The Bond Bulletin by Carley Garner

[carleygarner]

December 17th, 2008

Happy Holidays from DeCarley Trading!

Follow through buying in Treasuries, but will it last?

Slow growth, flight to quality and continued speculation that the Fed will (or is) buying long-term Treasuries continue to push prices to extremes. Treasuries rallied to push the yield on the 10-year note to approximately 2.10% and the 30-year bond near 2.5%. The rush of buying comes after the Federal Reserve's "shock and awe" campaign forged yesterday.

Along with driving yields lower, the Fed seems to be "forcing" investors away from Treasuries and into corporate fixed income securities. As investors shift asset classes, the market psychology should also shift for the better. Current corporate bond pricing is detrimental to confidence in the system. Also, those firms wishing to issue new debt will be able to do so at rates relatively better than the current. While the odds seem to favor such portfolio adjustments, the timing is questionable.

In this newsletter, we have been pointing out the tendency for bonds and notes to find a significant high in the month of December. The recent rally to our original targets supports this premise. However, now that we are here it seems as though there may be a little room for this market to move on the upside. Our new projection in the March T-bond is 140'27. The note on the other hand, has reached our upside target and should struggle to make progress from here. Aggressive traders may want to sell futures using a call option as a stop, buy puts and sell calls near even money or simply buy a put for those that aren't willing to risk exposure. Contact us for ideas.

This morning we were recommending that our clients speculate on lower Eurodollar prices by selling the March futures near 98.84 and buying a March 9875 call option for 21 points. Assuming these fills, the total risk on the trade is 12 points or $300 plus commissions and fees and allows for about 3 months in the market. This position is referred to as a synthetic put because the payout is nearly identical of buying a put. However, we believe that the flexibility of being able to lift one leg at a time is an asset. Also, yesterday's sharp rally caused a scenario in which the at-the-money options have relatively wide bid/ask spreads.




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 19th, 2008

Happy Holidays from DeCarley Trading!

Treasury uptrend intact, with charts pointing slightly higher.

Talk of a government auto bailout and Paulson urging Congress to hand out the rest of the TARP money sucked some of the life out of Treasuries. However, a day of moderate selling isn't enough to call an end to the biggest Treasury bull of all time. When and if the reversal comes, there is a good chance that it will be just as spectacular as the run up was. Markets tend to go down faster than they go up and I don't see Treasuries escaping the curse.

Economic data was thin, but Federal dramatics were deep. President Bush approved and emergency bailout of the Auto industry that will likely allow the big three to continue to operate until the next administration can take a stab at resolving issues. The Federal government has agreed to loan $17.4 billion in rescue loans in exchange for concessions regarding business dealings and employee compensation. The news worked in favor of stocks and against bonds and notes. However, I caution that trade on a Friday session ahead of a holiday week isn't necessarily credible. Position squaring and expiration of the financial futures and options are likely creating some artificial guidance.

Our chart analysis suggests that the Treasury train will continue to chug forward into next week's extremely light trade. A lack of volume has propelled the upside thus far and with many speculators short this market, it will likely continue to do so. In the meantime, we see potential for the long bond to move to the mid 142's while the note may see 129. However, despite our short-term prediction of higher prices we believe that a significant reversal is looming.

I will be "working from the road" next week, and am available at my usual contact information. Keep in mind that Wednesday is a half trading day, the markets will be closed on Thursday in observance of Christmas and will be open for a full trading session on Friday. However, the volume will be extremely light and should probably be avoided if at all possible. This newsletter will be updated on a limited basis. However, you are free to contact me with questions.

Have a great weekend!




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.

December 17 - Clients were recommended to Sell March futures near 98.84 and buy the March 9875 call for 21. The total risk is $300 plus commissions and fees (2 of them), profit potential is theoretically unlimited, and this trade gives you three months in the market!






*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]

The Bond Report by Carley Garner

December 23rd, 2008

Happy Holidays from DeCarley Trading!


Liquidity absent as traders look forward to Holiday.


Despite a handful of widely followed economic reports, traders weren't willing to participate in the thinly traded markets. While some of the liquidity may come back on the Monday following Christmas, we likely won't see a significant amount of increased interest until the new year.

In the news, the final third quarter GDP was reported in line with expectations at -.5%. However, it seemed to be the home sales data that sparked minor mid-day buying in Treasuries. New Home Sales were slightly lower than estimates along with existing home sales. Turmoil in housing isn't new news, but it reminds traders that without a recovery in real estate the economy will struggle to gain footing.

The recently quiet Treasury market shouldn't be taken for granted. It seems as though the possibility of another spike in volatility and drop in yields may be in the cards for the long bond. While fundamentals, in my opinion, aren't enough to support current pricing, technical momentum is. Additionally, the light volume paves the way for "just about anything" to happen. We are looking for another move to the highs in the March T-Bond, and possibly even 143'16. Once this occurs, the market may be set up for the reversal that we have all be waiting for.

The 10-year note on the other hand doesn't seem to have as much potential on the upside. We see a rally to retest the highs near 129, but at this time our models aren't projecting higher levels.

Sorry so brief. I hope that you are enjoying the holidays and being with friends and family as much as I am.

Treasury Bond and Note 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.
• 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.

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.

December 17 - Clients were recommended to Sell March futures near 98.84 and buy the March 9875 call for 21. The total risk is $300 plus commissions and fees (2 of them), profit potential is theoretically unlimited, and this trade gives you three months in the market!





*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 29th, 2008

Happy Holidays from DeCarley Trading!

Holiday trade still in effect, volume remains light.

Treasuries were wildly mixed on a lack of economic news and trading volume. After posting impressive gains early on, the 10-year note futures pared gains as the day progressed. Nonetheless, yields on the short end of the curve traded decisively lower while the 30-year bond saw moderately higher yields on the day. Given the nature of the shortened trading weak and lack of participation, I wouldn't put too much credibility into price moves witnessed in the coming days.

Trading volume among the financial futures has been dismal at best and that looks to be the case going into next week. Our advice to you is to stay away from the markets and trading until things pick back up. Keep in mind that trading out of boredom usually leads to disaster and the light volume conditions that we are experiencing could be a catalyst for irrational trade in either direction (or both). As far as I can see, the markets will still be here in 2009 and until then we should all try to enjoy the holidays.

From a longer-term perspective, I can't help but feel that in early 2009 Treasuries will fall out of favor. Investors that clamored to the safety of a government backed fixed income security may just as quickly realize that there are opportunities in riskier asset classes assuming that the world doesn't come to an end. For example, intermediate to short term municipal bonds, despite being tax-free are yielding rates much higher than that of the 30-year Treasury bond. Likewise, corporate bonds have plummeted to levels that have created incredibly high yields. There is no doubt that corporate bond defaults can and will happen, but a well diversified portfolio of such holdings seem to be attractive.

Once retail and institutional investors grow comfortable with the new world that we live in, money will flow out of Treasuries in search of better returns on investments. Should this prediction become a reality, we may see price drop sharply...in an even more dramatic fashion than the rally. In the meantime, however, the trend is up and we don't recommending fighting it.

Our most recent comment regarding the direction of the Treasury market still holds true:

Our chart analysis suggests that the Treasury train will continue to chug forward into next week's extremely light trade. A lack of volume has propelled the upside thus far and with many speculators short this market, it will likely continue to do so. In the meantime, we see potential for the long bond to move to the mid 142's while the note may see 129. However, despite our short-term prediction of higher prices we believe that a significant reversal is looming.



Treasury Bond and Note 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.

Flat

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

December 17 - Clients were recommended to Sell March futures near 98.84 and buy the March 9875 call for 21. The total risk is $300 plus commissions and fees (2 of them), profit potential is theoretically unlimited, and this trade gives you three months in the market!




*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 30th, 2008

Happy Holidays from DeCarley Trading!

Nothing going on in the pits, but prices moving.

Unlike yesterday, market participants were provided with economic data; as we have been seeing in recent months the news was bond friendly. Consumer Confidence was reported at a stunningly low level of 38, a far cry from estimates in the mid-40's. The Chicago PMI came in slightly better than predictions but well into contraction territory at 34.1.

Customer order flow is nearly non-existent, it seems as though the little trading that is being done is at the hands of commercials and funds. In the meantime, we recommend that you stay away from the markets until the players return, likely well into next week.

In the meantime, Treasury prices continue to be faithful to the trend. Early morning selling pressure was quickly met with "bargain" buying. I wouldn't be willing to lay money on the table, but I believe that the 30-year bond is destined for higher prices in the near-term. Our first target is just above 144; should we be proven wrong, support will likely be found near 137. A break of near-term support cold lead to a move down to 129; however, we are expecting a rally before a correction can occur.

If you are following the 10-year note (which isn't a bad idea given the volatility in the T-Bond), we see resistance at 129'09 and expect the March futures contract to reach such levels in the coming week. On the downside, support can be found in the mid-125's and again near 122.

If you are participating in the Eurodollar recommendation, we are looking for higher prices and an opportunity to peel the long call option off with a nice profit. Once this is done, the position will contain "naked" risk on the upside and hopefully meaningful profit potential on the upside. Stay tuned.




Treasury Bond and Note 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.

Flat

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

December 17 - Clients were recommended to Sell March futures near 98.84 and buy the March 9875 call for 21. The total risk is $300 plus commissions and fees (2 of them), profit potential is theoretically unlimited, and this trade gives you three months in the market!




*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]

January 2nd, 2009


What goes up must come down.


The flight to safety looks to now be a flight from safety as investors seek higher returns in riskier assets. Higher stocks and more details surrounding the government bailout programs put pressure on interest rate products despite an incredibly weak reading on the ISM manufacturing index. Keep in mind that volumes have been, and were today, ridiculously light. The lack of participation looked to be a major catalyst in the stock rally and Treasury decline.

It was only a matter of time before the Treasury market corrected what was arguably the largest bull market rally in the history of government issued debt. In this newsletter, we continually argued that there were far more attractive asset classes than low yielding Treasuries. We also noted that the typical December reversal seemed to be likely to come a little later this year. Each of those predictions turned out to be the case. However, we weren't counting on the move happening while most weren't watching (or trading). In fact, Treasuries appeared to be building momentum for yet another leg higher. Although light volume seemed to support the rally prior to this week, it turned out to be the straw that broke the camel's back in recent trading days.

This was a great example of how the trend is only your "friend" until it ends. Once the market turned the corner, sell stops placed by those long the market fueled the fire for lower prices. While I would argue that fundamentals also support the current correction, it is obvious that the recent down-move was technical in nature. Now that the ball is rolling, we should see the March T-Bond continue its decline to 131, at which time the market may be a temporary buy. With that said, holiday markets aren't necessarily reliable. We could see a dead-cat bounce early next week which will create confusion and could extend to 137'18. Nonetheless, we think that moderately lower trade will be in the cards as the week progresses.

The March T-Note futures should see 122 by sometime next week. Once again, this market is vulnerable to a corrective bounce early next week but resistance near 125'19 should hold.



Treasury Bond and Note 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.

Flat

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

December 17 - Clients were recommended to Sell March futures near 98.84 and buy the March 9875 call for 21. The total risk is $300 plus commissions and fees (2 of them), profit potential is theoretically unlimited, and this trade gives you three months in the market!




*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]

January 5th, 2009


When it rains it pours.


Yields have skyrocketed in recent trading sessions as the flight to quality demand for ultra low return Treasuries has finally dissipated. The Treasury "bubble" has been a perfect example of a market's tendency to overshoot fundamentals. The economic and monetary policy today is nearly identical (or maybe even slightly more bond friendly) than it was on December 30th before the massive slide. To put the move into perspective, we have witnessed a nearly 10-handle plummet in the previous three trading sessions. so far the fall from grace has been even steeper than the one-way rally.

Economic data was relatively sparse during the session, but we did get some information on construction spending. Actual spending was a little better than projected, but still in negative territory. Nonetheless, it wasn't enough to thwart the intense selling on the long end of the curve.

Bailout and TARP rumors continue to circulate and are now putting pressure on fixed income securities as safety buying has all but dried up. As the Fed floods the market with liquidity, concerns of inflation begin to heat up. We have been discussing the fact that this realization was imminent but timing it was difficult.

Also weighing on prices is the idea that with yields at such low levels, the supply of long-term maturities is anticipated to increase dramatically. This makes sense as the government is being enticed by the need for funds and low borrowing costs. There is even chatter in regards to the Fed issuing maturities of 40 years or more, this too is lifting some of the demand for the T-Bond. Once again, many analysts and traders saw this phenomenon developing (including this newsletter) but the timing seemed questionable in the face of a runaway Treasury train. If only we knew on December 30th, what we know now...

In previous newsletters, we noted a target in the March 30 year bond at 131 and we still feel this way. We are also maintaining our opinion of the 10-year note drifting lower to about 122. Who knows, maybe we will even be short-term bullish at such levels...





Treasury Bond and Note 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.

Flat

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

December 17 - Clients were recommended to Sell March futures near 98.84 and buy the March 9875 call for 21. The total risk is $300 plus commissions and fees (2 of them), profit potential is theoretically unlimited, and this trade gives you three months in the market!




*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]

January 6th, 2009



Treasury bounce?


Treasury-Bond bashing was in full effect in early morning trade, but event risk going into the FOMC minutes combined with a technical bounce lead to a substantial price recovery.

Ironically, after days of bond friendly data being shrugged off by a declining market, the somewhat Treasury bearish ISM services data was followed by buying. ISM Services was reported at 40.6 despite expectations of 37 and a prior reading of 37.3. Factory orders on the other hand came in weaker than expected at a draw of 4.6% but better than last month's reading of 6%.

We have been calling for the March T-Bond to see 131, but today's low of 131'23 may have been enough to propel some short-term buying interest as yields creep above 3%. While I maintain my fundamentally bearish stance, I can't ignore the ten handle plunge and the fact that there should be some sort of recoil from such a move. In fact, it may be possible for the long bond to see prices above 137 as shorts scramble to cover and latecomer bulls try to "bargain hunt".

The 10-year note failed to get near our target at 122, today's low was 123'09. Accordingly, I am "on the fence" in terms of direction. I would have turned temporarily bullish at or near 122 but at current levels it seems too dangerous to be a bull and too late to be a bear.

Whether the Treasury complex trades lower to our original targets is highly dependent on equity trade. While we are becoming temporarily bearish stocks at current levels, we also feel that there is a strong possibility for a quick run of buy stops in the next couple of days. Let's see what happens...




Treasury Bond and Note 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.

Flat

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

December 17 - Clients were recommended to Sell March futures near 98.84 and buy the March 9875 call for 21. The total risk is $300 plus commissions and fees (2 of them), profit potential is theoretically unlimited, and this trade gives you three months in the market!





*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]

January 7th, 2009


Bonds looking lower, but bounce looming.


The short end of the curve (very short) rallied but failed to bring the long end along for the ride. What started as a bond friendly day, ended up being a day full of light volume plagued with an oversupply of fixed income securities. The new trend seems to be lower, but with prices dropping so far so fast would could be due for an oversold bounce in the coming days. Perhaps the move will occur on the heels of Friday's employment data...

Early morning buying was triggered by news of payroll firm ADP's estimates of Friday's non-farm payrolls. According to ADP, they believe that the domestic economy has lost nearly 700,000 jobs in the most recent month. Let's hope that this ADP prediction is consistent with their previous calls in that it is wrong. Most analysts are predicting a draw of just under 500,000, so ADP's announcement was pretty bold and perhaps a bit reckless (unless they happen to be right this time).

Tomorrow will be a slow news day, giving traders plenty of time to position ahead of Friday. Accordingly, we could see relatively choppy trade. While bonds and notes are approaching my targets, they aren't quite there. We are in the same mindset that we were in yesterday. It is too early to be a (short-term) bull, and too late to be a bear. I prefer waiting for better set ups to begin making trading recommendations.

The treasury market has been disconnected from the infamous negative correlation with equities. This has been the case off and on throughout the later part of 2008 and has now extended into 2009 as evidenced by the roll over in equities today with subsequent pressure in fixed income. The lack of predictability in the relationships between financial markets adds to the already treacherous market conditions.

We see support in the March 30-year bond at 131, and may look to be bullish at such levels. Likewise, I like the long side of the note from about 122 in hopes of a temporary recoil from the drop. Let's see what happens.




Treasury Bond and Note 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.

Flat

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

December 17 - Clients were recommended to Sell March futures near 98.84 and buy the March 9875 call for 21. The total risk is $300 plus commissions and fees (2 of them), profit potential is theoretically unlimited, and this trade gives you three months in the market!





*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]

January 8th, 2009


Position squaring ahead of jobs numbers.


I think that we will all agree that government policy and excessive volatility have made Treasury speculation even more challenging than it previously was...and it has never been easy money. However, the sudden rise and fall seem to have made price predictions even more challenging. One thing is certain; the tight trading range witnessed in recent days likely won't last. However, if you are thinking of buying strangles you may have missed your chance as option premiums seem to be enhanced by others with similar notions.

Weekly jobless claims were reported to be better than expected, but the markets look to be bracing themselves for a dramatically weak non-farm payrolls figure. Some insiders claim that today's positive surprise in jobless claims was the result
of overly optimistic estimates as opposed to an improving jobs market.

With expectations for non-farm payrolls at dismal levels, it appears as though the Treasury market may have a tendency to trade lower following the announcement. However, I can't help but feel that if we do see early morning selling pressure that losses will be pared as the day goes on. In fact, we could see a sizable bounce in Treasury futures with the premise of a counter-trend Friday theme.

Once again, I would like to see a move to or near 131 in the 30-year before I would be comfortable with the idea of playing the upside in hopes of a temporary rally. In the 10-year note, I am still looking for 122 before considering a quick upside play. However, my models are getting mixed signals in the note and I wouldn't bet the farm either way. Resistance in the March 10 year can be found near 125'25.
If you are following the Eurodollar recommendation below, it seems as though the March futures are destined for levels near 99.15 in the coming days. At which point it may be a good idea to take a profit on the long call and hold on to the short futures contract.

On a side note, a client of mine was kind enough to send a Chicago Board of Trade Treasury Bond Futures Yield Calculator from years ago. They are no longer available, but look as though they would be a great tool for speculators. If anybody from the CBOT or CME Group is reading this, please consider bringing it back as a promotional item. For those of you that would be interested in having one, perhaps we can encourage their production by emailing inquiries to the exchange.





Treasury Bond and Note 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.

Flat

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

December 17 - Clients were recommended to Sell March futures near 98.84 and buy the March 9875 call for 21. The total risk is $300 plus commissions and fees (2 of them), profit potential is theoretically unlimited, and this trade gives you three months in the market!
• If prices rally to 9915, this may be a good opportunity to liquidate the long call at a profit and hold onto the short futures contract.





*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]

January 9th, 2009


Lost jobs translates into safe haven treasury bid.



Fortunately, ADP's estimates for a draw of 700,000 jobs was off the market. However, unfortunately the picture painted by the actual figures is still substantially dismal. While the weak employment report was a significant catalyst to the day's buying, suffering equities and end of week position squaring seem to have been the bulk of the motivation. In yesterday's report we noted the possibility of a counter-trend Friday buying, and that is exactly what we got.

According to the Federal government, the U.S. economy lost 524,000 jobs last month leaving the unemployment rate at a whopping 7.2% (I can say whopping because I wasn't old enough to remember the early 1980's). Today's data brings the four month tally to nearly 2 million jobs lost and the highest unemployment rate in 16 years. However, Treasury traders have been accounting for this news for quite some time (even the prior months negative revisions). Thus, it doesn't seem to be a reason for fundamental buying. On the other hand, had we gotten a print of 700,000 there may have been another wave of uncontrolled of safe haven bids.

Supply concerns have kept pressure on the long end of the curve, but have yet to have an impact on the short end. Some analysts are predicting that today's employment data will ensure that there will be more government spending (Obama's stimulus plan) and more debt issued to pay for it. Keep in mind that the Fed has sold $166 billion in debt just this week! This is the third largest issuance on record.

The U.S. greenback has managed to find traction vs. the other majors. A stronger U.S. currency could help to keep a floor under Treasury prices in that dollar stability could keep foreign investors from pulling the plug on Bonds.

Going into aftermarket trade, Treasuries pared much of the profits. This leads me to believe that barring a swift equity sell-off early next week, the path of least resistance for interest rate products will be lower. I am still stubbornly looking for the March long bond to see below 131, but my target in the 10-year note has bumped up to 123'07.

If you didn't participate in the original Eurodollar recommendation, you may want to consider a similar trade. This morning we were recommending that our clients sell the March futures contract near 99.16. Those that were uncomfortable with a naked short were advised to purchase the February Eurodollar 9912.5 Call for about 13 points or ($325). This limits the risk to the amount paid for the option minus the difference in the futures fill and option strike price. Thus, assuming the fills noted above the risk would be about $237.50 plus transaction costs.

Those that took the original recommendation were encouraged to take profits on the long March Eurodollar 9875 call as noted in yesterday's report. It was also possible to replace the protection with the cheaper February Eurodollar 9912.5 call.




Treasury Bond and Note 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.

Flat

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

December 17 - Clients were recommended to Sell March futures near 98.84 and buy the March 9875 call for 21. The total risk is $300 plus commissions and fees (2 of them), profit potential is theoretically unlimited, and this trade gives you three months in the market!
• If prices rally to 9915, this may be a good opportunity to liquidate the long call at a profit and hold onto the short futures contract.






*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]

January 12th, 2009


Continued weakness in stocks results in bond bid.


As was the case late last week, weaker equities and struggling hard assets (precious metals) enticed money back into Treasuries. Nonetheless, trading volume looked to be questionable, this tells me that much today's buying may have been covering shorts as traders square positions. With a full schedule of economic data and TARP testimony slated for tomorrow, event risk is perceived to be high.

Federal Reserve Chairman Ben Bernanke will be speaking early tomorrow morning along with Vice Chairman Kohn. The two will be speaking of the TARP program as the second batch of bailout cash will be up for approval...or not.

Atlanta Fed's Lockhart claims that the Fed still has a considerable amount of ammo left to defend the expected economic shrinkage of 4-6% in the first quarter of 2009. While stock traders seemed to shrug off the comment, bond and note traders appear to have taken it as a sign that government money will be used to buy its own securities in an attempt to artificially lower interest rates.

We are getting relatively mixed technical signals in the bond and note markets, but some analysts are predicting a retest of the 2008 highs. At this juncture, I think that it may be too soon to tell but it does seem as though a close above 126'ish in the March 10-year note would suggest that this is the case.

Additionally, bond and note bears should lookout for the potential of another downdraft in equities. In recent sessions, the stock selling has been somewhat orderly but if major support levels give way we could see a sharp decline which will simply be the markets way of flushing out the weak hands. Some insiders that I have spoken to expect that the S&P will see levels as low as 650 in the coming weeks or months. I have not yet adopted this assumption, but if they are correct the Treasury market will likely break recent highs.

In a shorter time frame, we are getting relatively mixed signals in Treasuries. In the case of the long bond, the near-term trend remains lower but there seems to be a propensity for a sizable bounce. I see resistance at 137'10 and support at 130'17. However, picking a direction from current pricing is difficult and I wouldn't rush to be on the short side of this market.

The immediate direction of the 10-year note is also a bit uncertain. The market has been consistently holding near major resistance at 126. If the strength continues into tomorrow's session I believe that we will see much higher prices as the week progresses.

If you like our support, resistance and target numbers you should consider trading with us (if you aren't already), we have similar intraday analysis that is communicated to our clients upon request by email, instant message and phone.




Treasury Bond and Note 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.

Flat

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

December 17 - Clients were recommended to Sell March futures near 98.84 and buy the March 9875 call for 21. The total risk is $300 plus commissions and fees (2 of them), profit potential is theoretically unlimited, and this trade gives you three months in the market!

• January 8 - If prices rally to 9915, this may be a good opportunity to liquidate the long call at a profit and hold onto the short futures contract.

• January 9 - Those that took the original recommendation were encouraged to take profits on the long March Eurodollar 9875 call as noted in yesterday's report. It was also possible to replace the protection with the cheaper February Eurodollar 9912.5 call.

January 9 - If you didn't participate in the original Eurodollar recommendation, you may want to consider a similar trade. This morning we were recommending that our clients sell the March futures contract near 99.16. Those that were uncomfortable with a naked short were advised to purchase the February Eurodollar 9912.5 Call for about 13 points or ($325). This limits the risk to the amount paid for the option minus the difference in the futures fill and option strike price. Thus, assuming the fills noted above the risk would be about $237.50 plus transaction costs.




*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]

January 14th, 2009



Treasury rally underway, but resistance near.


Recent equity market weakness has shined the spotlight on Treasuries once again as investors are flocking to the safety of the Fed backing. With deflation as the current theme, low yields don't seem to be a concern. Instead, the focus is on capital preservation.

Pathetic (yes I said it) retail sales data was the catalyst behind bond buying, but mid-day buying was likely attributable to a short squeeze as volume remains on the light side. Also, despite what appear to be much better investment prospects in corporate bonds, speculation over corporate defaults have managed to keep Treasuries in favor.

The up-move was supported by speculation of Bernanke's comment regarding the possibility of the Fed to buy longer dated bonds. Fed member Plosser repeated the "threat" today. The imminent prospect for rampant inflation on the heels of the bailouts and loosening credit markets have been put on the back burner. Additionally, concerns over excessively ample supplies of fixed income instruments seem to have faded in the near term. With the next note auction not taking place until the end of this month, it has fallen victim to the "out of sight, out of mind" mentality.

On a brighter note, Minneapolis Federal Reserve Bank President Gary Stern claims that the economic rebound isn't far away but notes that what he deems to be healthy growth won't be seen until the middle of 2010. According to Stern, the recession is likely to linger through mid-year before recent monetary policy takes hold.

The March 30-year bond managed to reach our resistance level but the 10-year note has yet to do so. The direction of Treasuries from this juncture is highly dependent on that of equities. With the major indices slightly oversold, it seems as though we could be in store for a corrective bounce in stocks and possibly a corresponding pullback in Treasuries. Although, with so many technical and fundamental uncertainties in Treasuries, I prefer to not pick an immediate direction.

Resistance in the 10-year note is near 128'22, the long bond is facing resistance near 137'14 and again at 144'05! I would wait for better trading opportunities in these markets.

If you are a five-year note trader, today's rally may have presented a short term opportunity on the short side in hopes for a decline to about 120'03. You should be able to buy a week's worth of insurance above 121 for about $100.

If you like our support, resistance and target numbers you should consider trading with us (if you aren't already), we have similar intraday analysis that is communicated to our clients upon request by email, instant message and phone



Treasury Bond and Note 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.

Flat

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

December 17 - Clients were recommended to Sell March futures near 98.84 and buy the March 9875 call for 21. The total risk is $300 plus commissions and fees (2 of them), profit potential is theoretically unlimited, and this trade gives you three months in the market!
• January 8 - If prices rally to 9915, this may be a good opportunity to liquidate the long call at a profit and hold onto the short futures contract.
• January 9 - Those that took the original recommendation were encouraged to take profits on the long March Eurodollar 9875 call as noted in yesterday's report. It was also possible to replace the protection with the cheaper February Eurodollar 9912.5 call.

January 9 - If you didn't participate in the original Eurodollar recommendation, you may want to consider a similar trade. This morning we were recommending that our clients sell the March futures contract near 99.16. Those that were uncomfortable with a naked short were advised to purchase the February Eurodollar 9912.5 Call for about 13 points or ($325). This limits the risk to the amount paid for the option minus the difference in the futures fill and option strike price. Thus, assuming the fills noted above the risk would be about $237.50 plus transaction costs.




*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]

January 15th, 2009


Mixed bonds and notes as trade looks to equities for guidance.


Treasuries struggled to make progress in their direction on Thursday as trade looked to Wall Street for help in pricing government backed assets. Conventional wisdom suggests that it will be necessary for the major stock indices to hold current levels in order to thwart the rally in interest rate products but the markets are anything but conventional in recent months.

Both daily and weekly chart analysis suggests that the March 30-year bond could see prices as high as 144 in the event of another stock market plunge. Keep in mind, that many chartists (including myself) have mapped out the possibility of the S&P trading in the 650 to 670 range at some point in the first half of 2009. Such targets are difficult to grasp, but should be kept in mind as you construct your trading strategies.

Again...Fed members are speaking of the possibility of purchasing "significant quantities of longer-term securities such as agency debt, agency mortgage-backed securities and Treasury securities to reduce borrowing costs for a range of longer-term instruments." Today, the remarks were from Charles Evans, president of the Chicago Federal Reserve Bank. The idea of fighting the Fed has kept many sellers on the sidelines.

The negative correlation between stocks and bond has become obvious in recent sessions. However, as stock trade becomes more erratic would could see another temporary disconnect from the relationship. Such shifts in market characteristics hinder speculation. Nonetheless, it seems as though there is potential for bonds and stocks to go up together as Treasury traders may not buy into the option expiration rally in equities.

If today's newsletter seems to be "wishy washy", it is because it is. We aren't willing to take a directional stance going into tomorrow's session due to light volumes in the financials and uncertainty regarding Treasury traders interpretation of the potential stock rally.

Friday's tend to be counter-trend days, so if I was a gambler I would look for a digestive day that could bring the 10-year note to support near 126'10 and the 30-year bond closer to 136.

If you took our advice in trading the 5-year note on the short side looking for a small gain, you likely came out ahead. However, we recommend moving to the sidelines as we believe that there may be much better levels to be bearish in the coming weeks.





Treasury Bond and Note 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.

Flat

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

December 17 - Clients were recommended to Sell March futures near 98.84 and buy the March 9875 call for 21. The total risk is $300 plus commissions and fees (2 of them), profit potential is theoretically unlimited, and this trade gives you three months in the market!
• January 8 - If prices rally to 9915, this may be a good opportunity to liquidate the long call at a profit and hold onto the short futures contract.
• January 9 - Those that took the original recommendation were encouraged to take profits on the long March Eurodollar 9875 call as noted in yesterday's report. It was also possible to replace the protection with the cheaper February Eurodollar 9912.5 call.

January 9 - If you didn't participate in the original Eurodollar recommendation, you may want to consider a similar trade. This morning we were recommending that our clients sell the March futures contract near 99.16. Those that were uncomfortable with a naked short were advised to purchase the February Eurodollar 9912.5 Call for about 13 points or ($325). This limits the risk to the amount paid for the option minus the difference in the futures fill and option strike price. Thus, assuming the fills noted above the risk would be about $237.50 plus transaction costs.
• January 15 - Clients were recommended to buy the futures contract back at 98.93, assuming the fills above this locks in a profit of 25 points on the futures contract or $575. However, this doesn't consider the loss on the long call. Nonetheless, it guarantees a profit of at least $300 before commissions and fees even if the call expires worthless. Hopefully a market recovery will allow for exit of the call at a better price.




*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]

January 16th, 2009


Counter-trend Friday in Treasuries.


End of week position squaring and confusion over a choppy stock market resulted in higher yields and lower prices on the long end of the Treasury curve. Shorter maturities (bills and 2-year notes), on the other hand, traded steadily higher throughout the day on varied economic news.

The day's closing prices don't due justice for the volatility witnessed in the session. Early morning trade saw the long bond down approximately three handles and the 10-year note closer to two. Perhaps some of the irrational trade was the result of the shortened trading session ahead of the Martin Luther King day weekend as traders were pressed for time, facing significant market data and an Obama speech regarding the bailout packages.

According to the University of Michigan, consumer sentiment has improved slightly from last month. The index was reported at 61.9, nearly two points better than analyst expectations. The most anticipated number on the day was the CPI which reported that inflation ticked lower by .7%, this was less than the expected 1%. All in all, a mixed bag of nuts for Treasury traders.

Putting pressure on the notes and bonds was TICS (Treasury International Capital System) news that suggests that Treasury buying from China and Japan has slowed on the long end of the curve.

In observance of the Martin Luther King Day holiday weekend, the bond pits will be closed on Monday. However, there will be an abbreviated electronic session in which Treasury futures and options products will cease trading at noon Central time.
If you recall the events that took place last year over this particular holiday weekend (does a rogue trader from Societe Generale crashing global equities ring a bell) you will likely be content on the sidelines. We prefer to move to the sidelines and resist making any market calls until we see trade on Tuesday but I am not convinced that the bulls have completely fled the market.

Have a great three-day weekend!




Treasury Bond and Note 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.

Flat

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

December 17 - Clients were recommended to Sell March futures near 98.84 and buy the March 9875 call for 21. The total risk is $300 plus commissions and fees (2 of them), profit potential is theoretically unlimited, and this trade gives you three months in the market!
• January 8 - If prices rally to 9915, this may be a good opportunity to liquidate the long call at a profit and hold onto the short futures contract.
• January 9 - Those that took the original recommendation were encouraged to take profits on the long March Eurodollar 9875 call as noted in yesterday's report. It was also possible to replace the protection with the cheaper February Eurodollar 9912.5 call.

January 9 - If you didn't participate in the original Eurodollar recommendation, you may want to consider a similar trade. This morning we were recommending that our clients sell the March futures contract near 99.16. Those that were uncomfortable with a naked short were advised to purchase the February Eurodollar 9912.5 Call for about 13 points or ($325). This limits the risk to the amount paid for the option minus the difference in the futures fill and option strike price. Thus, assuming the fills noted above the risk would be about $237.50 plus transaction costs.
• January 15 - Clients were recommended to buy the futures contract back at 98.93, assuming the fills above this locks in a profit of 25 points on the futures contract or $575. However, this doesn't consider the loss on the long call. Nonetheless, it guarantees a profit of at least $300 before commissions and fees even if the call expires worthless. Hopefully a market recovery will allow for exit of the call at a better price.




*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]

January 20th, 2009


Consecutive gaps lower but gaps are for filling.


Treasuries have gotten in the habit of posting significant losses in the days surrounding holidays. Similar to what was witnessed in late December, the long bond dove several handles in a matter of a few short days.

If you follow this newsletter closely, you may recall our expectation of the long bond to retrace from 131(it never quite got there) to just above 137 before making its way back down. As it turns out, our original analysis was relatively accurate. However, as Treasuries rallied and the 10-year note managed to close above what I considered to be significant technical resistance levels, I essentially talked myself out of my own opinion. The lack of trust in my instincts is a good indication that I should take a few days off in terms of attempting to speculate on direction, timing, etc.

Under "normal" market conditions, I would be convinced that the market's ability to hold our noted resistance levels and the subsequent selling pressure would force the March T-Bond below 131. Additionally, there are signs pointing toward increased interest in corporate bonds. Demand for fixed income securities in other arenas should divert some of the Treasury demand. Also, the avalanche of Treasury issues to fund Obama's stimulus package is pulling the rug from underneath the market as traders fear an oversupply.

However, there is a large wild card...the equity market. It seems as though the stock indices could continue to run sell stops. I see as a potential the plunge to run to the November lows and perhaps eventually even lower. If this scenario plays out, the flight to quality bid may come back to life.

Support in the March 30-year bond lies near 130'15, while resistance remains in the mid-137's. The 10-year note is facing a similarly wide trading range between 128'11 and 128'11. I am neutral at current levels and awaiting clearer signals to pick a direction.

If you are holding the long Eurodollar call in the recommendations below, I suggest giving it a little more time. If the stock market continues to trade weaker, we could get a retest of the 98.18 area. At which point you may be able to sell the option at a profit or re-sell the futures contract.



Treasury Bond and Note 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.

Flat

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

December 17 - Clients were recommended to Sell March futures near 98.84 and buy the March 9875 call for 21. The total risk is $300 plus commissions and fees (2 of them), profit potential is theoretically unlimited, and this trade gives you three months in the market!
• January 8 - If prices rally to 9915, this may be a good opportunity to liquidate the long call at a profit and hold onto the short futures contract.
• January 9 - Those that took the original recommendation were encouraged to take profits on the long March Eurodollar 9875 call as noted in yesterday's report. It was also possible to replace the protection with the cheaper February Eurodollar 9912.5 call.

January 9 - If you didn't participate in the original Eurodollar recommendation, you may want to consider a similar trade. This morning we were recommending that our clients sell the March futures contract near 99.16. Those that were uncomfortable with a naked short were advised to purchase the February Eurodollar 9912.5 Call for about 13 points or ($325). This limits the risk to the amount paid for the option minus the difference in the futures fill and option strike price. Thus, assuming the fills noted above the risk would be about $237.50 plus transaction costs.
• January 15 - Clients were recommended to buy the futures contract back at 98.93, assuming the fills above this locks in a profit of 25 points on the futures contract or $575. However, this doesn't consider the loss on the long call. Nonetheless, it guarantees a profit of at least $300 before commissions and fees even if the call expires worthless. Hopefully a market recovery will allow for exit of the call at a better price.




*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]

January 27th, 2009

See DeCarley Trading in the March Issue of SFO Magazine..."Trade Like a Girl"

Short covering ahead of FOMC triggers Bond and Note Rally

Treasury notes and bonds enjoyed a long overdue rally, but the sustainability of gains much beyond the FOMC meeting remains questionable. We won't deny the market's ability to reach near term prices as high as 126'24 and 134'27 in note and bond futures respectively, but believe that the bears will continue to be rewarded in the long run. With that said, it is important to respect the market's ability to rally as the February time frame is seasonally supportive.

On the economic front, the Standard & Poor's CaseShiller Home Price Index was reported slightly below expectations but interest rate products had little reaction. A new record low in consumer confidence, reported at 37.7, was offset by upward revisions in previous month's but did tilt Treasury trade toward the bull camp in early trade.

In yesterday's newsletter, we pointed out that supply concerns have lured too many bears into the market and that the market has already priced in massive government issues of fixed income securities. Accordingly, we warned of a large and swift short covering rally as the trading theme may switch from supply to an alternate market force. Today, that assumption seems to have played out. Much of the day's gains were sparked by a decent amount of demand for two-year notes in today's auction. Let's see how Thursday's 5-year note auction goes.

While the day's auction had a large hand in the buying, it is likely that many traders are reluctant to hold positions into tomorrow's FOMC meeting. As we all know, volatility can be somewhat high post announcement and those with large open profits on the short side had incentive to lock in profits.


Picking a direction post FOMC is like throwing a dart at chart. While the Fed is somewhat predictable, the market's interpretation of their comments aren't. We are looking for a possible continuation of the upswing to previously mentioned resistance levels but maintain the opinion that trade will eventually make its way lower to about 126 in the long bond and 120'16 in the 10-year note.




Treasury Bond and Note 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.

Flat

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

December 17 - Clients were recommended to Sell March futures near 98.84 and buy the March 9875 call for 21. The total risk is $300 plus commissions and fees (2 of them), profit potential is theoretically unlimited, and this trade gives you three months in the market!
• January 8 - If prices rally to 9915, this may be a good opportunity to liquidate the long call at a profit and hold onto the short futures contract.
• January 9 - Those that took the original recommendation were encouraged to take profits on the long March Eurodollar 9875 call as noted in yesterday's report. It was also possible to replace the protection with the cheaper February Eurodollar 9912.5 call.

January 9 - If you didn't participate in the original Eurodollar recommendation, you may want to consider a similar trade. This morning we were recommending that our clients sell the March futures contract near 99.16. Those that were uncomfortable with a naked short were advised to purchase the February Eurodollar 9912.5 Call for about 13 points or ($325). This limits the risk to the amount paid for the option minus the difference in the futures fill and option strike price. Thus, assuming the fills noted above the risk would be about $237.50 plus transaction costs.
• January 15 - Clients were recommended to buy the futures contract back at 98.93, assuming the fills above this locks in a profit of 25 points on the futures contract or $575. However, this doesn't consider the loss on the long call. Nonetheless, it guarantees a profit of at least $300 before commissions and fees even if the call expires worthless. Hopefully a market recovery will allow for exit of the call at a better price.





*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]

January 28th, 2009

See DeCarley Trading in the March Issue of SFO Magazine..."Trade Like a Girl"

Longer maturities pressured by Fed and stock rally

Pre-FOMC, Treasury trade was dominated by those looking to get out of the market, as opposed to those placing speculative bets in the market. A choppy session saw heavy late day selling on light volume as the Fed announcement neared and the stock indices broke major technical levels.

Talk of a continuation of the banking rescue has kept supply issues in the back of the minds of traders and likely helped to put a cap on this morning's moderate buying. Anticipation of the Fed offering additional confirmation of their option to purchase long dated T-bonds as a means of controlling market interest rates had little impact on bond and note trade before the FOMC announcement and despite mention of it, had little impact afterward. As we have mentioned, the 2008 rally seems to have already accounted for this and traders have shifted their focus to the supply side of the equation.

As expected, the Federal Open Market Committee left the target Fed funds rate at 0 to .25%. They justified the lack of action by their anticipation of continued economic weakness. On a brighter note, the Fed expects that a gradual economic recovery could begin later this year but they noted that significant downside risks remain. Many analysts predict that he Fed will leave rates at the current target range for the remainder of 2009 as a means of supporting economic activity.

Yesterday's moderate rally combined with this morning's meager attempt at gains failed to reach our upside targets and seem to be making their way to our downside projections which have been slightly adjusted. We are looking for the March T-Bond to trade down to 127'11 in the coming session, and possibly 126'10 in a slightly longer time frame. However, we feel as though seasonal and technical factors may allow for a corrective rally at this point. The 10-year note, on the other hand, seems to be destined for 123 in the short term and 120'17 in the coming week or two.

We are looking to buy the March 5-year note near 108'13 in the coming week or so.




Treasury Bond and Note 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.

January 27 - Buy 1 March 5 year note at or near 108'13

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

December 17 - Clients were recommended to Sell March futures near 98.84 and buy the March 9875 call for 21. The total risk is $300 plus commissions and fees (2 of them), profit potential is theoretically unlimited, and this trade gives you three months in the market!
• January 8 - If prices rally to 9915, this may be a good opportunity to liquidate the long call at a profit and hold onto the short futures contract.
• January 9 - Those that took the original recommendation were encouraged to take profits on the long March Eurodollar 9875 call as noted in yesterday's report. It was also possible to replace the protection with the cheaper February Eurodollar 9912.5 call.

January 9 - If you didn't participate in the original Eurodollar recommendation, you may want to consider a similar trade. This morning we were recommending that our clients sell the March futures contract near 99.16. Those that were uncomfortable with a naked short were advised to purchase the February Eurodollar 9912.5 Call for about 13 points or ($325). This limits the risk to the amount paid for the option minus the difference in the futures fill and option strike price. Thus, assuming the fills noted above the risk would be about $237.50 plus transaction costs.
• January 15 - Clients were recommended to buy the futures contract back at 98.93, assuming the fills above this locks in a profit of 25 points on the futures contract or $575. However, this doesn't consider the loss on the long call. Nonetheless, it guarantees a profit of at least $300 before commissions and fees even if the call expires worthless. Hopefully a market recovery will allow for exit of the call at a better price.





*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]

January 29th, 2009

See DeCarley Trading in the March Issue of SFO Magazine..."Trade Like a Girl"


More supply...Treasuries sag


This morning's economic data left a lot to be desired. New home sales sank sharply beyond expectations, durable goods orders were also reported as weak and jobless claims surpassed forecasts. Yet Treasuries continue to grind lower on supply concerns.

The Federal Reserve and the Obama administration have made it very clear that they will spare no expense when it comes to saving the U.S. banking system from collapse. Accordingly, they have been issuing massive amounts of Treasuries as a means of financing current bailouts. This has been known and accounted for; however, corporate bond issuance may be outpacing the market's expectations.

In the most recent week, U.S. commercial paper market shrank by a record $98.8 billion as domestic corporations refraining from issuing new paper. This was the third consecutive week that outstanding commercial paper fell. Many analysts are attributing the declines to year end activity, but there is no doubt that the new issues will detract from Treasury demand.

Aside from turmoil in the stock market, Treasury traders focused most of their attention on the $30 billion 5-year note auction. The note sale turned out to be a disappointment, leaving the long end vulnerable while the short end seemed to be buoyed by sluggish stocks.

I am beginning to turn moderately bullish as the market continues to slide in anticipation of an oversold corrective rally. However, there seems to be a little room to move on the downside, perhaps to126'06. However, near-term bears should be cautious as the odds of a short covering rally is increasing.

The 10-year note looks to be ripe for a short covering rally under 123, but I would feel better about being a bull just under 122 as there is potential for a move to 120'17.

As mentioned in yesterday's report, we like the idea of getting long the 5-year note but regret the typo. It should have read that we are looking to get long near 118'03 (not 108'13). I deeply apologize for any misunderstanding this may have caused. Those trading notes with me were made aware, but I know that there are many following this newsletter trading elsewhere.




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

January 29 - I like selling the March 117 puts for 30 or better, if filled be sure to take a quick profit if the opportunity presents itself!

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

January 27 - Buy 1 March 5 year note at or near 118'03

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

December 17 - Clients were recommended to Sell March futures near 98.84 and buy the March 9875 call for 21. The total risk is $300 plus commissions and fees (2 of them), profit potential is theoretically unlimited, and this trade gives you three months in the market!
• January 8 - If prices rally to 9915, this may be a good opportunity to liquidate the long call at a profit and hold onto the short futures contract.
• January 9 - Those that took the original recommendation were encouraged to take profits on the long March Eurodollar 9875 call as noted in yesterday's report. It was also possible to replace the protection with the cheaper February Eurodollar 9912.5 call.

January 9 - If you didn't participate in the original Eurodollar recommendation, you may want to consider a similar trade. This morning we were recommending that our clients sell the March futures contract near 99.16. Those that were uncomfortable with a naked short were advised to purchase the February Eurodollar 9912.5 Call for about 13 points or ($325). This limits the risk to the amount paid for the option minus the difference in the futures fill and option strike price. Thus, assuming the fills noted above the risk would be about $237.50 plus transaction costs.
• January 15 - Clients were recommended to buy the futures contract back at 98.93, assuming the fills above this locks in a profit of 25 points on the futures contract or $575. However, this doesn't consider the loss on the long call. Nonetheless, it guarantees a profit of at least $300 before commissions and fees even if the call expires worthless. Hopefully a market recovery will allow for exit of the call at a better price.





*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]

January 30th, 2009

See DeCarley's article on option selling in the bonus issue of Stocks & Commodities Magazine!

Turning the corner, or counter-trend Friday?

Bonds and notes waffled the unchanged mark but seemed to be leaning slightly higher in terms of intraday momentum. Some are chalking the sharp intraday rallies to position squaring ahead of the weekend but I am looking at Friday's action as what could be the beginning signs of life in Treasuries. After being beaten down over fifteen handles (rightfully so) the 30-year bond is likely due for a corrective bounce higher. I have been noting a downside target of just above 126, now that we are there I am cautiously looking higher. The bears may be surprised to hear that projections are calling for 132'15 ish. Note traders may see a rally to 125.

Erratic trade in equities likely frustrated interest rate traders, as volume and volatility seemed to dry up as the session progressed. As was I, many were likely ready for the weekend. It seemed as though many were gone by the time CNBC announced that a possible failure of the government's plan to create a "bad bank". The plan was intended to relieve banks from tarnished assets added to the economic pessimism. Perhaps after having a chance to digest the news and what it may mean to the financial markets will prompt Treasury buying early next week. This could be magnified by profit taking by the short traders.

Also tempting Treasury bulls, the fourth quarter GDP showed a contraction of 3.8%. While this was better than the 5.5% expectations, it is hard to twist it into a positive. The Chicago PMI was reported at 33.3, well into contraction area and the University of Michigan consumer confidence index is still hovering in the 61 area.

If you took our recommendation to buy the 5-year note, you may have gotten out this morning with a nice profit. If you are still in, be prepared to ride it a little below 118.

If you took the Eurodollar recommendations below, you should be out by now with a profit. We are actually turning short term bullish, I like buying the March Eurodollar near 98.75 looking for a quick move higher. We don't expect the March contract to break out of its trading range...and it is a slow move anyway.

Sorry so brief, enjoy your weekend!




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

January 29 - I like selling the March 117 puts for 30 or better, if filled be sure to take a quick profit if the opportunity presents itself!

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

January 27 - Buy 1 March 5 year note at or near 118'03

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

December 17 - Clients were recommended to Sell March futures near 98.84 and buy the March 9875 call for 21. The total risk is $300 plus commissions and fees (2 of them), profit potential is theoretically unlimited, and this trade gives you three months in the market!
• January 8 - If prices rally to 9915, this may be a good opportunity to liquidate the long call at a profit and hold onto the short futures contract.
• January 9 - Those that took the original recommendation were encouraged to take profits on the long March Eurodollar 9875 call as noted in yesterday's report. It was also possible to replace the protection with the cheaper February Eurodollar 9912.5 call.

January 9 - If you didn't participate in the original Eurodollar recommendation, you may want to consider a similar trade. This morning we were recommending that our clients sell the March futures contract near 99.16. Those that were uncomfortable with a naked short were advised to purchase the February Eurodollar 9912.5 Call for about 13 points or ($325). This limits the risk to the amount paid for the option minus the difference in the futures fill and option strike price. Thus, assuming the fills noted above the risk would be about $237.50 plus transaction costs.
• January 15 - Clients were recommended to buy the futures contract back at 98.93, assuming the fills above this locks in a profit of 25 points on the futures contract or $575. However, this doesn't consider the loss on the long call. Nonetheless, it guarantees a profit of at least $300 before commissions and fees even if the call expires worthless. Hopefully a market recovery will allow for exit of the call at a better price.





*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.