September is a key month for the financial markets
September is known for being the end of summer vacations, and the beginning of the true business year. In fact, the month of September is believed to be a barometer of what is to come in the next fiscal year.
Thus far, the economic data has been a little softer than we are accustomed to. The dismal jobs report has set the tone, so investors will likely be a little tougher on this week's releases than might otherwise be the case. We are looking forward to housing starts, building permits, and leading indicators later in the week.
Naturally, Wednesday's Fed meeting will trump any economic report. The Fed isn't expected to take action, but there is a substantial amount of speculation on a hawkish change in commentary (meaning they could be looking to raise rates sooner than anticipated). The FOMC decision will take place at 2:00 pm Eastern.
Dovish Fed should support Treasuries, but it could be a wild ride
The Fed has generally been supportive for bonds and notes (at least since the "taper tantrum" that occurred over a year ago). This has been particularly true since Janet Yellen was handed the reigns. We suspect that will be the case this time around, but that doesn't mean the market can't troll lows (or make moderately new lows) first.
We noticed that small speculators added aggressively to their short holdings in the 10-year note (according to the latest COT report). Thus far this year, any time this group has gotten largely bearish it has back-fired. We believe this will likely be the case again; after all, 'tis the season for bonds to move higher and lofty stock prices leave the door open for an equity correction that would leave Treasuries in favor.
Treasury Market Ideas
**Consensus:** We prefer being bullish on dips, but we cannot rule out a trip to 135 in the 30-year bond should the 10-year note opt to test 123'22.
**Support:** ZB: 135'25, 135, and 133'02 ZN: 123'22, and 122'29
**Resistance:** ZB: 137'09, 138'17, and 140'14 ZN: 124'25 125'08, and 125'29
Position Trading Recommendations
*There is unlimited risk in option selling
The September witch can be a "witch"
The September triple witch is known for being temperamental. If you aren't familiar with her, she is the day in which stock options, futures options, AND stock index futures contracts expire. The triple witch comes four times per year (quarterly). Sometimes this day is referred to as a quadruple witch because single stock futures also expire on this day, but they are highly illiquid and thus perhaps not significant enough to mention.
According to the Stock Trader's Almanac, down weeks prior to the triple witch tend to trigger down weeks after the triple witch. Particularly, the September triple witch can be "dangerous" and "pitiful". Knowing this, it might serve traders well to look for a rally going into the Fed and Friday's triple witch, to get positioned for potential selling next week.
We've already noted that the equity market tends to move higher into the Fed and the quarterly expiration. To go a step further, it is relatively common to see the market post an intermediate term (extreme) high the morning of expiration (Friday), only to succumb to selling pressure later in the day (or the following week).
We'd love to see a sharp spike higher, so we can be comfortably bearish from better levels.
Stock Index Futures Market Ideas
**Consensus:** Back and fill in the ES, was likely a reload. New highs "should" be seen this week. We'll wait for better prices to consider turning bearish.
**Support:** 1966, 1938, and 1889
**Resistance:** 2010, 2029, and 2036
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: 1975, 1970, and 1963
Sell Levels: 1992, 1999, and 2004
In other markets....
June 12 - Buy September mini corn futures near 440.
July 8 - Add on to mini corn scale trade.
August 1 - Roll October crude oil 95 put into the 100.50/91 strangle.
August 19 - Add to the mini corn and wheat scale trades by purchasing December mini futures contracts.
August 21 - Sell a December DX futures contract and buy an October 83 call for about $300. The total risk on the trade should be about $1,000 before commission (depending on your fill prices). The profit potential is theoretically unlimited.
August 26 - Roll September mini grains (wheat and corn) into December contracts to give the market more time to recover.
September 4 - Sell October DX 83 call to lock in a profit of about $700 before transaction costs. The futures portion of this trade is underwater, we are hoping for a reversal in the coming week or so.
September 9 - Sell November Euro 133 calls and 125 puts for about 65 ticks ($812.50).
September 10 - Sell December crude oil 82/98 strangles for about $1.10 ($1,100).
September 15 - Buy March 2015 sugar 18.00 calls near 32 ticks.
(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)
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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.**