July 10th, 2009

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Again…What a difference a day makes for Treasury trade

Treasuries erased yesterday’s losses; however, some analysts are questioning the fact that the rally happened on light volume and likely with end of the week position squaring as a contributing factor.

Bond and notes were moving higher in technical action ahead of the day’s major news event, the Michigan Sentiment and the rally continued in post-announcement trade.  The University of Michigan’s sample of the population only accounts for about 300 individuals in prominent financial standing.  Therefore the miss in expectations wasn’t taken lightly by bond traders.  The headline number was reported at 64.6 despite consensus estimates of a little over 70.  Keep in mind that the prior reading was 70.8.

Despite today’s sharp rally, we are wondering whether Treasuries can continue higher from these levels.  We still feel like there is plenty of room for this rally to move but also feel like things have progressed too far, too fast.  We will continue to look for weakness in the coming days.  However, the fate of Treasuries is heavily reliant upon the direction of crude oil.  Yes, I said it…crude oil.

The sharp decline in the energy markets has been made on the premise that speculators have lost faith in the economic recovery.  The unsettling pessimism in crude has, by osmosis, made its way into equities and in turn has been a major contributing factor to the Treasury rally.

I am not an energy expert, but my gut tells me that crude prices are dramatically oversold and should be approaching significant support areas.  A reversal, albeit temporary, will take the selling pressure off of equities and should trigger a Treasury correction.  We haven’t completely given up on our downside targets of about 117′14 in the long bond, 116 in the 10-year note and 114′25 in the 5-year note.

* 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.

June 26th – We recommended that our clients sell the August Bond 124 calls for 20

• We recommend buying this back for 6 or less.

• July 8 – We recommended re-selling or adding on to this position near 27 to 30 ticks.

Treasury Bond and Note Futures Trading Recommendations

**There is unlimited risk in trading futures.

July 2 – Clients were recommended to sell the 5-year note near 115′15 and purchase either a 116 call or a 115.50 call for insurance.  The trade offers limited risk with unlimited profit potential.

Eurodollar Futures Trading Recommendations

**There is unlimited risk in trading futures.

June 29 – Our clients were recommended to sell September Eurodollar futures while buying a 9937.5 call as insurance.  The calls were getting filled near 7 ticks, and the futures near 9933.  This makes the total risk on the trade at expiration $287.50 before commissions and fees.

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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.