U.S. Treasury futures rally in volatile trade
Profit taking ahead of tomorrow's employment numbers were blamed for an early morning breakdown in pricing. The move occurred despite the ECB and British central bank rate cut announcements. Insiders noted that big players looked to be taking profits on long positions and heading to the sidelines in search of "better" levels. If they followed their plan, they would have done considerably well. After trading a handle and a half off its high, the long bond rallied sharply back into positive territory.
The bullish bond factors at work in today's session far surpassed any bid seen in Treasury trade. A dramatically higher greenback, slumping equities and the slough of weak economic data recently released it seems that Treasuries should have enjoyed another day of significant gains.
In the case of the 30 year Treasury bond, today's delayed reaction to equity market turmoil seems to have resulted in a tightly wound coil going into tomorrow morning's employment data. I am sticking to my projection of just above 118 in the coming sessions.
In previous reports, I have noted significant resistance in the 10-year note at and above 116. Thursday's high of 115'31 confirms reluctance of trade to surpass noted resistance levels. Nonetheless, I believe that we will soon test resistance near 116'15.
I haven't given up on the downside potential in the 5-year note, but short traders should be willing to accept the risk of a rally to about 116'15. Likewise, if you are short the Eurodollar as noted below, we are approaching extremely low yields and overbought pricing. I am thankful for the call option, which is offsetting most of the loss, but hopeful that things will turn around in a quick fashion. You may want to consider adding on to this position!
Treasury Bond 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.
November 4 - Sell 1 December Five year note futures at 115'16.
Eurodollar Futures Trading Recommendations
**There is unlimited risk in trading futures.
October 29 - Sell 1 December Eurodollar at 97.79
October 31 - Our clients were advised to buy the November 97.75 call for 17 ticks as an insurance policy. Assuming a fill at 97.79 the net risk on this trade is limited to $325 plus commissions and fees. The profit potential is theoretically unlimited!
Carley Garner Senior Analyst / Commodity Broker
DeCarley Trading
cgarner@DeCarleyTrading.com
www.DeCarleyTrading.com
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 because of the opinions expressed in this report will be the full responsibility of the person authorizing such transaction.
