.

Thanks for your interest in the Treasury markets!

dear carleygarner

is it wise to day trde the 30 y treasuries bond ?

I am curious maybe for the wrong reasons, but it seems like a bull in a rodeo, so volatile...
thanks

 

[carleygarner]

September 15th, 2008


Friday may have disheartened the bulls, but Sunday night they had their chance to shine.


Failure of Lehman Brothers to find an operations saving deal over the weekend resulted in the firm filing for bankruptcy and the markets falling into hysteria. At the close of trade on Friday, it looked as though stocks and bonds had both priced in a strong possibility of a Lehman buyout or a Fed bailout. With neither becoming a reality, panic and light volume lead to massive market moves. This was the spike that I had been looking for, now that it is here...uncertainty is setting in.



Adding to the disasters occurring in financial stocks, the day's economic news was bond friendly. The New York Empire manufacturing index was reported to be well into negative territory, industrial production was far weaker than analysts were hoping for and capacity utilization was similarly pessimistic. The news makes it hard to be a bond bear...or does it? Sometimes a flurry of bond bullish news is just what the market needs to lure the last of the buyers in. Once this happens, the bid can dry up and a price reversal often occurs. However, keep in mind that timing is everything and being too bearish too early is a risky proposition.



After an early morning douse of profit taking from the overnight highs, the Treasury market regained momentum going into the close. The strong close and the willingness of buyers to act at such lofty levels tells me that there may be more to come. However, now is the time to begin strategizing and/or entering the market cautiously.



Our clients were recommended to sell five year note futures last night at 114'11, after reaching a high of 114'10.75 and the order going unfilled, we felt it best to get into the market with a protective call. This morning, it was possible to sell the December 5 year note for about 113'29 and buy the October 114 Call for 51 ticks or $796.88. The total risk on this trade at expiration is the difference between the futures price and the long call strike price plus the cost of the 114 call. Thus, this trade has a maximum risk of $890.63 assuming that the trade is held until expiration. I hope to get a relatively quick breakdown in pricing allowing for exit of this trade in the coming days or week. This may seem like a relatively hefty risk for the 5 year note, and I can't say that I disagree. However, the market conditions are extraordinary so trading principles must be adjusted accordingly. Likewise, in this case the profit potential also seems to be worth the risk as I anticipate the possibility of a correction in the 5 year to 112'10. If support at this level fails, we could see prices as low as 111'06. If I am wrong, the 114 call option will be the saving grace.



For those of you working the order recommended below to sell the October 124 call for 20 or better, you would have been filled in overnight trade. Whether you had enough guts to place the order given the circumstances is another story. If you are in, don't panic. I am still comfortable with the trade. The option expires in less than two weeks, and we are giving the market some breathing room. With that said, use a pullback to 118'10 (if we get it) as an exit point.








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



September 11 - This is a bit of a long shot, but certainly not out of the question should the volatility pick up in the next few trading days. Sell the October 124 calls for 20 ticks or better.



· September 15 - This order would have been filled in the overnight session, look to buy it back on a correction to 118'10 if we see it....preferably below 7 ticks. Contact me for guidance.





Treasury 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]

September 16th, 2008


Shock and Awe in Treasuries


The December long bond rally from Friday's lows to the overnight highs has been nothing short of awe-inspiring. After reaching a low of 118'17, the 30 year bond futures traded as high as 123'27.5 in the overnight session. A breathtaking move; regardless of which side of the market you were on.



If you follow this report closely, you know that we warned of the possibility of a spike high in the long bond to 123 and a rally in the 10 year note to as high as 120'24. We now know that we weren't far off in our analysis, despite the waves of disbelief that our conclusions seemed to attract. However, I never imagined the move to be as swift and quick as it turned out to be. After looking at the possible destruction that this move may have caused many retail traders, I wish that we had been wrong in our assumptions.



Based on the Commitment of Traders data, the number of small and large speculators short this market has been on the rise. As we have witnessed in the last few days, this can often spell disaster for the bears should market fundamentals quickly change. In this case, the short covering by those short the market along with futures buying by those short troubled call options added fuel to the flight to quality fire.



Most were looking to the Fed to be the saving grace for equities, prior to the announcement emotions were running high and so was uncertainty. As it turns out, the Fed didn't do anything...and that was likely the most positive outcome. Aside from raising rates this was likely the least bond friendly action that they could have made. Failure to act, suggests that the Fed hasn't reached "panic" mode just yet, and that seems to be what the market has been pricing in over the previous two sessions.



Surprisingly enough, there was very little reaction to the Fed announcement in the bond pit and stock index futures trade wasn't much livelier. It wasn't until much later that the Treasury market experienced buyer's remorse.



What's next? This may prove to be the spike high reversal that I have been touting for the last several weeks. However, a v-top may or may not be in the cards. In the past, similar topping patterns have been followed by a last gasp move higher. Thus, while it is my opinion that we may have seen the highs for now you must also be prepared for the possibility of an exhaustive rally to retest those highs and even shake out the remaining market shorts.



I am looking (hoping) for a correction in the 30 year to extend to Friday's lows near 118'17. The 10 year note futures may be destined for 116'05 and the 5 year note for 112'13. I am not comfortable with the volatility, those trading futures should also be hedged with options.








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



September 11 - This is a bit of a long shot, but certainly not out of the question should the volatility pick up in the next few trading days. Sell the October 124 calls for 20 ticks or better.



· September 15 - This order would have been filled in the overnight session, look to buy it back on a correction to 118'10 if we see it....preferably below 7 ticks. Contact me for guidance.





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



September 15 - Clients were advised to sell the 5 year note and purchase October 114 calls against the position. This morning, it was possible to sell the 5 year note for 113'29 and buy the 114 call for 51 ticks or $796.88. The maximum risk on the trade is $890.63, but the profit potential is unlimited. We are hoping for a quick move to the mid-112 area to take a profit on the futures and hold on to the long call option.








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]

September 17th, 2008


Are the highs in?


It has been an emotional week for bond traders, and the price swings are a good indication of the shear panic that many traders are experiencing. The health of the financial system is still the primary driver in Treasuries but rumors of an intermeeting rate cut by the Fed and geopolitical concerns regarding Pakistan are aiding the flight to quality bid. Uncertainty is in the air and the bulls are embracing it.



It is important to realize that the trend is only your friend until it ends. Based on my experience in this market, the recent volatility could be a precursor to a long term trend reversal. There are no guarantees that the highs are in but if they aren't, I believe that they will be shortly. Not only have we reached a technical climax, but the seasonal tendency of the Treasury market makes a rather dramatic turn. Likewise, in yesterday's session the yield on the 30 year bond futures reached an all time low near 3.9%. It is hard to imagine who would find this to be an attractive proposition. Despite the obvious turmoil in the financial markets, it is highly possible that at current yields the 30 year will fall out of favor and demand will drop.



In yesterday's newsletter I mentioned the possibility of a last gasp in the Treasury market. Perhaps, today was it. The 30 year bond futures rose to 123'09 but failed to retest yesterday's astonishing heights. It is almost as if the next batch of uncomfortable short futures traders took the opportunity to buy back their positions on the dip from the highs.



I believe that with a little cooperation from the equity markets, we could be in store for a correction in the long bond to at least 118'27, possibly 115'27 in a larger time-frame. The 10 year note has the potential to reach 116'11 in the near term, but ultimately we may be headed for 114'12.



Despite my expectations, simply selling futures is a risky proposition. Short futures should be covered with long calls or call spreads. Likewise, buying cheap out of the money puts are attractive. I like the November 115 puts for about 23 ticks or $360 plus commission and fees. This is a "lottery ticket" but could be a nice trade if things play out as I predict.









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



September 11 - This is a bit of a long shot, but certainly not out of the question should the volatility pick up in the next few trading days. Sell the October 124 calls for 20 ticks or better.



· September 15 - This order would have been filled in the overnight session, look to buy it back on a correction to 118'10 if we see it....preferably below 7 ticks. Contact me for guidance.





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



September 15 - Clients were advised to sell the 5 year note and purchase October 114 calls against the position. This morning, it was possible to sell the 5 year note for 113'29 and buy the 114 call for 51 ticks or $796.88. The maximum risk on the trade is $890.63, but the profit potential is unlimited. We are hoping for a quick move to the mid-112 area to take a profit on the futures and hold on to the long call option.









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]

September 19th, 2008


Bonds finally break!


The long awaited bond plunge is finally in full swing and it is even more exciting than I could have imagined. Treasuries futures have always been dramatic but this is one of the most profound moves that I have seen.



Unfortunately, a colleague of mine insisted on reminding me of the long bond rally and subsequent reversal that took place in the spring of 2004. The move was arguably bigger than what has been witnessed recently. As painful as 2004 was (I was on the wrong side of a runaway bull), it was one of the most profound influences on my career. Similarly, if you were able to survive the recent run of volatility try to focus on the lessons learned and experience gained instead of the negatives. There are risks in trading, if there weren't we wouldn't have to work for a living.



I will be the first to admit, that some of our trading advice was later proven to be slightly premature in the entry, but had you followed the guidance in this newsletter you would have come out nicely ahead. Are we perfect? No. However, after speaking to my contacts on the trading floor, many have not fared as well. The markets have wreaked havoc on a lot of trading accounts. If you were one of the victims of this move, perhaps you should be trading with us. I can't guarantee that we will call it as well the next time around and past performance certainly isn't indicative of future results, but I can tell you that we take your money as seriously as we take our own. We are on your side.



Where to go from here? At this point, it is difficult to say what Monday will bring...so I am not even going to try. I think that it may be best to simply get flat the market and re-evaluate. If you have been following our trades below, you should have gotten filled on the October 124 call at a profit, and we recommended those in the 5 year note to liquidate the futures and hold the long call (see below).











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



September 11 - This is a bit of a long shot, but certainly not out of the question should the volatility pick up in the next few trading days. Sell the October 124 calls for 20 ticks or better.



· September 15 - This order would have been filled in the overnight session, look to buy it back on a correction to 118'10 if we see it....preferably below 7 ticks. Contact me for guidance.

· September 19 - This order would have been filled at 7, for a profit of a little over $200 per contract before commissions. Not a gold mine, but not a disaster as it could have been. We will take it.





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



September 15 - Clients were advised to sell the 5 year note and purchase October 114 calls against the position. This morning, it was possible to sell the 5 year note for 113'29 and buy the 114 call for 51 ticks or $796.88. The maximum risk on the trade is $890.63, but the profit potential is unlimited. We are hoping for a quick move to the mid-112 area to take a profit on the futures and hold on to the long call option.





September 19 - Clients were recommended to take a profit on the short futures position at 112'25. This locked in a profit on the futures contract of $1,125. However, the 114 call has lost a majority of its value. We recommend holding this into next week in hopes of a market bounce and a chance to sell the call at a better price.





Carley Garner

Senior Analyst / Commodity Broker

DeCarley Trading

[email protected]

1-866-790-TRADE

Local : 702-947-0701

DeCarley Trading - Futures, Options, Integrity- Commodity Broker Redefined





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]

September 22nd, 2008


The bears remain in control, but we may be due for a bounce.


Treasuries faced the third consecutive day of sharp selling pressure amid the government bailout of AIG, new short selling provisions and the bad mortgage debt repurchase plan. However, with the plan in the hands of politicians the timing, execution and even the final result are all uncertain. Some Treasury insiders were joking about the possibility of a short selling ban in Treasury futures.



Adding to pessimism in the bond pits, the greenback has been heavily offered in recent days. In fact, the dollar index is nearly 5 handles from its highs set earlier this month. However, the index has retraced approximately 50% of its gains and may be in a position to find support. Likewise, many of the major currencies such as the Euro and the Canadian Dollar are trading at or near major resistance areas. Chart work tells me that the Euro may have trouble getting above 148.50 in the near term. If I am correct, the Dollar index could find a bid and that buying could flow into the bond market.



Naturally, movement in Treasuries will also be highly dependent on equity trade as well as event driven. Although, interest rate traders didn't seem to notice weakness in the stock market as much of the attention is focused on "the hill". Never before has the Treasury Secretary had so much power over the financial markets, leaving traders unsure of where to go from here or what to expect in terms of fixed income supply and in extreme cases some are questioning the quality of the debt.



Believe it or not, put selling may become attractive should we see continued weakness. I am looking for the long bond to reach 116'03, while the Treasury note futures seem to have reached its downside target for now. If support in the note fails, the next stopping point may be as low as 112'06. If you are a five year note trader, the December futures contract looks to be destined for 111'05.













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



Flat



Treasury 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]

September 23rd, 2008


Boring session in Treasuries despite Senate Banking Committee Hearing.


The bond market had little reaction to the dialogue of Treasury Secretary Snow and Fed Chair Ben Bernanke. However, equities are growing more and more skeptical of the overall result of the Fed's actions with every passing hour. A lack of economic news seems to be working against stocks and in favor of Treasuries.



Talk on the floor is said to be of a possible shift from deflationary trade to inflationary. Likewise, the growing assumption is beginning to point toward a scenario in which the worst is behind us. While there are still significant risks to the economy and there could be additional bank failures, most of this is known and already incorporated into market pricing. After the fall of AIG, the demise of a small local bank, although devastating, will seem miniscule in comparison.



There were rumors of a considerate amount of buying in the 5 year note by foreign central banks. However, supply concerns over the near record issue of 2 year and 5 year notes in a Fed auction tomorrow are keeping buying at a minimum.



In yesterday's report we mentioned that the Dollar index looked to be a prime candidate on the long side with the Euro was facing significant resistance levels. Our assumptions on the direction of the currency market were accurate for today's session, but we were flat wrong on what impact the Dollar strength would have on bonds. Apparently, interest rate traders have their minds on other things.



I am not convinced that this market is ready to turn around. I prefer to patiently wait for additional weakness before considering a short-term bullish position. Remember, markets don't go straight up or straight down. Rather than marrying a bullish or bearish position in a market based on your fundamental research or assumptions, you must be willing to play both sides.







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



Flat



Treasury 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]

September 24th, 2008


Moderate Treasury buying ahead of bailout decision.


Paulson and Bernanke were at it again; their warnings to Congress that the bail out was a necessary evil and must be enacted in a timely manner didn't seem to be taken seriously by all. As lawmakers take their time to debate the good and bad of the bill, the markets are growing anxious.



The Treasury market enjoyed a light flight to quality bid, but trade is cautious as event risk is high. Those with exposure to the markets must be comfortable with the potential of a spike in volatility.



The highly anticipated two year note auction wasn't the success that some were hoping for, Treasuries softened in post auction trade to give back a majority of the early morning gains.



Existing home sales showed a slightly larger fall than most had expected, but the news was swept under the rug as traders have bigger issues on their plates. Aside from the bailout hearing, the notable news of the day was a considerable investment in Goldman Sach's from Warren Buffet. The move helped point investors toward confidence as opposed to pessimism but a complete shift in sentiment will likely take much more.



Today's failure to hold gains suggests that my theory of more weakness ahead may become a reality. I am still looking for the long bond to see 116'01, based on how the market reacts to this level there may be a short term bullish opportunity. However, failure to hold support near 116 may lead to a decline as low as 112. The 10 year note should find support near 114'11, however there is potential for another wave of selling to bring the contract to 112. Stay tuned for ideas on how to trade this.









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



Flat



Treasury 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]

September 25th, 2008

As congress makes progress, Bonds do the opposite.


Despite weak economic news, the bears were in control throughout the entire session. Progress in Washington seemed to be the only newsworthy event in the eyes of traders. Rumors of the Fed being close to reaching a resolution of the bailout plan kept equities in favor and Treasuries under pressure.

The August durable goods orders dropped a whopping 4.5% after seeing three consecutive months of positive data. Most were expecting weakness, but this seemed to surpass the most pessimistic estimates. Likewise, the weekly jobless claims were reported to be worse than expected.

The largest blow in terms of economic health was likely the new homes sales report which came in drastically lower. Bargain hunting was helping to prop sales up in previous months, but that can't be said of the latest reading.
New homes sales dropped 11.5% at 460k. This is the lowest reading since 1991.

I had previously pointed out support in the long bond near 116; today's low of 116'03 wasn't off of the mark. It is entirely possible that we have seen the lows for now and will see a follow through bounce to as high as 119. However, I feel that we may see 115'24 before buyers begin to step in. Therefore, I am willing to risk missing the trade for an opportunity to sell puts at better levels. I like selling the November 110 puts for 20 ticks or better.

If you are a T-Note trader, the December 10 year futures contract becomes attractive under 114 but I prefer to be patient. I like the 5 year futures near 111.




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

September 25 - Sell the November 110 puts for 20 or better, it will take additional weakness to get this order filled.

Treasury 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]

September 26th, 2008


Bonds bounce as Congress stalls.


The bond friendly news seems to be flowing and failure for the U.S. government to take action has anxiety running high. However, considering the circumstances the momentum didn't seem impressive. I can't help but feel that lower prices in the near term are imminent. Naturally, whether my assumption is correct or now will have a lot to do with the events in Washington over the weekend.



According to the President a resolution will be reached and in a timely manner but there will likely be considerable adjustments made to the original proposal. In the meantime bond trade is looking to equities for guidance.



On the economic front, second quarter GDP was reported at 2.8%. This is much lower than the expected 3.4% but reasonably respectable considering the banter heard on TV and in the newspapers comparing our economy to the Great Depression.



Only time will tell whether or not we reach such desperate measures, but for now the public seems to be exuberantly pessimistic. However, it is the deficiency of confidence that is capable of generating a self fulfilling prophecy in the economy. Let's hope that things look better on Monday, based on current pricing the markets, as I, are expecting Fed action over the weekend. If a bailout package isn't agreed upon it could be a rough day for equities and a positive day for Bonds.



Nonetheless, I am leaning to the downside in Treasuries. The long bond becomes attractive near 115'25, while I begin to like the 10 year note futures near 114. The five year note is stuck in a rut but I would begin turning bullish near 111'06.



I still recommend selling the November 110 put for 20 ticks or better, although it seems nearly impossible at this point I think that it could be a reality early next week.



Let's try to buy the five year note at 111'06 GTC.







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



September 25 - Sell the November 110 puts for 20 or better, it will take additional weakness to get this order filled.



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



September 26 - Buy 1 Five Year Note at 111'06 or better GTC









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]

September 29th, 2008


Failure for the rescue plan to pass resulted in a flight to quality bid.


As emotions are running high, so is the volatility. A majority of traders on Wall Street and in downtown Chicago were expecting Congress to approve the bill in front of them. As we now know, it simply wasn't meant to be. The surprising verdict created large waves of market volatility bringing the long bond as high as 121.



The Treasury market reacted much more orderly than did equities, nonetheless it was one of the wildest days on record. Hopefully you were on the sidelines or at least extremely cautious in being exposed to this market. Event risk is insanely high. At any second, there could be a news release or statement that is capable of turning the market on a dime. I recommend being extremely patient and maybe even taking the week off if you are highly risk averse.



I will be looking for additional strength in this market in order to execute bearish strategies at better levels. As we witnessed in the last rally, it doesn't pay to be an early bear to the Treasury party. The 30 year bond futures look to have the potential to see prices as high as 122'11. I would prefer to be wrong simply because more gains from here implies economic tragedy, but if I am right I would like to begin selling calls with distant strike prices.



If you have been following this newsletter, you know that we had been pointing out support in the 10 year note at 114 and noted that the note was attractive at such levels. Today's rally likely triggered a majority of the sell stops and may have been enough of a digestion to eventually entice lower prices. However, as long as the December note trades above 116'13 there is potential for a move to 118'23. I recommend looking for shorting opportunities at such levels, stand by for details.






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



September 25 - Sell the November 110 puts for 20 or better, it will take additional weakness to get this order filled.

· Cancel this order



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



September 26 - Buy 1 Five Year Note at 111'06 or better GTC

· Cancel this order, we missed the opportunity.








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]

September 30th, 2008


Flight to quality bid implodes.


Talks of another Congressional attempt to salvage the domestic economy reversed much of the gains forged in yesterday's buying frenzy. A dead cat bounce in equities and bond unfriendly economic data also helped to move the Treasury futures complex lower.

The Chicago PMI was reported to be at 56.7, much more promising than the expected 54. Keep in mind that a reading above 50 suggests expansion. Consumer confidence was reported to be at 59.8. Naturally, both of these numbers lag reality but they do suggest that there are still some scattered areas of strength in the economy and the way that consumers are viewing it.

There are a lot of uncertainties in the market place in terms of both fundamental and technical factors. The mixed signals that I am seeing are my cue to prompt traders to move to the sidelines and be patient. The direction of the market no doubtedly relies on Congress and equities; as we have all come to discover, they aren't always predictable.

From a technical standpoint, the long bond seems to be looking lower; however I am not confident enough in my analysis to recommend that anybody put their money on it. I see support in the December 30 year futures near 116 once again and resistance at 119'05. This leaves the market will a significant amount of wiggle room and in my opinion too risky to pick a direction in. With that said, sub 116 levels begin to be attractive from a bullish perspective.

The 10 year note could slide to 113'30 before finding support, but resistance should be found at 116'11. If you are trading the five year note futures, the December contract becomes a buy near 111.



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

Flat

Treasury 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.