ZB and ES traders are on different pages, but they will need to come together.

US equities erased two weeks of selling in a week! 

The stock market has recouped most of the recent losses, yet Treasuries have failed to roll over. The interest rate markets have priced in multiple Fed interest rate cuts in 2019 and the stock market seems to have taken the bait. However, we continue to believe the Fed will not cut rates. If they do, the move will likely be minimal (more symbolic than strategic). Then again, we are not Fed members and, therefore, can't speak on their behalf. That said, monetary policy takes years to work its way through the economy so we can't imagine the Fed reacting dramatically to short-term demands by "bond vigilantes". 

In any case, even if the Fed doesn't cut rates we doubt that would be a reason for stockholders to throw in the towel. Aside from a potential kneejerk reaction sell-off, the lack of a rate cut should eventually be seen as a positive for the economy and stocks. In the meantime, we are looking for the Treasury market to come back down to earth. 

Treasury Futures Markets 

  

Panic bond buying seems to have run its course. 

Interest rate products saw dramatic gains last week as investors were panicking to allocate cash to risk-free assets. We suspect any remaining bears were also squeezed out of positions. However, going forward, the path of least resistance is likely lower for bonds and notes. As mentioned above, the markets are pricing in multiple 2019 rate cuts and that doesn't seem to be the rational course of action given the unemployment rate is near an all-time low. 

Whether you look at the short end of the curve, or the long, the charts are all similar. Interest rate products are overextended and likely due for a significant correction. We will be seeking under 150'0 in the 30-year bond and the mid-to-low-124s in the 10-year note. 

Treasury futures market consensus: 

Bonds and notes put up a better fight than expected, but we still think the path of least resistance is lower. 

Technical Support: ZB : 151'12, 149'24, 148'07 AND 145'23 ZN: 125'23, 125'01, 124'10, AND 123'07 

Technical Resistance: ZB: 155'04 AND 156'01 ZN: 127'15 AND 128'03 


Stock Index Futures 
  


Stock market gains will be harder fought from here. 

Markets are like rubber bands; once stretched too far they snap back quickly but once the initial recovery has taken place the market has a tougher time forging new gains. This is where we believe the equity market is at the moment. While we continue to be optimistic overall, it would be natural to see the market take a pause and even pullback to digest the recent run. We wouldn't be surprised to see corrective trade dip into the 2840/2830ish area. Even such a move wouldn't negate the bull's edge. 

Accordingly, it makes sense to protect profits and/or lighten up on risk with any bullish positions. We aren't recommending to play the downside in an aggressive manner but those who feel like they need downside exposure could consider buying cheap puts such as the June end of month 2800s for about $500. 

Stock index futures market consensus: 

The bulls maintain an edge but the market is due for a digestive pullback. 

Technical Support: 2840/2830, 2722/2718, 2638, 2445, and 2358

Technical Resistance: 2910, 2979, 3000, and 3032


E-mini S&P Futures Day Trading Ideas 
  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: 2910, 2930, and 2962 

ES Day Trade Buy Levels: 2872, 2850, and 2832 


In other commodity futures and options markets... 

September 12 - Roll the September Bloomberg Commodity Index into the December contract. 

December 13 - Roll the December Bloomberg Commodity Index into March. 

February 21 - Exit half of the Bloomberg Commodity Index futures position (we added on a dip in January). 

May 29 - Buy July 10-year note 125.50 put for about 22 ticks. 

May 31 - Sell diagonal call spreads in the 10-year note using the August 127 call and purchasing the July 128.50 call for insurance. 

May 31 - Sell diagonal put spreads in oil using the August 46 put and July 45 put.