Brian's Tuesday Recap: Treasuries Improving With Foreign Banks, Start The Week Off Bearish

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TSY/RECAP: US Treasuries prices begin NY higher after overnight mixed flows and again off overnight low starting 3:30 am ET. IN TOKYO, Treasuries began firmer amid Japanese funds buying 10Y and 30Y Tsys then had some crossover weakness amid weaker JGB technicals, also big seller in 5Y JGBS, with fast money most active. However, Tsys then drew in 10Y and 30Y buyers and Asian official accounts bought US intermediates while fast money did mixed flows in 30Ys and sold 10Y notes at highs. Also reports of MBS sales. IN LONDON, Treasuries improved with foreign central banks buying US intermeds plus German Bunds rallied on weak German ZEW survey and fast money covered Tsy shorts. Also Japanese accounts bought US 30Ys. Some cited Philly Fed Plosser saying was enough labor market improvement to trim Fed bond buys at next FOMC meeting and end buys by end-2013. Other bks sold 5Ys. NY Fed today buys 2020-23 Tsys; $2.75B- $3.5B size. US stock index futures are lower. MNI Eurosystem source story said ABS buy approach harder than thought.

We are coming into the week bearish the ES and bullish Treasuries (short ES calls and short ZB puts). We are recommending that our clients sell the July ZB 140 puts for 25 to 28 ticks. This strike has tripled in value in a few days...if we bounce or consolidate, they stand to lose value quickly - posted by Carley Garner (08:59).

Regarding the gold short posted here early last week: The move lower is getting a lot more labored here - therefore I would take profits here or move stops up to entry plus 20 - posted by Matt Z.

Maybe I should check to see what is posted at www.mrtopstep.com ;). THE THURSDAY/ FRIDAY LOW THE WEEK BEFORE EXPIRATION: This is a ‘PIT BULL’ trading rule. The S&P tends to make a low on the Thursday or Friday the week before the expiration (more so on the quartiles). The rule is to look to buy weakness on that Thursday or Friday looking for a low to hold into Monday or even into the expiration itself. Generally, the trade is to buy on Friday and hold into Monday. While you are visiting - be sure to click on the education tab and check the webinars for your particular interest http://mr-topstep.com/images/pdf/MTS-Trading-Rules-101.pdf

My dental work is better than my chart work lately... So, I pay attention to the Harmonics from Kathy at http://structuraltrading.com
Kathy (08:22) updated ES http://screencast.com/t/9vAJZcqADYkp ES b/o attempt of bull flag.
Kathy (08:27) SPY, a hold above 63.7 has dbl bearish PRZ tgt 164.5 region, a hold below 163.44 has 162.47 tgt w/ scaling pt 163 http://screencast.com/t/2YesA7x9v
Kathy (09:00) ES has confluence tgt 1638.5 & 1639.75 http://screencast.com/t/yVEVzU8GA , top of GRZ 1639.75 has a 10pt move from 1630 bull flag low.
Kathy (09:10) NQ Ideal min retrace tgt of Be Bfly is 2894, failure to hold below 2991 or b/d 2986.75 implies stall pt here or attempt to complete dbl bearish PRZ at 2996.5 to 2998.25 http://screencast.com/t/UVx71NT567

Today’s S&P 500 trade started with 270k ESM and 900 SPM traded on Globex, trading range was 1634.20 – 1626.60. Monday’s regular trading hours (RTH’s), pit session trading range was 1632.80 – 1623.50 before settling at 1630.80, up 1.2 handles. David Tepper SPX 1900 buy program, began with the 6:45CT premarket interview on CNBC and may still be in motion...as we are in the mid-month markup - market tendency is a bullish bias as portfolio managers chase performance in the middle of and at month end dividend reinvest. At (08:23CT): John Monaco posted the NYSE opening imbalance was 70% sell side.

The regular trading hours opened modestly higher at 1631.70 to 1632.00, marking the intraday low before the ramp took the equities into new record territory. MTS (09:36:27): in the S&P options / futures - paper was buying in the money calls M 1580 & M 1600c - the locals were forced to buy about 4k futures to hedge. redliontrader pointed out we got a decent directional turn this AM off the Small Business Sentiment numbers. BigAusieThunder (09:39:03): being short those calls musta hurt. Chance said he was getting lots of questions on why vol/vix higher with mkt higher...conventional thinking is mkt grind higher, vol should grind lower....desk thinks dealers getting more uncomfortable with their short vega position (from selling upside calls, particularly near-dated, to customers) and are keeping upside bid DESPITE market rallying. At (09:47) MTS pointed out that the Dow was closing in on pit bulls observation of the [DJIA] running 200 pts above the big figure - in this case 15,000 to 15,200 and the high came in at 15,192 at 11:18 before backing off to 15,166 double bottom.

ruffyfred pointed out by (10:54) 258,000 May 163 puts traded on SPY so far. With SPY setting records of $165, the contract is 1.2 percent out-of-the-money and expiring at the end of this week. Open interest is 85K. Not sure what's going on there -- unusual. Jimmy Ticks had a closer look at the SPY trade, those May 163 puts were all bought, showing them as regular trades - not part of a spread, bought for 40-45 cents, unusual to hedge 1% OTM like that but possible, i just put it down to expiration weirdness. I do pay attention to weird trades, especially in the options market (see above for the THURSDAY/ FRIDAY LOW THE WEEK BEFORE EXPIRATION.... so may be a good idea to caution against getting too long up here into expiration - safety first! The following is sage advice: Roger Volz the monthly... quarterlies have a lot of room - let the market make a top then will have plenty of room to downside. Have congress murmur capital gains tax increase/ HFT trading fee increase or some type of financial tax will put cold water on this pronto..... The SPM was trading 1646 area when the closing imbalance showed a modest $260M to the buy side. The cash close traded 1647.90 area before settling at 1648.00, up 17.2 handles.

Brian Shepard is a 20-year exchange member of the CME Group.
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DISCLAIMER: The information and data in the above report were obtained from sources considered reliable. Opinions, market data, and recommendations are subject to change at any time. 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 commodities or securities. {jathumbnailoff}

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