For Futures Traders, the Countdown to the Fed is on
Six days from now we'll finally find out whether or not the Fed believes initiating a rate hike is a good idea. The investment community is polarized by the debate, and it seems the Fed might be too. We are still of the belief that they won't be looking to make any moves until the October or December meeting (most likely December), but either way the impact on the economy will be minimal.
Even if they raise the overnight borrowing rate a full percentage point over the next year, funds will be historically cheap. With that said, we will likely see a knee jerk reaction to the first rate hike but that doesn't mean the actual value of financial assets have changed. More often than not, equity markets moved higher overall in the early stages of a rate hike campaign.
Just because the Federal Reserve Raises Rates, doesn't mean Treasury Futures will Fall
It is easy to assume Treasuries will move lower in the face of a Federal Reserve Rate hike. However, the markets just aren't that simple. Generally speaking, market participants price in well-telegraphed events far before they actually occur. I'd say the rate hike the markets have been agonizing over for several months could be categorized as well-telegraphed.
It has been a while since we've seen a rate hike....or a change in interest rate policy of any kind. However, we've seen several rounds of QE which were often met with selling in Treasuries despite the fact that it was a program intended to support prices. In other words, we shouldn't judge a book by its cover.
For now, we continue to believe the best trades in bonds and notes will be from the long side on large dips.
Treasury Futures Market Analysis
**Bond Futures Market Consensus:** It feels like the bulls have an edge. We'll be looking for 160ish in the U.S. 30-Year bond, and maybe even 162.
**Technical Support:** ZB : 153'10 and 151'27, ZN: 126'24, 125'30, and 125'17
**Technical Resistance:** ZB : 156'15, 159'09, and 161'16 ZN: 128'11 and 129'17
ES Futures are Holding up Surprisingly well, but Gravity could take hold Sooner Rather than Later
Normally, the Fed and options expiration have a positive effect on trade. We rarely lean against the stats, but we can't help but approach the assumption that these two events will support prices next week with skepticism. Particularly, because we have a feeling the traders under pressure going into option expiration are those that are short puts.
In recent years, we've grown accustomed to a market that moved perpetually higher. During that time each option expiration was met with futures contract buying as option traders scrambled to get long the ES to hedge the risk of their short call options. However, in light of the late August tumble, we have a feeling we'll see the opposite type of option related reaction in the futures markets (selling).
In a nutshell, we'll be looking for a break below the wedge support pattern near 1935. That should get the ball rolling for a retest of the low 1800s. If we are wrong about a downside breakout, an upside break above 1990 could lead to whirl wind buying toward 2100!
Stock Index Futures Market Ideas
**e-mini S&P 500 Futures Market Consensus:** Another probing low could be seen. A break below 1935 could get ugly.
**Technical Support:** 1935 , 1898, 1864, 1830, 1801, and 1782
**Technical Resistance:** 1989, 2023, and 2060.
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: Let's see what Monday looks like.
ES Day Trade Buy Levels: Let's see what Monday looks like.
In other commodity futures and options markets....
May 14 - Buy an October sugar 1325 call, sell a 1425 call, and then sell a 1225 put. This should be an even money spread, or free trade, but involves margin and unlimited risk below 1225. The max profit is about $1100 before transaction costs.
June 16 - Buy back short October sugar 1425 call (part of spread) to lock in the profit. We'll hold the other legs of the option spread for now (which are under pressure).
June 29 - Go long the Aussie dollar via e-micro futures near 7640ish.
July 6 - Add to the bullish Aussie dollar trade with the purchase of another contract (e-micro for most). This dollar cost averages the position to a more favorable level.
July 21 - Buy December e-micro gold near $1106.
*August 21 - Exit gold futures near 1160 to lock in profit. (Sorry, we were late to update this exit).
August 26 - Sell October euro strangles using the 120 call and the 108 put, for about 56 ticks or $700.
September 3 - Buy back the October Euro 120 calls to lock in gain of about $275 before transaction costs. Sell the
October 116 calls for about 30 ticks to bring in more premium and rebalance the trade.
September 9 - Roll the September Aussie dollar e-micro futures into the December contracts.
September 9 - Sell December crude oil strangles using the 58 calls and the 35 puts. We were collecting about $1.00 in premium before transaction costs (or $1,000).
September 11 - Exit the sugar 1225 puts to lock in a loss of about $800ish before transaction costs on the trade (this includes all legs and assumes the long call expires worthless).