February 27th, 2009

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Negative correlation with equities drive Treasury products

Bond and notes enjoyed a healthy bid in early trade as another wave of poor economic data hit the airwaves.  However, recovering equities eliminated the safe-haven bid and forced Treasuries into negative territory. 

The University of Michigan's consumer sentiment index was weak, but in line with expectations; the same can be said for the Chicago PMI.  However, the actual (as opposed to the preliminary) Gross Domestic Product coming in at a negative 6.2% surpassed even the pessimistic estimates.  Consensus was set at a draw of 5.4% but the prior estimate was -3.8%.  Any way that you look at it, the data was bond friendly. 

Trading volume was light, but that is to be expected on a Friday.  However, I do find it interesting that the selling pressure witnessed in the previous sessions started out with a considerable amount of volume but it has consistently diminished since Tuesday. 

The oversold bounce from the 125 area in the March 30-year that I had been looking for seems to have already occurred by the time that many of you turned on your computers.  The Friday morning rally extended to 126'23 before quickly fizzling.  A new low near 124 leaves us a little on edge; and the near term direction will be highly dependent on equities and of course trader's willingness to stick with the negative correlation theme.  We would like to have the opportunity to sell option premium against further weakness on Monday.  I will have to see how things look, but the April 110's and 111's look attractive for an attempt to catch a quick oversold bounce.  If you are interested in option trading, option selling or option spread trading pick up a copy of my book "Commodity Options".  It is currently being discounted at Amazon for a limited time.  The book covers several option strategies in detail in financial futures and commodities...and if it saves you 1 tick in the markets you have recouped your investment.   Click here to buy it today!

Our clients were recommended to sell their long 5-year note positions near 117'24 to lock in approximately $450 before commissions and fees (see recommendation below).  However, we may be looking to re-establish the position near 117'05 next week.  Stay tuned. 

* 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.

Treasury Bond and Note Option Trading Recommendations

**There is unlimited risk in naked option selling.

Flat

Treasury Bond and Note Futures Trading Recommendations

**There is unlimited risk in trading futures.

February 26 - Our clients were recommended to buy the March 5-year note near 117'10.

·         We recommended to sell this position on this morning's rally near 117'24 to lock in a profit of about $450 minus commissions and fees.  We may look to put this trade back on next week. 

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.

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.