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Traders on hold, non-farm on tap |
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Written by Administrator
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*All rights reserved. Reproduction or distribution of this newsletter without prior consent is strictly prohibited. February 2, 2012 Click here to sign up for our next Free trading webinar...FOREX Trading Math! Up to 50% off of Carley Garner's books at BN.com, use promo code G2C3DJDYC9867 (mystery discount taken upon check out on one item) Traders on hold, non-farm on tapWhile scouring the headlines of business news websites and ran across a few that included the text "time to buy stocks". I always find it interesting that the equity markets are the only place where people look to buy things after they have become more expensive. If you went to a hardware store and discovered that it cost 15% more than it did at the end of November, you would probably be apt to forgo the purchase and wait for a sale. Yet, when stocks are on the rise investors clamor to chase them higher. For buy and holders (with EXTREMELY) long time horizons, this might be a strategy that works out, but for those trading on leverage, timing is everything. As contrarians, we tend to want to be the opposite of others are compelled to do. Simply, we like the idea of buying things when they are cheap and selling them when they are expensive. This is the type of thing that sounds great on paper, but isn't always as easy to implement. Nonetheless, current equity market pricing doesn't seem to be a screaming deal. Instead, buyers at this level run a probable risk of being forced to withstand the pain of a correction before being rewarded. We'll be the first to admit that the current rally has extended beyond our original expectations, but that doesn't mean it is time to buy. In fact, it is time for the bulls to be more cautious. With the VIX now well under 20, the financial markets appear to be "due" for an increase in volatility and that would most likely mean corrective action in equities. According to the Consensus Bullish Sentiment, about 71% of market participants are bullish; likewise, only 18.9% of those surveyed for the AAII Index are bearish. Although markets can stay overbought and irrational longer than many of us can stay solvent, these sentiment readings are vigorously waiving red flags. We don't advocate jumping in front of the freight train, but it could be worthwhile to have some long lottery ticket puts under the market (NASDAQ puts are particularly cheap). We like anything with a strike of 2350 or lower in the March options. You might also want to consider an option spread in which risk is shifted away from immediate prices to provide room for error. For instance, you should be able to buy the March e-mini S&P 1300 put, sell the 1250 put and the 1370 call for a total cash outlay of about $100. The risk is unlimited above 1370, but the trade profits as much as 50 handles $2500 if the futures price is below 1250 at expiration. We could see a spike high before rolling over on tomorrow's employment report. Look for resistance in the S&P near 1333 and then again near 1339...these are the levels that bears might want to consider playing the downside from. In the meantime, intraday support lies at 1315 (soft), 1307 and then again near 1299. From a previous newsletter but you might find it interesting if you missed it. Thus far the market isn't cooperating...but we haven't changed our mind: We tend to be optimists, but we simply can't get too excited about the recent equity rally. The lack of back and filling on the way up, signals an unhealthy ascend. In such scenarios, it often doesn't take much to turn the tides dramatically. This is especially true in an environment such as this where event risk is running rampant. Also, earnings have been overall supportive and, therefore, have triggered some significant intraday rallies. However, we wonder what will occur once earning season is behind us. Will there be the same constant trickle of positivity that it will likely take to keep this boat moving in the same direction? We have our doubts. |
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Was bond pullback a top, or a reload? |
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Written by Administrator
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*All rights reserved. Reproduction or distribution of this newsletter without prior consent is strictly prohibited. February 2, 2012 Click here to sign up for our next Free trading webinar...FOREX Trading Math! Up to 50% off of Carley Garner's books at BN.com, use promo code G2C3DJDYC9867 (mystery discount taken upon check out on one item) Was bond pullback a top, or a reload? There is no doubt that Treasuries are overvalued from a long-term perspective, but in the short run there is no measure of just how irrational investor behavior can become. Remember the negative yields for bills in 2008? Accordingly, bears shouldn't complacently believe that rates "can only go up from here" (which means bond and notes would fall). While that assumption is true for those that have unlimited capital and all of the time in the world, those trading in the "now" might have a different experience. We aren't necessarily bullish but we certainly respect the market's yearning for stop running and torture. Also, we understand that investors are acting on the fumes of emotion rather than logic; therefore, the old "rulebook" has been all but destroyed. Being bearish in what has been a decade (or more) bull market, requires that traders patiently sell into strong strength to survive. Selling quiet markets or chasing them lower simply doesn't work in this environment. As discussed in previous newsletters, Friday's government employment report could be the deciding factor on the Treasury market's near-term direction. Most analysts are expecting that the economy added somewhere between 100,000 and 150,000 jobs last month. In light of ADPs 175,000 prediction earlier this week, our guess is that any number between 100,000 and 175,000 would be a non-event. A sub-100,000, on the other hand, could prove to trigger a round of short covering that leads the 30 year bond near 146, and possibly as high as 146'20. A similar move in the note could see 132'16ish. If these levels are seen on an early morning rally, we like the idea of being bearish at such prices...it seems as though longs could be interested in locking in profits and a move to these prices will ensure that a majority of the buy stops have been run. From a previous newsletter, but still something to be aware of: You've likely heard of the VIX, a volatility index based on the S&P 500 but you probably aren't familiar with the MOVE Index. This is an index created by Merrill Lynch that measures overall volatility in the Treasury market. Specifically, it is a "yield curve weighted index of the normalized implied volatilities" that accounts for the 2-year notes, 5-year notes, 10-year notes and 30-year bonds. The MOVE index is currently trading at a value of 75 after peaking near 116 in November. Yet, Treasury option prices in the futures market seem to be rather beefy.
For instance, many clients are currently holding a short 140/149 strangle worth about 46 ticks or $720. Prior to the August fiasco, traders would have likely had to sell options with strike prices within 2 or 3 handles of the current markets price to collect similar premium. Either the options are futures are dramatically overpriced, or they are trying to warn us of something. For now, we are choosing the overpriced side of the argument. After all, we are headed into a plethora of economic data (namely the employment report) and traders are likely buying lottery tickets on both sides of the market.
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Free 2012 Futures and Options Trading Outlook |
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Written by Administrator
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Looking ahead six months, what shifts are foretold in market fundamentals and liquidity? PFGBEST Research will give you succinct analysis that takes the routine blogs and customer communications of their skilled analysts to a new level!- What factors will be most critical to institutional forex traders? Why? Retail FX traders also want to know what insights the professional desk traders at PFGBEST have to offer!
- Energy markets are more volatile, and you need to know what Phil Flynn, one of the best-known energy and commodity commentators in the country, thinks is coming up!
- What is the likelihood that stock indices will follow established trends, or will there be political lashing out (or worsening economic chaos) that will result in volatile breakouts that the charts are not yet indicating?
- Precious metals -- retracing to gather steam or not so much?
- One of the foremost forecasters of USDA grain reports, Tim Hannagan, will advise on changes with U.S. export opportunities (pro and con) plus final tallies on 2011 production, and market psychology going into the New Year.
- Bob Short gives a short report on livestock and meats markets but don't let his brevity fool you. The man is an encyclopedia of current and past conditions that will provide seasonal trading signals NOW.
- On soft commodities, researcher/trader Robin Rosenberg asks and answers bigger questions, since climate, weather and global economic factors are so impactful to Third World producers!
Order your copy of the 2012 Outlook today! DeCarley Trading is an introducing broker for PFG, click here for a description of the relationship. Click here to open a trading account with DeCarley to utilize one of our state of the art trading platforms or an experienced full-service broker. DeCarley Trading1-866-790-TRADE(8723)www.DeCarleyTrading.comwww.ATradersFirstBookonCommodities.cominfo@decarleytrading.com**There is substantial risk of loss in trading futures and options! |
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Webinar: FOREX Trading Math |
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Written by Administrator
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FOREX Trading Math: Fractions, Decimals, Quotes and Your Money!When: February 16th, 2012 @ 3:30 pm CentralWhere: OnlineWhat: Getting to know FOREX with "Currency Trading" author, Carley GarnerPerhaps the most intimidating aspect of trading currencies in the FOREX market is the complex mathematics required to calculate profit, loss, and risk. With the convenience of modern trading platforms, the grunt work is done for traders automatically but that doesn't mean traders shouldn't have a full understanding of how the numbers they see on their statements, and in their trading platforms, are derived. Join us to discuss in detail the following topics: - Mechanics of pairs trading
- Calculating pips and profit
- Calculating and understanding margin and leverage
- What does a quote of $1.3225 in the Euro REALLY mean
- The "new" pip...dealing in fractions of a pip within a trading platform
- And more!
DeCarley Trading1-866-790-TRADE(8723)info@decarleytrading.comwww.DeCarleyTrading.com*THERE IS SUBSTANTIAL RISK OF LOSS IN TRADING FOREX, FUTURES AND OPTIONS! |
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