The ES is in range and the bonds are probably in the accumulation phase

It’s starting to look a lot like 2011.

The current market environment is unprecedented, for all the obvious reasons. We have never shut down and reopened the global economy, and the government has never been more aggressive in its quest to support economic activity. Nevertheless, we see similarities between equities and commodities that remind us of the years following the financial crisis. This makes sense because COVID has revived the same monetary policies rolled out in 2009, only bigger.

In 2011, stock markets corrected after the recovery that began in March 2009. The correction began in February 2011, worsened over the summer and finally ended in October of the same year. Likewise, two years after the March 2020 low, the stock market is digesting the government stimulus rally. However, as the economy has received a much larger artificial jolt as a result of Covid than it did during the financial crisis, the volatility on both sides is greater and the stakes are higher.

Either way, the good news for long-term investors is that 2011 was a tough year, but ultimately it was followed by lower volatility and firm prices. The bad news is that we could be in store for a choppy summer and early fall.

The economy is probably not as healthy as it first appears. For example, the labor market is extremely tight, but the massive number of job openings and the lack of workers to fill them seem to indicate that something is broken, not something that is booming. To elaborate, those who attempt to travel, eat out, or engage in entertainment activities have likely found that life isn’t what it used to be in 2019. Prices are high and service is down. I suspect this will continually discourage consumers from spending money on services, and probably even goods. Also, recessions are sometimes self-inflicted due to altered spender behavior and we seem to be heading in that direction.

Treasury futures markets

30-Year Treasury Bond Futures

The financial media has focused on the spreads between Treasuries and corporate bonds, but the spread doesn’t tell the whole story.

The gap between “default-free” fixed-income assets and corporate debt is one factor analysts look at to determine if there is systematic stress or fear. Currently, the spread between these two assets has depicted economic stability, but we are not convinced that this is a reliable indicator in the current environment. Indeed, economic turmoil typically triggers purchases of Treasuries (flight to safety) and sales of corporate debt (investors liquidate riskier assets). However, the strongest inflation in forty years caused the unusual selling of Treasuries at the same time as corporate bonds; in our opinion, this is not a sign of stability, it is a sign of instability. If this assumption is correct, investors could finally start allocating funds to security assets.

Incidentally, as troubled as the fundamentals are due to simultaneous inflation and recession fears, there is no doubt about the direction the seasonal trends are pointing…higher bonds and lower yields. . The September 10-year note generally moves higher from mid-June to early September.

Treasury futures market consensus:

A close of over 136’0 in the year to Sept. 30 is needed to keep the Bulls in the game. A break above 138’0 confirms a trend change.

Technical support: 134’05, 131’07 and 130’04 ZN: 116’20, 115’20, 114’07 and 113’19

Technical resistance: ZB: 138’01, 142’05 and 148’28 ZN: 118’08, 120’22 and 122’31

Stock Index Futures

The Trendline indicates that 4030 will likely be seen, but the bears are still in charge.

Bearish stock markets are difficult to manage. Unlike uptrends, downtrends are violent. New lows are accompanied by massive bear market rallies capable of making bears doubt their existence. Although we are optimistic at heart and recognize some bullish seasonal patterns in the coming weeks, the chart suggests that the uptrend will struggle to break 4030 (assuming it is visible). Additionally, our work on the longer term charts still calls for a high probability of a print of 3550, but if seen, this could be where the bulls could turn aggressive.

Stock Index Futures Market Consensus:

A break above 4030 could result in a run towards 4300 or 4450, but the more likely scenario is a failed rally that takes the index towards 3550.

Technical support: 3830, 3650 and 3550

Technical resistance: 3960, 4030, 4200, 4320 and 4450

E-mini S&P Futures Swing/Day Trading Levels

These are counter trend entry ideas, the farther the level the more reliable it is but the less likely it is to be filled

ES Day Trade Sell Levels: 3960 (minor), 4030, 4290, 4450 and 4560

ES Day Trade Buy Levels: 3850 (minor), 3810, 3650 and 3550

On other commodity futures and options markets…

October 20 – Buy December 2022 (not 21) $7.00 corn calls nearly 12 cents.

April 20 – Bear put spread with bare call on November soybeans (Buy November put at $15, sell November put at $14 and sell call at $18).

April 21 – Buy March 2023 Eurodollar 98 calls nearly 12 points ($300).

April 21 – Bull call spread with a bare leg on August gold (buy the call at $1975, sell the call at $2075 and sell the put at $1850).

April 22 – Bull call spread with a bare leg in July Silver (Buy the call at $25, sell the call at $26.50 and sell the put at $22).

May 3 – Bear put spread on September corn with a naked call (buy September put 7.40, sell put 6.60 and sell call 9.00).

May 3 – Bear put spread on September Oil with a bare leg (buy September Oil 95 put, sell the 85 put and sell the 120 call).

May 9 – August Live Cattle Purchase 140 calls

May 18 – Buy September wheat at 12.00 put, sell at 11.00 put and sell a call at 15.00.

May 24 – Bear put spread with a naked September nat gas short call (buy the September put at $8.00, sell the put at $7.00 and sell the call at $13.00 for a credit of approx. $1,200 to $1,500).

May 27 – Bull call spread with a bare leg in September wheat (buy the call at $12, sell the call at $13 and sell the put at $10).

June 2 – Buy July coffee 2.30 met.

June 7 – Buy call 139 of the September bond, sell call 143 and sell put 132 for roughly the same amount.

June 8 – Buy July Sugar 19.25 calls around 20 ticks.

June 16 – August butterfly put on Crude Oil, buy August $105, sell 2 puts of $100 and buy $95 for about 55 cents.

June 16 – Buy the August call option at 22.50 on the silver, sell the call option at 23.50 and the put option at 19.50 for a net premium of approximately 10.5 cents.

June 23 – Buy the $6.50 buy price on September natural gas, sell the $7.50 buy price and sell the $5.50 sell price for a net cost of approximately $150.

June 24 – Buy September Corn $7.00/$7.75 for about 19 cents.

Due to time constraints and our fiduciary duty to put customers first, charts provided in this newsletter may not reflect current session data.

Seasonality is already factored into current prices, any reference to it does not indicate future market action.

** There is substantial risk of loss in trading futures and options. ** These recommendations are a solicitation to enter into derivative transactions. All known news and events have already been factored into the price of the underlying derivatives discussed. From time to time, individuals affiliated with Zaner or its affiliates may hold positions in recommended and other derivative products. Past performance does not represent future results. The information and data contained in this report have been obtained from sources believed to be reliable. Their accuracy or completeness is not guaranteed. Any decision to buy or sell resulting from the opinions expressed in this report will be the sole responsibility of the person authorizing this transaction. Seasonal trends are a composite of some of the most consistent commodity futures seasons that have occurred over the past 15 years or more. There are usually underlying fundamental circumstances that occur every year that tend to cause the futures markets to react in a similar directional fashion in a certain calendar year. Although seasonal trends can potentially impact the supply and demand of certain commodities, seasonal aspects of supply and demand have been taken into account in the prices of the futures and options markets. Even if a seasonal pattern occurs in the future, it may not result in a profitable trade as the fees and timing of entry and liquidation may impact results. No representation is made that any account has made or will in the future make any profit using these recommendations. No representation is made that the price patterns will recur in the future.

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