Seasonal Pressures Trump Fiscal Cliff News

fiscal cliff

Love is in the air

Politicians haven't made much progress, but investors seem to be able to shrug it off. Even firm statements from the right side of the isle claiming there has been "zero" progress triggered only moderate, and short term, selling. Once again, seasonal pressures are trumping what seems to be overly negative fiscal cliff sentiment.

Working in favor of the bulls, pending home sales were up a whopping 5.2% and GDP for the third quarter is estimated to be 2.7%, up from 2.0.

Volume continues to be light, and as we've mentioned, such an environment favors the upside (due to short covering). It looks like the melt-up in equities should continue, at least for now.

Bearish, but tricky
You should be trading the March contract!!!

Everything we look at tells us the best trade in bonds and notes should be for the bears. However, Treasuries can't seem to find a way to move lower. Even in the face of stable to higher equity prices, bonds and notes are posting small gains in most sessions.

Bearish seasonals, strong stocks and ridiculously low yields are all good reasons to be bearish, but the chart just isn't corroborating. If you are playing this market from the short side, be sure you are "nibbling." Aggressive positions might pay off, but they aren't necessarily high probability from these prices.

In a perfect world, the bears would have a chance to play the downside in the March ZB near 152ish (wedge resistance). We would be comfortably bearish at this price.

Treasury Market Ideas
Consensus: It "feels" like the recent rally was simply digestion. We are leaning lower overall, but caution that it is never a good idea to chase bonds lower. If you want to be a bear, look for large rallies to enter.

Support: 149'10, 148'01 and 147'05(30-year Bond), 133'05, 132'09 (10-year note)
Resistance: 150'18 and 151'26(30-year Bond), 134'02 and 134'26 (10-year note)

Position Trading Recommendations (*There is unlimited risk in option selling)
November 12: Sell the March 5-year note futures contract near 124'17 and buy a January 124.75 call for about 10 ticks ($150). The call insures the trade absolutely above 124'23, to create a trade with unlimited profit potential on the futures contract and risk limited (compliments of the long call) to about $350 before transaction costs. We are hoping for a move to the 124 area.

The data is good!
According to the American Association of Individual Investors, the number of stock market bears has come down a notch, but we are still seeing and average bullish sentiment reading. In other words, the rally hasn't captured the hearts and minds of the retail investor. This suggests (to us, anyway) there is still room to run on the upside. Our first upside target will be 1435ish, but given the time of year we are entering we doubt the rally will stop there.

Of course, there is always a wild card...Washington.

Stock Index Futures Market Ideas
Consensus: The bulls seem to have maintained the edge, we are looking for the rally to extend to 1435ish.
Support: 1403, 1391 and 1374
Resistance: 1434, 1448
Position Trading Ideas
Day Trading Ideas
These are counter-trend entry ideas, the more distant the level the more reliable but the less likely to get filled
Buy Levels: Let's see what Monday brings
Sell Levels: Let's see what Monday brings
In other markets....

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