Overnight volatility blamed on a surprise Australian interest rate cut, and weak data in China but...
Most business news stations were attributing the overnight selling in U.S. stock index futures to weak economic data in China, and an unexpected rate hike by central bankers in Australia. However, the Asian markets traded mostly higher on the news because they've fallen into the "bad news is good news" trap (weak data increases the odds of more stimulus). Further, lower rates in Australia should be a positive for the global markets overall.
We think a better explanation for the selling was the sharp move in the currency markets. The dollar index plunged well below 93.00, while the euro soared above $1.16. These are both major milestones, which were passed in volatile trade. Thus, we believe despite the fact that a weaker dollar will boost corporate earnings, the uncertainty of volatile currency trading prompted selling in U.S. and European equities.
Ironically, the seasonal low for the dollar and peak for the euro is due this week...so perhaps the currency markets are in the process of reversing course in the short-run. In short, last night's "break-out" might turn into a trap.
Treasury Futures Markets
30-year bond futures "should" make their way to the top of the trading range
Treasuries failed to break below the recent lows last week. Since then, we've seen an impressive amount of buying in an environment in which the equity market is shaky and the greenback has lost ground. Thus, from both a charting and fundamental standpoint, there is plenty of evidence to support the idea of a return to the upper end of the trading range, which is in the high 160s for the 30-year bond, and in the mid-131's in the 10-year note. Should prices return to the highs, we'll likely turn bearish again.
Treasury Futures Market Analysis
**Bond Futures Market Consensus:** The "easy" money in bonds and notes might have already been made on the long side, but we continue to believe the rally will continue for the time being. Look for resistance near 168 in the ZB and in the mid-131s in the ZN.
**Technical Support:** ZB : 160'08, 156'25, and 153'26 ZN: 129'16, 129'01, and 128'00
**Technical Resistance:** ZB : 164'26, 167'13, 168'08, and 169'14 ZN: 130'29, 131'17, 131'29, and 132'20
Stock Index Futures
Thus far, this is a run-of-the-mill correction in the S&P. Will it become more?
The S&P 500 is in the midst of a rather tame correction. At the moment, that appears to be all it is. Despite a few large ranging down days, the ES is a mere 50ish handles (2%) from the recent high. We don't see any reason for the bears to get excited, or the bulls to panic, just yet. Nonetheless, we do believe the bears have an upper hand for the time being. In fact, according to our price models the ES "should" make its way toward the mid-to-low 2020s, and maybe even a full retest of 2000.
Keep in mind that the markets tend to be relatively volatile on election years. Markets don't like uncertainty, and this particular cycle is setting up to be one for the history books. There is no room for complacent bulls in this market.
Stock Index Futures Market Ideas
**e-mini S&P Futures Market Consensus:** As long as the ES stays below 2073, the bears are in control.
**Technical Support:** 2026, 2003, and 1976
**Technical Resistance:** 2073, 2110, and 2135
e-mini S&P Futures Day Trading Ideas
**These are counter-trend entry ideas, the more distant the level the more reliable but the less likely to get filled**
ES Day Trade Sell Levels: 2063, 2076, and 2083
ES Day Trade Buy Levels: 2045, 2026, and 2019
In other commodity futures and options markets....
November 24 - Roll long December corn into March to avoid delivery.
March 17 - Sell a fresh ZN strangle using the May 130/128.50 strikes. This gets us into a more reasonable position which stands to profit from premium erosion (the previous trade was largely intrinsic value at the point of exit).
March 29 - Buy back May ZN puts to lock in a profit.
March 30 - Sell June ZN 128.50 puts to get back into strangles. This leaves the trade short May 130 calls, and June 128.50 puts...a short strangle with a slightly bearish stance.
March 30 - Sell June ES 2150 call near 10.00/11.00.
April 7 - Buy back ZN 128.50 puts near 9 to lock in a gain.
April 13 - Sell ZN 129.50 puts to bring in more premium and get back into strangles.
April 21 - Sell June Live Cattle 110 puts for about $400.
April 29 - Buy back ZN 131.50 calls and 129.50 puts to lock in gain (roughly $600 before transaction costs.
April 29 - Buy back ES 2150 calls for about 5.00 to lock in a profit of anywhere from $250 to $300 per lot before transaction costs depending on fill prices.
(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)
Carley GarnerDeCarley Trading (a division of Zaner)
www.HigherProbabilityCommodityTradingBook.com **There is substantial risk of loss in trading futures and options.** These recommendations are a solicitation for entering into derivatives transactions. All known news and events have already been factored into the price of the underlying derivatives discussed. From time to time persons affiliated with Zaner, or its associated companies, may have positions in recommended and other derivatives. 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. 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. Seasonal tendencies are a composite of some of the more consistent commodity futures seasonals that have occurred over the past 15 or more years. There are usually underlying, fundamental circumstances that occur annually that tend to cause the futures markets to react in similar directional manner during a certain calendar year. While seasonal trends may potentially impact supply and demand in certain commodities, seasonal aspects of supply and demand have been factored into futures & options market pricing. Even if a seasonal tendency occurs in the future, it may not result in a profitable transaction as fees and the timing of the entry and liquidation may impact on the results. No representation is being made that any account has in the past, or will in the future, achieve profits using these recommendations. No representation is being made that price patterns will recur in the future.