The Fed's Beige Book and a crude oil short squeeze, "saved" equities
Wednesday's session started out on rough footing compliments of a reduction in 2015 growth forecasts by the World Bank. However, the Fed's Beige Book shed a more positive light on the U.S. economy. Despite global woes, the domestic climate is overall positive.
According to the Beige Book, the Fed sees the economy expanding at a modest, to moderate, pace in most of its 12 districts. Nonetheless, there were some concerns regarding the impact of the decline in oil prices (lower drilling activity affects employment and capital expenditures).
Today was option expiration for February crude oil; it isn't uncommon to see sudden price spikes going into the pit close on expiration day, and that is exactly what we saw in afternoon trade. The massive short squeeze in oil helped to drag the stock indices higher, and eventually lead Treasuries lower.
Could this be the beginning of something bigger? We think so.
Our Treasury market analysis was featured on CNBC's Mad Money with Jim Cramer last night!
Here is a link to the DeCarley Perspective newsletter used on the show:
https://madmimi.com/s/4248c5
Here is a link to the show:
http://video.cnbc.com/gallery/?video=3000346138
Treasury Market Ideas
**Consensus:** We can't rule out a ridiculous route to 152'15ish; however, the best trade going forward is likely on the "short" side of the market. Could this be THE top?
**Support:** ZB : 146'21, 145'22, and 141'29 ZN: 127'31, 127'10, 126'12, and 125'13
**Resistance:** ZB : 150'21, and 152'15 ZN: 130'04, and 130'16
Position Trading Recommendations
*There is unlimited risk in option selling
Short March 156 calls near 30 ticks
Long March 138 puts near 20 ticks.
ES holds trend-line support
The mid-1980s offered sharp technical support in the form of the multi-month up-trend line. Despite looking rather ugly this morning, the e-mini S&P 500 managed to forge a rally from session lows. We'll know more in the coming days, but there are quite a few things lining up that point toward reversals in the financial markets. In other words, we could be in store for the dollar to finally reverse, Treasuries to fall back to more sustainable levels, stocks to resume the up-trend, and commodities (particularly crude oil) to find footing.
This afternoon's realization by investors that things aren't "that bad" was influenced by the Fed's Beige Book and a crude oil rally, but it will be up to the rest of this week's economic data to keep things moving in the desired direction.
Stock Index Futures Market Ideas
**Consensus:** Assuming we don't get an fresh concerns in China or Europe overnight, it is likely we've seen the low of this move. 1985 support held well, we'll need to see a run to 2040ish to confirm a resumption of the bull.
**Support:** 1985,1962, and 1913
**Resistance:** 2040, 2088, 2117, and 2131
Position Trading Ideas
Flat
Day Trading Ideas
**These are counter-trend entry ideas, the more distant the level the more reliable but the less likely to get filled**
Sell Levels: 2022, 2040, 2051, and 2060
Buy Levels: 1975, and 1965
In other markets....
September 10 - Sell December crude oil 82/98 strangles for about $1.10 ($1,100).
September 15 - Buy March 2015 sugar 18.00 calls near 32 ticks.
September 29 - Buy back the December crude oil 82 puts to lock in a profit of $370 to $400 per contract, and replace them with short 86 puts. This brings in more premium and rebalances the trade.
October 2 - We made a big mistake rolling our 82 puts higher. Let's rebalance the trade and look for volatility to decline by offsetting the existing strangle and selling the December 95/82.50 strangle.
October 9 - Buy back 95 crude oil calls to lock in gain on that side of the trade.
October 10 - Sell December crude oil 92 calls for about 60 cents to hedge the 82.50 puts.
October 15 - Roll the December crude strangles into a January 70/90 strangle AND a December 74/88 strangle.
October 22 - Buy back December crude strangles to lock in profit of about $1,000 (this goes toward the premium lost on the 82.50 put).
November 10 - Sell January crude oil 87 calls for about 40 to 45 cents.
November 17 - Buy back the January crude oil 87 calls to lock in a profit of about $230 to $260 per contract before transaction costs.
December 1 - Roll the January crude oil 70 puts into two February 61/75 strangles.
December 9 - Buyback the crude oil $75 calls to lock in a profit on that side of the trade. We'll hold the short $61 puts in hopes of a rebound in oil.
December 10 - Buy back the crude oil 61 puts and sell 58/66 strangles for February.
December 12 - Buy back the February crude oil 66/58 strangles and sell the 64/53 strangles.
December 19 - Buy the March bond 138 put for 20 (or the 139 put for 25.
December 19 - Get long the Aussie Dollar in a small way using e-micro futures. We were buying near .8120 to .8080.
December 30 - Buy back the February crude oil 62.50 calls (part of strangle) to lock in a gain (about $720 before transaction costs for most).
January 5 - Buy back the March crude oil $68 call near 25 cents to lock in a gain on that side of the trade (about $600 before transaction costs for most).
January 6 - Buy back existing March crude 44 put and February 49 put, replace them with short March 40 puts and 58 calls (one for one).
January 13 - Buy back March crude 40/58 strangles and sell the March 39/54 strangles using half the quantity to reduce risk.
January 14 - Sell March 30-year bond 156 calls for about 30.
(Our clients receive short option trading ideas in other markets such as gold, crude oil, corn, soybeans, Euro, Yen, and more. Email us for more information)
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.**
Wednesday's session started out on rough footing compliments of a reduction in 2015 growth forecasts by the World Bank. However, the Fed's Beige Book shed a more positive light on the U.S. economy. Despite global woes, the domestic climate is overall positive.
According to the Beige Book, the Fed sees the economy expanding at a modest, to moderate, pace in most of its 12 districts. Nonetheless, there were some concerns regarding the impact of the decline in oil prices (lower drilling activity affects employment and capital expenditures).
Today was option expiration for February crude oil; it isn't uncommon to see sudden price spikes going into the pit close on expiration day, and that is exactly what we saw in afternoon trade. The massive short squeeze in oil helped to drag the stock indices higher, and eventually lead Treasuries lower.
Could this be the beginning of something bigger? We think so.
Our Treasury market analysis was featured on CNBC's Mad Money with Jim Cramer last night!
Here is a link to the DeCarley Perspective newsletter used on the show:
https://madmimi.com/s/4248c5
Here is a link to the show:
http://video.cnbc.com/gallery/?video=3000346138
Treasury Market Ideas
**Consensus:** We can't rule out a ridiculous route to 152'15ish; however, the best trade going forward is likely on the "short" side of the market. Could this be THE top?
**Support:** ZB : 146'21, 145'22, and 141'29 ZN: 127'31, 127'10, 126'12, and 125'13
**Resistance:** ZB : 150'21, and 152'15 ZN: 130'04, and 130'16
Position Trading Recommendations
*There is unlimited risk in option selling
Short March 156 calls near 30 ticks
Long March 138 puts near 20 ticks.
ES holds trend-line support
The mid-1980s offered sharp technical support in the form of the multi-month up-trend line. Despite looking rather ugly this morning, the e-mini S&P 500 managed to forge a rally from session lows. We'll know more in the coming days, but there are quite a few things lining up that point toward reversals in the financial markets. In other words, we could be in store for the dollar to finally reverse, Treasuries to fall back to more sustainable levels, stocks to resume the up-trend, and commodities (particularly crude oil) to find footing.
This afternoon's realization by investors that things aren't "that bad" was influenced by the Fed's Beige Book and a crude oil rally, but it will be up to the rest of this week's economic data to keep things moving in the desired direction.
Stock Index Futures Market Ideas
**Consensus:** Assuming we don't get an fresh concerns in China or Europe overnight, it is likely we've seen the low of this move. 1985 support held well, we'll need to see a run to 2040ish to confirm a resumption of the bull.
**Support:** 1985,1962, and 1913
**Resistance:** 2040, 2088, 2117, and 2131
Position Trading Ideas
Flat
Day Trading Ideas
**These are counter-trend entry ideas, the more distant the level the more reliable but the less likely to get filled**
Sell Levels: 2022, 2040, 2051, and 2060
Buy Levels: 1975, and 1965
In other markets....
September 10 - Sell December crude oil 82/98 strangles for about $1.10 ($1,100).
September 15 - Buy March 2015 sugar 18.00 calls near 32 ticks.
September 29 - Buy back the December crude oil 82 puts to lock in a profit of $370 to $400 per contract, and replace them with short 86 puts. This brings in more premium and rebalances the trade.
October 2 - We made a big mistake rolling our 82 puts higher. Let's rebalance the trade and look for volatility to decline by offsetting the existing strangle and selling the December 95/82.50 strangle.
October 9 - Buy back 95 crude oil calls to lock in gain on that side of the trade.
October 10 - Sell December crude oil 92 calls for about 60 cents to hedge the 82.50 puts.
October 15 - Roll the December crude strangles into a January 70/90 strangle AND a December 74/88 strangle.
October 22 - Buy back December crude strangles to lock in profit of about $1,000 (this goes toward the premium lost on the 82.50 put).
November 10 - Sell January crude oil 87 calls for about 40 to 45 cents.
November 17 - Buy back the January crude oil 87 calls to lock in a profit of about $230 to $260 per contract before transaction costs.
December 1 - Roll the January crude oil 70 puts into two February 61/75 strangles.
December 9 - Buyback the crude oil $75 calls to lock in a profit on that side of the trade. We'll hold the short $61 puts in hopes of a rebound in oil.
December 10 - Buy back the crude oil 61 puts and sell 58/66 strangles for February.
December 12 - Buy back the February crude oil 66/58 strangles and sell the 64/53 strangles.
December 19 - Buy the March bond 138 put for 20 (or the 139 put for 25.
December 19 - Get long the Aussie Dollar in a small way using e-micro futures. We were buying near .8120 to .8080.
December 30 - Buy back the February crude oil 62.50 calls (part of strangle) to lock in a gain (about $720 before transaction costs for most).
January 5 - Buy back the March crude oil $68 call near 25 cents to lock in a gain on that side of the trade (about $600 before transaction costs for most).
January 6 - Buy back existing March crude 44 put and February 49 put, replace them with short March 40 puts and 58 calls (one for one).
January 13 - Buy back March crude 40/58 strangles and sell the March 39/54 strangles using half the quantity to reduce risk.
January 14 - Sell March 30-year bond 156 calls for about 30.
(Our clients receive short option trading ideas in other markets such as gold, crude oil, corn, soybeans, Euro, Yen, and more. Email us for more information)
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.**
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