If the bears are going to make something happen, it needs to be sooner rather than later.
Wednesday was a chop-fest and that was a nice change. In our view, market consolidation is welcomed. It will give traders on both sides of the tape an opportunity to take a step back and regroup.
Yesterday's dramatic selling near the close extending into the overnight session was met with overnight and early morning dip buyers. While we believe the bears are still holding a short-term edge, we acknowledge the clock is ticking on the opportunity for a larger correction (see S&P 500 section below). This is because in most years the stock market moves higher into the end of the year. Yet, the exceptions to the rule are typically large and deep corrections. Which will it be?
Treasury Futures Markets
30-year Treasury Bond Futures
Treasuries should have gotten a bigger boost on stock market weakness but the trend remains higher.
Seasonality generally guides Treasuries higher in late November regardless of fundamentals. The seasonal buying is more apparent in the 30-year bond but shows up in the 10-year note as well. Further, the bond and the note are correlated about 70% of the time, so they should move in sync with one another. These points are of interest to us because the 30-year bond has broken above this week's previous high while the 10-year note has not. The break out on the bond chart suggests a move to the top of the trading range in the mid-173 area. If our correlation theory holds true, this should put the 10-year note close to 139'0.
Treasury futures market consensus:
The path of least resistance is likely higher for the time being.
Technical Support: 171'08, 170'01 and 169'10 ZN: 137'27, 137'11, 137'01
Technical Resistance: ZB: 173'28, 176'14, 178'13, 181'15, 182'08 ZN: 138'25, 139'14, 139'28 and 140'15
Stock Index Futures
Seasonal "buy" is looming in the ES, so the bears need to act now or never.
One of the most consistent and powerful seasonal moves is the one that takes place in the S&P 500 going into Black Friday, and generally extending into the so-called Santa Claus rally after Christmas. Over the years there have been countless bears who have ruined their holiday season with stubborn short positions throughout this stretch. Obviously, this is not how any of us should go out of 2020. Instead, those playing the downside should focus on being nimble, hedged, and open-minded.
For instance, seasonal stats offered by MRCI suggest buying the E-mini S&P 500 on November 21st through December 6th has worked out 100% of the time in the last 15 years. The average gain has been about 30 points or $1,500 with the last two occasions being roughly 42 points (this seasonal trade even worked in 2018 and we all know how that ended).
Ironically, 30 to 40 points in the ES isn't what it used to be...we can see this type of move in minutes rather than days or weeks. Nevertheless, the odds are in favor of the bulls for the next few weeks.
With seasonality in mind, the bears will need to see a break down below 3,500.00 by tomorrow, or very early next week, if we are going to see things head south rather than north. On the flip side, a break above 3,585.00 is bullish and would lead to a retest of highs or slightly new highs (3,670.00/3,700.00).
Stock index futures market consensus:
Seasonality is bullish, the chart and fundamentals are bearish. We lean cautiously lower; a break below 3,510.00 could get ugly.
Technical Support: 3,510, 3430, 3322, 3206, 3172, and 3005
Technical Resistance: 3673 and 3700
E-mini S&P Futures Day Trading Levels
These are counter-trend entry ideas, the more distant the level the more reliable but the less likely to get filled
ES Day Trade Sell Levels: 3600 (minor), 3640, 3,671 and 3,700
ES Day Trade Buy Levels: 3517, 3450, 3401, 3328, 3226, 3201, 3175, and 3050
In other commodity futures and options markets...
August 27 - Buy the December wheat 5.40 put and sell the 5.10 put for about 10 cents ($500).
August 31 - Buy January soybean 9.40 put and sell the 9.0 put for about 14 cents.
September 17 - Vertical put spread in December 10 year, buy the 139.5 put and sell the 138.0
September 17 - Buy back short leg of soybean put spread.
September 24 - Go long the December Bloomberg Commodity Index.
October 2 - Buy the February crude oil 43 call and sell the February crude oil 46 call for a net debit of about 83 cents.
October 6 - Buy back December wheat 5.10 put and hold long 5.40 put (adjusting vertical put spread).
October 8 - Buy March corn $3.80 put.
October 13 - Buy December hog 65/60 put spreads.
October 21 - Buy December copper 3.10/3.00 put spreads.
October 21 - Lock in gain on the 10-year note put spread.
October 29 - Exit copper put spread to lock in gain and reduce risk ahead of the election.
November 9 - Buy January 10-year note 137.50 calls.
November 11 - Exit BCI to lock in a moderate gain.
November 11 - Buy March 3400/3200/3000 put fly for about 13 points.
November 11 - Offset long vertical spread in oil to lock in gain.
November 19 - Offset December hog put spread.
**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.
Due to the volatile nature of the futures markets some information and charts in this report may not be timely. 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 as a result of the opinions expressed in this report will be the full responsibility of the person authorizing such transaction.