August 29th, 2008

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Holiday trade takes its toll on Treasury bond bulls.

Friday's Treasury market trade could be viewed as the epitome of the 'summer doldrums'.  The volume was nearly non-existent and while the direction was decisively lower, it was a very slow grind with little momentum to speak of.  The lack of bid may have simply been a lack of traders as opposed to selling pressure.  I wouldn't recommend giving today's action too much credit in your market analysis.  In the big picture, the last trading day ahead of an extended Labor Day weekend is hardly worth too much consideration. 

Nonetheless, the day's trade in interest rate products worked in favor of the short call option positions recommended in this newsletter.  In fact, I recommend putting an order in to buy the October 121 Bond calls back for 6 ticks or less.  Open outcry trading is closed on Monday, but you should be able to put this order in on the electronic market Sunday afternoon.  The trade is consuming very little margin, but I don't feel as though it is wise to continue to accept risk of unlimited losses with most of the premium eroded. 

Did we miss the opportunity to sell T-Notes?  Maybe, but I still believe that the market will eventually reach our target and eventually fill those that are looking to participate in the recommended trade. 

Early morning data releases are to blame for sluggish bond trade.  The Chicago PMI was surprisingly positive on the headline and within the depths of the numbers.  The index jumped to 57.9 from 50.8 in spite of estimates calling for a reading of 50.  A regional report doesn't necessarily represent the economy as a whole, but bond traders are accustomed to Treasury friendly data and were likely taken back a bit.  Additionally, the University of Michigan sentiment was reported to  be at 63, a decent showing relative to expectations of 62 and a previous reading of 61.7.  It was also brought to my attention that consumer sentiment in Europe is also on the rise.  This is important in that a confident consumer is a less restricted shopper and may eventually bode well for consumer discretionary spending.

I like the fact that fundamental data is beginning to favor the bear camp, but warn you that a change in the trend of economic data won't immediately correlate with a change in the direction of Treasuries.  Although I am becoming fundamentally more and more bearish at every new high that the market makes, I also realize that the mentality of trade could take us much higher before a longer-term reversal may be possible. 

Treasury Option Trading Recommendations

**There is unlimited risk in naked option selling.

August 12 - If I am right, you may be able to sell the October 121 calls for 20  or better.  Be patient and let the market come to you...if it doesn't it wasn't meant to be.

August 15 - This order would have been filled today.  I am looking for an opportunity to buy this back quickly, contact me for details.

August 25 - Should the market have another day like today, it may be a good idea to add on.  If you are properly margined and willing to take on the additional risk, look to sell the 122 call for 20 ticks or better. 

August 29 - Put in an order in to buy the October 121 Bond calls back for 6 ticks or less. 

Treasury Futures Trading Recommendations

**There is unlimited risk in trading futures.

August 18 - Sell 1 Sept. T-Note @ 117'17 GTC, contact me for guidance or if you have questions. 

Carley Garner

Senior Analyst/Broker

DeCarley Trading

cgarner@DeCarleyTrading.com

1-866-790-TRADE

Local : 702-947-0701

www.DeCarleyTrading.com

There is substantial risk of loss in trading futures and options.

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