The economic data schedule was skimpy in the US this week so investors were focused on news coming out of China. Word of Chinese exports tumbling 10% while imports also softened by 1.9% triggered global selling in stock indices. However, as has been the case since early 2016 market corrections are merely a signal for dip buyers to put money to work. Overnight and early morning losses were quickly shored up by afternoon trading.
On the lows of the day, technical oscillators were suggesting the sell-off had gotten ahead of itself. As it turns out, they were right. However, the lack of volatility has become silly. A 50 point decline in the S&P shouldn’t constitute an oversold market.
Tomorrow’s docket is relatively busy. We’ll digest inflation data along with the latest consumer sentiment readings.
Treasury Futures Markets
Treasuries hold support and show signs of life
Bonds and notes have bounced nicely from yesterday’s lows and have managed to hold technical support. It appears as though the best trades in Treasuries will likely be from the long side for now. After all, prices have tested the lower end of the trading channel and conventional wisdom suggests they could make a run at the upper end of the channel.
It is hard to believe 10-year note yield is roughly 1.71% after a substantial sell-off in the complex. In other words, 1.71% is relatively high and could lure buyers! The 30-year bond is hovering in the 2.5% area.
As the election creeps closer, the financial markets could begin to experience turbulence. If so, this should be supportive to Treasuries.
Treasury Futures Market Analysis
**Bond Futures Market Consensus:** Technically seasonals are weak until Friday, but it seems the selling has at least lost momentum. We think any large dip is probably an opportunity for the bulls.
**Technical Support:** ZB : 163’12, 161’30 and 158’30 ZN: 129’14 and 128’23
**Technical Resistance:** ZB: 166’22, 169’16, 170’14, 172. and 173’06 ZN: 130’21, 131’21, 132’02, and 133’14
Stock Index Futures
The ES is at a major crossroads
Strictly from a charting perspective and ignoring the election, the market is at a major crossroads. Above 2130 is undoubtedly bullish but if we break below 2100 it is highly bearish. Unfortunately, trading and speculation isn’t as simple as disregarding peripheral factors.
The election could get wild. If Trump wins, the market will sell first and think later (this is not a political statement just an observation of how the market has been reacting to swings in the polls). We’ve spoken to a handful of traders convinced the polls are wrong and Trump will pull off an upset. They are buying puts in the e-mini S&P and calls in gold. It will be interesting to see what happens. But we know even risk going into the election should not be underestimated. Similar to the Brexit vote in June, the market is expecting a certain outcome so if the opposite occurs it could be a temporary shock.
Stock Index Futures Market Ideas
**e-mini S&P Futures Market Consensus:**
Our original target was 2100, but we now know the selling dried up near 2107. Above 2130 is bullish, below 2100 is bearish…the market is at a crossroads.
**Technical Support:** 2102 and 2070
**Technical Resistance:** 2145, 2173, 2195, 2215, and 2230
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: 2133, 2141, 2165, 2173, and 2191
ES Day Trade Buy Levels: 2110 (minor), 2100, and 2070
In other commodity futures and options markets….
June 23 – Go long corn futures near 392 using mini contracts (the beginning of a scale trade). Full-sized contracts can be used if available margin and risk tolerance is appropriate.
June 30 – Buy September mini (or full-sized) wheat near $4.47.
July 5 – Add to the long mini corn (or full sized) near $3.45.
July 14 – Sell the corn add-on near 370 to lock in a profit (hold the original entry).
July 29 – Buy mini corn future near $3.33 to average entry cost lower.
July 29 – Buy mini wheat to add to our long and adjust the average position entry to $4.25ish.
August 18 – Sell half of the mini wheat position to lock in a profit of about 20 cents on the add-on contract. We’ll hold the original position in hopes of a continued upswing.
August 29 – Sell December live cattle 99 put for about 140 (or $560).
September 14 – Buy the January soybean 10.60 calls for about $300.
September 20 – Sell the January soybean 10.60 calls for about 15 cents to take a quick profit.
September 30 – Buy the January soybean 10.60 call for 6 cents (again).
September 30 – Sell the December Fed funds futures contract near 99.52.
October 6 – Buy March Euro strangles using the 123 calls and the 100 puts for about $400. This trade is looking for a sharp increase in volatility.
October 11 – Sell January crude oil $61 calls for about 46 cents.
(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)
**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 asimilardirectional 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.