February 5th, 2009

Nearly unch'd ahead of employment data

Treasuries waffled near unchanged after an early morning rally was halted by equity buying.   The theme of the day seemed to be position squaring ahead of tomorrow's coveted employment data.  As is always the case with economic data that lures a lot of attention, the risks of being exposed to the markets is large. 

The market is expecting, and has likely priced in, a draw of about a half of a million jobs last month.  However, a number closer to 600,000 probably wouldn't be considered a surprise and should be taken in stride.  Our chart-work suggests that the Treasuries need to trade a little lower before they can go higher.  Thus, those with similar opinions may look to get long the market with option spreads, short put options, etc on a dip following Friday's data. 

Today's data was borderline terrible with factory orders nearing a negative 4% and initial jobless claims reported to be 626,000, nearly 50,000 higher than what analysts were expecting. 

Volumes were light, as they have consistently been since late 2008.  Many insiders have come to the realization that trading volume will likely follow the economy.  Until things get better on Main Street, West Jackson Blvd in downtown Chicago will suffer. 

Yesterday's analysis still applies...

We can't help but feel as though the 30-year bond's plunge from the low 140s to under 125 will be followed by some type of short covering rally.  With that said, today's slow grind lower may indicate that yesterday's projection of 125'15 may actually give way to 125'08 and the possibility of 124'15 before a reversal. 

We are beginning to like the long side in the 10-year note, but see the potential for prices to fall to 120'15 before things turn around.  Five-year note traders may look to get long near 117'11 in hopes of catching a short covering rally. 

Treasury Bond and Note Option Trading Recommendations

**There is unlimited risk in naked option selling.

February 3 - Sell the March 116 puts for 25 or better, it will take weakness to get filled. 

Treasury Bond and Note Futures Trading Recommendations

**There is unlimited risk in trading futures.

February 4 - Buy the March 5-year note near 117'11 or better. 

Eurodollar Futures Trading Recommendations

**There is unlimited risk in trading futures.

Flat

*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.