October 26th, 2009

Carley will be speaking at a Trader’s Library event in Las Vegas during the Trader’s Expo, check it out: http://www.traderslibrary.com/conferences/tlforum2009vegas/index.html

Supply, supply…supply

Treasury bulls took it on the chin again today despite spiraling equities.  Another record Treasury auction has buyers in remission.  The government will be putting $116 billion in securities ranging from 2 to 5 year notes throughout the week. Today saw the re-open of $7 billion in 5-year TIPS, which were met with surprisingly strong demand and a lower than expected yield.  Treasury traders seemed to view the high demand for TIPS as confirmation of inflation concerns resulting from monetary and fiscal policy.

The U.S. dollar index recovered considerably on the day, sending the Euro sharply lower.  Going into last week, we were calling for a reversal in all of the financial markets.  Stocks were the first to roll over, currencies seem to be in the midst of an attempt to reverse the trend and Treasuries should be the last to go.  We can’t rule out one more probing low in bonds and notes but feel as though the recent dip is an opportune time to be a bull.

Although the flight to quality bid was nowhere to be found in today’s session, it could reemerge should equities continue their slide.  The S&P, along with the other major indices, appear to be at a crossroads but in the case of broken near-by support the market could suffer another bout of aggressive selling.

Because of this, and seasonal tendencies in favor of Treasury trade, we prefer to play the long side of this market for now.  Coming into the day, we were looking for just above 118 in the 30-year bond; it now seems as though the mid-117’s are possible.  Similarly, 117 is supportive in the notes but a move to the mid-116’s is probably on the horizon.  However, we are leaning higher from here.

* Due to time constraints and our fiduciary duty to put clients first, the charts provided in this newsletter may not reflect the current session data.  However, market analysis and commentary does.  Charts provided by Track ‘n Trade, Gecko software.

**Seasonality is already be factored into current prices, any references to such does not indicate future market action.

Treasury Bond and Note Option Trading Recommendations

**There is unlimited risk in naked option selling.

October 15 – Yesterday afternoon, our clients were advised to sell puts against a possible Thursday plunge.  We recommended to sell the December T-bond 112 and 113 puts for 20 and 26 ticks respectively, or about $312 and $406 before commissions and fees.

October 20 – Our clients were recommended to exit the 112 puts near 6 ticks and the 113 puts near 8.  Fills on the 113 puts were coming in at 9, we recommended to make the 6 tick buyback on the 112’s GTC.  Those that still have a short 113 put open, we recommend a GTC order to buy it back at 9 or 10.

Treasury Bond and Note Futures Trading Recommendations

**There is unlimited risk in trading futures.

Flat

————

Carley Garner

Senior Analyst / Commodity Broker

DeCarley Trading

cgarner@DeCarleyTrading.com

1-866-790-TRADE

Local : 702-947-0701

www.CarleyGarnerTrading.com

www.DeCarleyTrading.com

*Due to the volatile nature of the futures markets some information and charts in this report may not be timely.

There is substantial risk of loss in trading futures and options.

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 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 securities or commodities.  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.