Short Squeeze Triggered with Room to Run

The financial markets expressed their discomfort with the lack of details provided on the restructured TARP plan and the uncertainty over the economic stimulus package. Equities seemed to slide off of the cliff, while Treasuries finally experienced the short covering rally that we have been looking for.
Trade was thin, and seemed to get thinner as the afternoon hours approached. It is apparent that many speculators weren’t willing to accept the possibility of excessive volatility at the hands of our elected officials…and I can’t say that I blame them.

In yesterday’s report we expressed our expectations of a short covering rally in the near future but were uncertain on the timing (if only we had a crystal ball). We mentioned that we liked the upside but were cautious in regards to being bullish too early. Accordingly, we made the following statement:

Thus, we are opting to play it safe and prefer to miss the trade altogether than to be caught on the wrong side of a violent move.

That is exactly what happened. We seem to have missed the move for now but begin regretful in trading will lead to uncontrollable emotions and poor decision making. Therefore, we have no other option that to be content with our choice to be conservative. After all, this week poses a considerable amount of event risk and anything was, and still is, possible. There will always be other opportunities.
Now that the ball is rolling, we are expecting the move to continue but recommend being cautious as we have seen similar moves in recent weeks quickly fade. Nonetheless, it seems as though the path of least resistance in the 30-year bond will be higher to resistance near 130’05. The 10-year note should see short covering up to 124’01 and the 5-year note to 118’29.
* 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.
Feb 10 Bond
February 10 T-Note
Treasury Bond and Note Option Trading Recommendations
**There is unlimited risk in naked option selling.
Treasury Bond and Note Futures Trading Recommendations
**There is unlimited risk in trading futures.
Eurodollar Futures Trading Recommendations
**There is unlimited risk in trading futures.
Carley Garner
Senior Analyst / Commodity Broker
DeCarley Trading
Local : 702-947-0701
*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.


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