March 24th, 2009

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Auction suggested Treasury demand

The Fed issued $40 billion in 2-year notes this afternoon with a decent amount of demand seen for the instruments.  Tomorrow, the market will absorb the 5-year and 7-year note auction and supply and inflation concerns seem to be outweighing any positive impact of demand.  Keep in mind that the Treasury will be auctioning $34 billion in 5- year notes and $24 billion in the new 7-year notes and along with government backed securities, corporations are looking to raise cash through bond sales.

The trading volume in Treasuries, and stocks for that matter, was thin at best and this leads me to believe that the early morning selling was artificially exaggerated.  Nonetheless, light volume works both ways.  The late session buying also benefited from the lack of market participation.  Much of the boost can likely  be attributed to the Fed announcing that they could begin buying Treasuries as early as tomorrow. 

I was a little surprised to see the magnitude of the pullback in the 30-year bond  but my criteria of seeing a close above 128 has been met.  I am going against the grain on this one and calling for higher prices on the long end of the curve.  The next resistance should be near 130'04 but I think that a retest of the recent highs in the mid-132's could be seen by the end of the week. 

We are expecting to see similar action in the 10-year note.  The first resistance will likely be found near 125'08 but the odds seem to favor a move to 125'08 in the coming sessions. 

If you have been following this newsletter for a period of time, you have likely noticed that we have considerably cut back on the number of trading recommendations provided.  Many of you have voiced concerns and even boredom over our inaction in the 10-year and 30-year Treasuries.  However, we stand by our decision to take a step back from more aggressive and active trading. 

There are hundreds/thousands of readers of this newsletter some of them being highly experienced and others are just dipping their toes in futures and options trading.  It would be irresponsible for us to recommend trades simply to add to the excitement factor of the newsletter, or to generate commissions for those that are trading with us.  We strongly believe that there will be more favorable trading conditions for our approach and strategy and look forward to becoming more aggressive.  In the meantime, we have been comfortable with the trades that we have been suggesting in Eurodollars and the 5-year notes.   We also work closely with clients that are interested in being much more active in their trading and offer daily and intra-day guidance. 

* 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.

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Treasury Bond and Note Futures Trading Recommendations

**There is unlimited risk in trading futures.

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Eurodollar 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.