carleygarner
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March 3, 2011
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Profit taking ahead of non-farm
The Treasury rally backed off on Wednesday ahead of the government's latest read on the employment picture. Earlier in the week ADP predicted the non-farm payrolls to see a considerable increase and analysts estimates are looking for about 190,000 jobs added. Even a number slightly below expectations would be considered a victory and makes it difficult to be a Treasury bull. However, that is exactly what might hold the market up. Traders seem to have gotten too comfortable being bearish interest rate products and although we've seen a miraculous recovery from the lows there is some risk of a short squeeze. Accordingly, bearish traders must look for upswings near resistance to establish positions, chasing markets lower might prove to be difficult.
Also, there are articles and talk floating around in regards to the Fed itself being a big part of Treasury demand. Some claim that the end of the POMO program could pull the rug from underneath the market. However, the same people (business news media) also predicted Treasuries to rally once POMO was implemented yet in both instance the market traded in a "buy the news, sell the fact" manner. In other words, Treasury futures rallied on hints of quantitative easing but once the program actually took effect the market experienced selling pressure. This makes us wonder if we will see the opposite effect when POMO expires. While it is hard to imagine a full-fledged rally based on fundamentals, it isn't difficult to envision a painful short-squeeze to shake up the bears.
We were a little surprised to see Thursday's sharp selling, but we should have realized there would be position squaring ahead of Friday's number. For this reason, we aren't giving up on an extension of this rally just yet. Support in the 10-year note lies at 117'24 and again near 117'01. In the long bond, this translates into 117'28 and 116'24.
* Due to time constraints and our fiduciary duty to put clients first, the charts provided in this newsletter may not reflect the current session data. However, market analysis and commentary does. Charts provided by Track 'n Trade, Gecko software.
**Seasonality is already factored into current prices, any references to such does not indicate future market action.
Treasury Bond and Note Option and Futures Trading Recommendations
**There is unlimited risk in naked option selling.
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.
Follow me on Twitter @carleygarner!
Profit taking ahead of non-farm
The Treasury rally backed off on Wednesday ahead of the government's latest read on the employment picture. Earlier in the week ADP predicted the non-farm payrolls to see a considerable increase and analysts estimates are looking for about 190,000 jobs added. Even a number slightly below expectations would be considered a victory and makes it difficult to be a Treasury bull. However, that is exactly what might hold the market up. Traders seem to have gotten too comfortable being bearish interest rate products and although we've seen a miraculous recovery from the lows there is some risk of a short squeeze. Accordingly, bearish traders must look for upswings near resistance to establish positions, chasing markets lower might prove to be difficult.
Also, there are articles and talk floating around in regards to the Fed itself being a big part of Treasury demand. Some claim that the end of the POMO program could pull the rug from underneath the market. However, the same people (business news media) also predicted Treasuries to rally once POMO was implemented yet in both instance the market traded in a "buy the news, sell the fact" manner. In other words, Treasury futures rallied on hints of quantitative easing but once the program actually took effect the market experienced selling pressure. This makes us wonder if we will see the opposite effect when POMO expires. While it is hard to imagine a full-fledged rally based on fundamentals, it isn't difficult to envision a painful short-squeeze to shake up the bears.
We were a little surprised to see Thursday's sharp selling, but we should have realized there would be position squaring ahead of Friday's number. For this reason, we aren't giving up on an extension of this rally just yet. Support in the 10-year note lies at 117'24 and again near 117'01. In the long bond, this translates into 117'28 and 116'24.
* Due to time constraints and our fiduciary duty to put clients first, the charts provided in this newsletter may not reflect the current session data. However, market analysis and commentary does. Charts provided by Track 'n Trade, Gecko software.
**Seasonality is already factored into current prices, any references to such does not indicate future market action.
Treasury Bond and Note Option and Futures Trading Recommendations
**There is unlimited risk in naked option selling.
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.
