Earnings and the dollar combined to stick save equities

Is this the beginning of an "everything" rally?

As we have been noting in recent issues of the DeCarley Perspective (analysis used by Jim Cramer on last night's episode of Mad Money); the US dollar holds the key to all asset classes. A higher dollar has been a plow hitched to the back of stocks, bonds, and most commodities. Even if the Fed stands pat, the global environment remains chaotic, and investor sentiment wallows in the gutter, these markets can go up together as the currency market reprices. To some, it doesn't make sense, but the reality is the painful tailspin of dollar-denominated assets without any regard to fundamentals or opportunities for natural supply and demand factors made little sense either. Even worse, the round trip of euphoria and despair was, in my opinion, self-inflicted by central bankers around the world participating in groupthink that took the global markets for a ride.

Treasury Futures Markets

                                                            30-year Treasury Bond Futures

I don't think I've ever been as wrong about a market as I've been wrong about Treasuries in 2022.

When investors think of Treasuries, they think of stability. They also think of them as a risk-off asset. Yet, in 2022 the world learned that government intervention in markets works both ways. While this was always known, few could have predicted the pace and magnitude of rate hikes that have occurred in just a few short months. It is laughable to think back on the 2018 rate hike cycle in which quarter-point increases were employed at a snail's pace; at the time, there was public outcry regarding high interest rates being to high and the transition occurring too quickly. I think we would all love to go back to the 2018 interest rate scenario (along with sub-2% inflation).

What has transpired in the Treasury market since March 2020 is jaw-dropping. The 200'0 valuation seen on the heels of the Covid shutdowns was unsustainable. At the time, however, it didn't feel that way because the narrative and extreme market sentiment was interfering with reason. Two years from now, I suspect we will be looking back at the 120'0 in the 30-year bond futures in the same way we now look at 200'0. It is an obvious place for long-term speculators to put on high-probability trades, but some have run out of money, some have run out of patience and emotional stability, and others have convinced themselves this is the new normal. It isn't, nothing about this is normal.

Treasury futures market consensus:

If you are buried and have plenty of capital/margin, it is probably best to hedge and hold on. Last week's lows are off the chart (unsustainable).

Technical Support: 117'15, 115'20, and 114'0 ZN: 108'31 and 108'06

Technical Resistance: ZB: 122'25, 124'06, 126'25, 128'28, 130'27, ZN: 111'13, 112'09, 113'20, 115'10

 

Stock Index Futures

Bull markets always start with a short squeeze.

At the moment, this rally can be categorized as a short squeeze. Some are even calling it a dead-cat bounce. Yet, there are a lot of factors working in favor of this being something more. For instance, October is known as the "bear killer" and November marks the first of the best six months for stocks. For those that point out the world is crumbling...it's bad, but it isn't 2008. Also, even in 2008, the market put together a bit of a year-end rally (before melting down again in the first quarter of 2009).

Of course, if the dollar is rolling over "for good", as we think it might be, it will allow interest rates to come down a little and the financial markets would react positively...maybe through the end of the year. The ES will run into significant headwinds near 3900/3930, if you are a bear, that might be a place to put something on with a tight leash.

 

Stock index futures market consensus:

The bulls are in full control, at least until we see 3900/3930.

Technical Support: 3780, 3675, 3530/3500, 3400, 3250, 3000

Technical Resistance: 3900/3930, 4010, 4190, 4330 4425, 4380, and 4425

 

E-mini S&P Futures Swing/Day Trading Levels

These are counter-trend entry ideas, the more distant the level the more reliable but the less likely it is to get filled

ES Day Trade Sell Levels: 3870, 3920, 3975, 4010, 4090

ES Day Trade Buy Levels: 3780, 3675, 3530, 3475

 

In other commodity futures and options markets...

July 7 - Aggressive gold option play, buy December $1800 call, sell December $1900 call, and sell a December $1625 put.

July 7 - Aggressive silver option play, buy the October silver $20 call, sell the October $22 call, and sell an October $17.50 put.

July 12 - Cheap and long-dated euro call options, buy the December euro $1.10 call for about 35 ticks.

July 22 - Bullish December corn spreads, buy the 600/700 call spread and sell a 520 put to pay for it.

August 4 - Re-buy December corn $7.00 call.

August 16 - Buy the December 10-year 119.5 call, sell the 121.50 call and sell the 116 put for a total cost of about 11 ticks ($171).

August 25 - Buy December corn $6.00 put

August 29 - Buy January gold 1800 call sell the 1900 call and sell a 1650 put.

September 6 - Buy December S&P 500 4100 call, sell the 4300 call and sell a 3450 put.

September 7 - Buy January crude oil $85 call, sell the $95 call, and sell a $68 put.

September 8 - Buy March 2023 Yen 7800 calls near 50 ticks.

September 16 - Buy March Cocoa 2350 call.

September 20 - Buy March sugar 18.00 call.

September 29 - Buy 77/82 December lean hog call spread and sell the 68 put.

October 4 - Buy the December natural gas 7.50/9.00 call spread and sell the 5.25 put to pay for it.

October 7 - January soybean 14/14.80 call spread.

October 7 - February crude oil 85/75 put spread with a naked 100 call to finance the trade.

October 10 - Buy the March wheat 9.00/8.00 put spread and sell the 12.00 call.

October 11 - Buy January coffee 220/240 call spread and sell the 190 put.

October 19 - Sell E-mini S&P 500 4000/3500 strangle.

 

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.

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

 

**There is substantial risk of loss in trading futures and options.** These recommendations are a solicitation for entering into derivatives transactions. All known news and events have already been factored into the price of the underlying derivatives discussed. From time to time persons affiliated with Zaner, or its associated companies, may have positions in recommended and other derivatives. 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. 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. Seasonal tendencies are a composite of some of the more consistent commodity futures seasonals that have occurred over the past 15 or more years. There are usually underlying, fundamental circumstances that occur annually that tend to cause the futures markets to react in similar directional manner during a certain calendar year. While seasonal trends may potentially impact supply and demand in certain commodities, seasonal aspects of supply and demand have been factored into futures & options market pricing. Even if a seasonal tendency occurs in the future, it may not result in a profitable transaction as fees and the timing of the entry and liquidation may impact on the results. No representation is being made that any account has in the past, or will in the future, achieve profits using these recommendations. No representation is being made that price patterns will recur in the future.