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The Bond Bulletin

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Mixed news, oversold bounce

Sat, Oct 17 2009, 00:18 GMT
by Carley Garner

DeCarley Trading

Treasuries were slightly bid following a worse than expected University of Michigan consumer sentiment reading but hints of inflation kept the rally in check. Also capping gains, the net long-term capital inflow of investment dollars into government backed securities was a bit on the light side.

The Net foreign purchases of long-term securities were $28.6 billion; analysts were looking for $30 billion. The amount of foreign buying interest in the face of a weak dollar has surprised many but it suggests that overseas investors are seeing currency valuations as a bargain rather than a risk. I tend to agree that with the greenback at multi-month lows, it seems as though the path of least resistance will eventually be higher. I can't argue that dollar fundamentals aren't weak, but I also feel as though the fundamentals backing the other major currencies are equally as troublesome. If this assumption is true, it will be supportive for the long bond and notes.

Treasuries have fallen rather sharply in recent weeks and were due for a technical bounce. Whether or not the day's moderate gains will turn into something more will be highly dependent on the behavior or equities in a post option expiration world. It is hard to determine if stocks were being buoyed by expiration or if it was actually holding back the rally. Our gut tells us that we will see lower stocks and higher bonds at some point next week.

Here is a similar prediction made by some of our friends on the floor with DT Trading http://www.youtube.com/watch?v=lVTpvR0fCEY. DT is a specialist that we use the one CME floor to execute open outcry positions for our clients and they have always had a knack for the markets as well as the ability to provide efficient fills.

We are still a bit mixed when it comes to our sentiment in regards to the Treasury complex. The 30-year has come close to reaching our downside projections but the note has not. However, we are going to continue to assume that the long bond is leading the short end of the curve and will lean higher. That said, the follow through buying this morning was disappointing so any bullish position should be played close to the chest.

We are showing support in the 30-year bond near 118'15 and again at 118'03, our first resistance will be near 120'13. Note traders can look for support near 117'19 then again just under 117. Resistance lies at 118'11 then 119'02.

In yesterday's newsletter we boldly predicted a reversal in all of the financial markets (Treasuries, stocks and currencies). Today wasn't the day, and tomorrow might not be either but we feel like such a scenario could happen by as early as next week.

* 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. Charts provided by Track 'n Trade, Gecko software.

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



Treasury Bond and Note Option Trading Recommendations
**There is unlimited risk in naked option selling.

October 15 - Yesterday afternoon, our clients were advised to sell puts against a possible Thursday plunge. We recommended to sell the December T-bond 112 and 113 puts for 20 and 26 ticks respectively, or about $312 and $406 before commissions and fees.

Treasury Bond and Note Futures Trading Recommendations
**There is unlimited risk in trading futures.

Flat

Published on  Sat, Oct 17 2009, 00:26 GMT