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January 13, 2012  

Click here to read Carley's latest Stocks & Commodities Magazine column on the realities of the forbidden word (commission).  

Follow through buying next week in Treasuries?

News of more credit rating downgrades plagued risky assets and gave investors a reason to put money back into the safe-haven of Treasury securities.  Although bonds and notes were up measurably on the session, we could have easily seen much more panic.  Not because the ratings cut was a surprise, but because of the timing of the announcement (ahead of a three day weekend in the U.S.).  One has to question the S&P's timing (once again).  

Standard & Poor's actions to downgrade a handful of European sovereigns was well telegraphed but they must know that the lack of access to the markets on Monday (Martin Luther King Day) has the potential to cause unnecessary stress, and possibly panicked trading.   

In light of the holiday, the trading pits in downtown Chicago will be closed on Monday but the electronic Globex markets will be open from Sunday night through Monday morning for an abbreviated and likely sparsely attended, session.   

In addition to the S&P announcement, the Treasury rally has been supported by this week's Fed speeches.  Most Fed members seem to be maintaining a dovish stance and this keeps the door open for even more QE stimulus (and therefore potentially lower yields).   A recent Italian bond offering at a lower than expected yeild but questionable demand provided temporary relief to selling in the Euro and might have been enough to send bonds reeling in the absence of the credit downgrade.  Nonetheless, the technicals are strong and the rally appears to be gaining steam.   

In this newsletter we've been patiently waiting for a rally to take us to the 132ish area in the note and to the 146/147 area in the long bond.  Specifically, we are currently looking for the March 10-year note to make its way into the mid 132's and the bond should see the mid to high 146's or maybe even a bit over 147.  However, we'll likely start to lean lower from there.  For those that like to sell options, we are hoping volatility increase enough to be able to get some of the March calls off at strikes in excess of 153 with respectable premium.

**Seasonality is already factored into current prices, any references to such does not indicate future market action.

Treasury Bond and Note Option and Futures Trading Recommendations

**There is unlimited risk in naked option selling.

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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.

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.