August is often the worst month of the year for stocks, but it’s 2021.
It seems that investors cannot take enough risk in 2021. Ironically, I doubt these all-in-all-time highs take into account the risk and consequences of exceeding your skis. Still, it paid off well to be an aggressive cop who behaved with all dedication. To be honest, I’m a little jealous. I started early to reduce risk in my personal (long-term) investment portfolios.
The inertia of the stocks is staggering. While there are some signs of small cracks, we’ve seen the major indices break the doubt without a 5% drop. In March 2020, we found that the markets are different from what they were 10 to 20 years ago due to algorithmic trading and instant electronic access to the markets by anyone with a mobile phone or computer. In this environment, corrections are faster, more difficult, and larger. But as we learn after March 2020, they are also less common because computers and people are trained to buy dips and HODL.
Treasury Futures Markets
30-year treasury bond futures
Treasuries had a good day despite the closing price.
Bond and banknote dealers had an eventful day; it started with the July CPI report and ended with an auction. The indirect bidders, who were buyers from abroad, were active with a yield of 1.34%. As we have mentioned repeatedly, our junk (low yielding Treasuries) is viewed as treasure for those investors facing negative yields in some overseas markets.
We continue to believe that the 10 year year will see 1%; even further … we cannot rule out a full retest of the low return of 0.65% for 2020. The US economy is obviously doing better than before as the 10 year return was less than 1%, but that doesn’t matter; Market prices are the result of the motivation of buyers and sellers. We believe that buyers will remain motivated as long as global central banks work together to cut rates.
Consensus in the Treasury Futures Market:
We like being bulls on dips but the dip could be 161’0 over the 30 years. If the low 160s hold up, 170ish should be on the tap.
Technical support: For example: 162’17, 161’09, 159’20, 157’08, 155’19, 153’27 and 151’11 ZN: 133’08, 132’26, 132’08, 131’19, 130’31 and 123’23
Technical resistance: For example: 166’06, 167’05 and 170’0 ZN: 134’13, 135’07 and 137’0
Stock index futures
Large breaks in oil are usually followed by large breaks in the stock market. However, the correlation lags significantly behind. In 2020, the oil market hit just over a month ahead of stocks; If we get something similar this time, stocks should be sold either this week or next week.
A friend of ours, Carolyn Boroden, suggested a simple but reasonably reliable pattern. Rallies in the S&P typically last 20 to 24 weeks before taking a breather (we’re in week 24). Sometimes this correction is minimal, but sometimes it can be quite extensive. This is obviously a loose theory and shouldn’t be followed blindly, but it is worth being aware of. Essentially, if the bears are going to get something done, it has to be in the coming week or so.
Consensus on the stock index futures market:
The market does not melt through resistance, but it does not roll either. The bears need a trend reversal near 4450ish.
Technical support: 4364, 4285, 4164, 4070, 3990
Technical resistance: 4445 and 4462
E-mini S&P Futures Day Trading Levels
These are counter-trend entry-level ideas. The further away the level, the more reliable, but the less likely it is to fill
ES Day Trade sales levels: 4445 and 4456
ES Day Trade Buy Levels: 4367, 4343, 4304, 4250 and 4220
In other commodity futures and options markets …
June 18 – Buy the September 13:20 call for soybeans, sell the 14:20 call and the 15:20 call (ladder).
June 21 – September Wheat Ladders (buy 6.75 call, sell 7.25 call and 7.60 call to fund long 6.75.
June 23 – September Crude Oil Butterflies, buy the September 70 put, sell 2 65 puts and buy the 60 put.
June 30th – December Bullish Call Ladders for corn with the 5.50 / 6.50 / 7.00 strikes (cheap trading with low downside risk).
July 7 – On September 1, buy a 30 year 164 call, sell 1 167 call, and sell a 170 call for a net price of 32 ticks.
July 16 – Buy December 1st Gold 1850 Call, sell December 1st Gold 1950 Call, and sell a December 2000 Call to fund the trade.
July 22nd – Buy a put in October Pig 90, sell a put 85, and sell the 100 call.
July 26th – Buy November soybean 13.70 call, sell 14.70 call and sell the 15.70 call for 14 cents net.
August 5th – Buy December 70 call crude and sell the 75 and 80 calls to create a call ladder. The total cost is about 70 cents, or $ 700. The risk is unlimited over $ 85, the potential for profit is around $ 4,300.
August 10 – Buy December gold 1775 call, sell 1850 call and 1625 put for a “free” trade.
Aug 10 – Buy December 65 put crude, sell 60 put and 55 put to pay for it.
Due to time constraints and our fiduciary duty to put customers first, the charts provided in this newsletter may not reflect current session dates.
Seasonality has already been taken into account in the current prices; any indication of this does not indicate future market activities.
There is a significant risk of loss when trading futures and options.
These recommendations are an invitation to enter into derivative transactions. All known news and events have already been incorporated into the price of the underlying derivatives discussed. From time to time, individuals affiliated with Zaner or its affiliates may have positions in recommended and other derivatives. Past performance is not an indication of future results. The information and data in this report are obtained from sources believed to be reliable. Its correctness or completeness is not guaranteed. Any decision to buy or sell based on the opinions expressed in this report is the full responsibility of the person authorizing such transaction. Seasonal tendencies are made up of some of the more consistent seasonal commodity futures that have appeared in the past 15 or more years. As a rule, there are fundamental circumstances that occur annually which lead to the futures markets reacting in a similarly directed manner in a certain calendar year. While seasonal trends can potentially affect supply and demand for certain commodities, seasonal aspects of supply and demand were taken into account in pricing on the futures and options market. Even if there is a seasonal bias in the future, it may not result in a profitable transaction as fees and the timing of entry and liquidation can affect the outcome. No representation is made that any account has, in the past or in the future, made any profit on these referrals. No assurance is given that price patterns will be repeated in the future.