November 3, 2011
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Overnight highs missed our target, was that it?
The day's news was bearish, equities traded dramatically higher and a majority of the shorts had been squeezed out of Treasuries...the bottom line is there was nobody left to buy. As a result, Treasuries settled swiftly lower on the day and considerably beneath their overnight highs.
In overnight trade, the 30-year bond briefly touched above 143 and the December 10-year note at 130'29. We were anticipating a move such as that to continue taking out buy stops, but we have to admit the rally fell a bit short of our expectations. Accordingly, we are left with an unsatisfied feeling and a lack of conviction on where things might go from here. Specifically, we were hoping for a move in the long bond to at least 144 and maybe 145 to become bearish; this would have meant a move in the December 10 year to 132ish. At such levels we would be comfortable recommending "shorts"...whether it be through short calls, long puts, futures or a combination of all three.
It is possible the highs of this move have been seen, but there is still a substantial amount of event risk on tap and that always complicates trade. It seems like being in a "sell sharp rallies" mode is the right move, but with volatility as high as it is a sharp rally could mean a move to our noted target levels so caution is warranted.
Non-farm payroll reports sometimes mark the end of a move. In fact, when Treasuries are overextended...as perhaps they are beginning to be "up here", the best trade is sometimes to "fade" a knee-jerk reaction in the direction of the trend. In other words, look for a large rally on the news in the morning to be a bear...but keep in mind the recent bout of volatility leaves the door open for a move well above 143 should the number come in as a miss! Specifically, technical resistance for tomorrow's session comes in near 142'03 and again near 143'20; don't make the mistake of being too aggressive in a wild market.
* 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.
**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.
In other markets....
10-11 Clients were recommended to sell strangles in the November Euro (142/128 for conservative traders and 140/130 for aggressive traders), or December crude oil (98/67 for conservative traders and 96/70 for aggressive traders). These have been adjusted numerous times, please contact for details.
11 - 2 Clients were recommended to sell December Euro strangles; 144/128 strangle for about $1250 for aggressive traders, or the 126/145 strangle near $875 for conservative traders.
(Our clients receive short option trading ideas in other markets such as gold, crude oil, corn, soybeans, Euro, Yen, and more. Email us for more information)
Senior Analyst / Commodity Broker
Local : 702-947-0701
*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.