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August 4th, 2010

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Pullback to reload?

Once again, Treasury trade was dominated by indecision; yesterday's rally was followed by buyer's remorse and this is consistent with recent market behavior. 

ADP provided an optimistic glimpse into Friday's jobs report.  The payroll agency reported an increase in employment of 42,000 and although the number doesn't suggest the economy is firing on all cylinders it does point toward stability.  Assuming the government version of the same analysis is similar, it likely won't have the ability to provide the bulls with a knockout punch as the market has already priced it in. 

Also siding with the bears, ISM Services index was better than expected and at a reading of 54.3, it suggests moderate growth. 

We are looking for the dollar index to pull itself out of the depths of despair and this would typically offer support to Treasuries.  Also, the seasonal tendency should be higher throughout the fall.  With this in mind, although a technical pullback could be looming at some point, we doubt that the bull move will be a lost cause.

Bonds and notes have been reluctant to move lower, even as equities move higher.  However, if the stock rally runs out of steam in the coming days, Treasuries could see a wave of safety buying.  If this scenario materializes, the September 30-year bond futures might see prices in excess of 130 and the note just above 115.  Depending on equity market behavior we will likely begin to grow bearish above the noted levels.  Keep in mind that trend-line resistance won't come into play in the long bond until 131ish.  If you want to play the downside, try to avoid shooting all of your bullets at mediocre prices because short squeezing and panicked buying could potentially trigger a sizable move. 

* 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.  Charts provided by Track 'n Trade, Gecko software.

**Seasonality is already factored into current prices, any references to such does not indicate future market action.

Treasury Bond and Note Option Trading Recommendations

**There is unlimited risk in naked option selling.

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Treasury Bond and Note Futures Trading Recommendations

**There is unlimited risk in trading futures.

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*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.