Bonds rally as economic reports disappoint

Financials: Mar. Bonds are currently 16 higher at 143’18 and the 10-Year Notes 8.5 higher at 131’14.5. Yesterday: GDP contracted 0.1% in the fourth quarter amid expectations of an increase of 0.1%. ADP Private Sector Jobs Report showed an increase of 192,000 jobs vs. expectations of 165,000. FOMC announced no change in interest rates keeping Fed Funds at 0.25%. Inflation expected over the medium term to run at or below the Fed’s 2.0% objective. The Fed will continue to purchase $40 billion worth of agency mortgage backed securities and $45 billion worth of long term treasuries on a monthly basis in order to maintain downward pressure on long term interest rates. It is expected that the Fed will continue this policy as long as unemployment remains under 6.5% and inflation below 2.5%. This morning: Personal Income rose in Dec. 2.6% vs. expectations of a rise of 1.0%. Weekly Jobless Claims were up 38,000 to 368,000 vs. expectations of an increase of 35,000 to 365,000. The result of all this information, the Bonds have rallied in the last 24 hours from an inter-day low of 142’19 establishing a level of support that can be used for short term trading from the long side on breaks with protective sell stops just below this recent low. Medium-term resistance is now the 145’24 level and longer-term resistance the 146’20 area. My bias remains long-term negative, however, for the short-term I do not want to “fade the Fed” on breaks and caution against selling support. Should the market have a sharp rally into the 145’15-146’15 area I will once again be looking to position myself on the short side of the market preferring to use a strategy of a combination of futures and options 1) sell futures and buy out-of-the-money calls. 2) sell futures and sell out-of-the-money puts. If you are risk adverse, consider either buying puts or put spreads. Monthly Unemployment Report tomorrow.

Grains: Mar. Corn is currently 2’2 lower at 738’0, Mar. Beans 12’2 lower at 1466’4, Mar. Wheat 4’6 lower at 782’2 and Dec. Wheat 5’2 lower at 814’6. Tightening supplies pushed Corn to medium-term resistance in the 740’0 area and exports just below expectations have set the market back a bit this morning. Technically if the market closes above the 742’0 level it should signal a rally to the 754’0-760’0 level where I feel the market will start running into heavy resistance and will be willing to go short should the market rally to the 764’0-770’0 area. I still like out of the money call spreads in Dec. Wheat.

Cattle: Apr. Lc are currently 27 higher at 133.20 and Mar. FC 25 higher at 149.35. Technically near term trends have turned up as the market has left a chart gap from 131.35 to 132.05 as a result of last Friday’s Cattle on Feed Report in spite of sluggish demand for beef because of consumer resistance to current high prices. Mar. FC on the other hand has broken back and filled the gap left after the Report as the market reacted to high feed grain prices. I will be a buyer in Apr. LC on a break below the 132.60 level with an initial protective sell stop at 130.90.

Silver: Mar. Silver is currently $0.27 lower at $31.91 and Apr. Gold $10.00 lower at $1,670. If you remain long Apr. Gold from the mid $1,650’s either take profits or raise your protective sell stop from your breakeven level to $1,663.00. Yesterday’s high of $1,683.00 has set resistance for the moment. As I mentioned earlier in the week the 200-day moving average is $1,668.00, a level the market needs to consistently close above in order to turn the trend up. We remain long Silver.

S&Ps: Mar. S&Ps are currently 1.00 lower at 1494.25. Support is currently the 1483.00-1486.00 level and resistance the 1502.00-1507.00 area. We continue to hold a small short position. Monthly Unemployment Report tomorrow morning.

Currencies: As of this writing the Mar. Euro is currently unchanged at 135.70, the Swiss unchanged at 1.0982, the Yen 17 higher at 1.0985 and the Pound 24 higher at 1.5811. I am on the sidelines until after the Unemployment number Friday morning.

About the Author
Marc Nemenoff

Mr. Nemenoff is a 40-year veteran of the futures industry. While attending graduate school at the Illinois Institute of Technology, Marc took a job as a clerk on the trading floor of the Chicago Mercantile Exchange. Over the years he grew to become an independent member of the exchange and spent many years as a trader, market maker, lecturer, and committee member. Since 2004 Marc has been a senior broker and analyst handling customer accounts for both speculators and hedgers in addition to institutional traders. Marc is also the author of The Nemenoff Report, a daily overview of the markets that includes his own perspective on market direction. Mr. Nemenoff describes his approach to the market as 75% technical and 25% fundamental and is also a firm believer in the use of option strategies as a way of using leverage and minimizing risk when one has a long-term market strategy. You can contact Marc by phone at (888) 908-4310 or by email at mnemenoff@pricegroup.com. Learn even more on our website at www.pricegroup.com.

Futures and options trading involves substantial risk of loss and may not be suitable for everyone. The information presented by The PRICE Futures Group is from sources believed to be reliable and all information reported is subject to change without notice.

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