Today's economic data failed to excite the bulls
Weekly jobless claims and personal income and spending data weren't horrible, but they weren't good enough to fend off selling in a tired equity market. Today's late session selling on Wall Street will put tomorrow's Chicago PMI, Michigan Sentiment and Factory Orders "on notice". Similar to Thursday's news, it might not take much of a downside miss to trigger another round of stock market selling, and Treasury buying.
With that said, tomorrow is the last trading day ahead of the Labor Day weekend...and that is always a wild card. The question will be whether traders will focus on fundamentals, will they be keying off Bernanke's speech, or will they simply be looking to exit their positions ahead of a long weekend?
In Treasuries, the path of least resistance remains higher for now
After some brief back and filling, bonds and notes continue to track higher. This is the type of market that, once on a roll, can be hard to stop. We aren't in any hurry to be bearish despite the massive rally. After all, the VIX is still low and this might mean we are in store for panic trade at some point soon. Prices and emotions go through cycles; things are quiet now, but there is no guarantee the complacency will last.
If you are looking to play the downside in the 30 year bond, it might be a good idea to try to hold out for prices in the 152 area, which is where we think the market is going. If the fear trade comes back, 154 could easily be seen.
Those that are moderately bullish, might consider a delta neutral trade using the November options and the December futures; for instance a trader could buy a futures contract near 150'15 and sell three 154 calls for a net credit of $3,375. This gives the trader a 3 handle cushion under the market on his futures contract (but unlimited risk below that), and creates a maximum profit potential of well over $11,000. Contact us for more ideas/information should the market be at 154 at expiration. The trade starts to lose money a little above 157 (depending on fill prices) where the trader faces unlimited risk. In other words, the trade is profitable at expiration from about 147'15 to 157'15 (ballpark), with 154 as the sweet spot.
Treasury Market Ideas
Consensus: Seasonals and fundamentals leave us slightly bullish, but not enough to justify significant risk exposure.
Support: 148'03, 147'23, and then again 145'09 (30-year Bond), 133'13 and 132'05(10-year note)
Resistance: 151'12 and 152'03 (30-year Bond), 134'15, and 135'02 (10-year note)
Position Trading Recommendations
*There is unlimited risk in option sellingFlat
Pre Labor Day dip?
The equity market is clearly tired and many traders weren't willing to sit on long positions ahead of Bernanke's speech tomorrow or the three day Labor Day weekend.
According to the Stock Trader's Almanac, today was a statistically bearish day and tomorrow is relatively neutral to slightly bearish. However, the post holiday Tuesday has been up 12 of the last 16 occasions. In 1997 the Dow was up 3.4% and in 1998 it was up over 5%. We wouldn't recommend trading against history, but the best reason we can think of to buy into this market is if prices get a little cheaper. Accordingly, tomorrow could be setting up for a liquidation day, only for the risk traders to come back in buying on Tuesday.
If we are right, the mid to high 1370's could be seen in the ES. This would put the market on trend line support, and would give reason for investors to reload next week (which is often the case)
Stock Index Futures Market Ideas
Consensus: We wouldn't mind being slightly bullish on a big enough dip going into the weekend.
Support: 1382, 1371, and 1353
Resistance: 1408 (minor), 1418, and 1427
Position Trading Ideas
Day Trading Ideas
These are counter-trend entry ideas, the more distant the level the more reliable but the less likely to get filled
Buy Levels: 1392, 1383 and 1373
Sell Levels: 1401, 1407 and 1418
In other markets....
(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)
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.
**Seasonality is already factored into current prices, any references to such does not indicate future market action.There is substantial risk of loss in trading futures and options.