The Bond Bulletin by Carley Garner
The Bond Bulletin
by Carley Garner
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2008-08-25
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August 25th, 2008
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I was afraid of this...
The rumors were accurate, many traders simply took the week off and likely won't return to the markets until post Labor Day. The term 'lackluster' seems to give too much credit to the volume seen in all of the financial and commodity markets in today's session. There is little hope that things will get better as the week progresses. Most are of the opinion that second string traders are in the markets while the 'starters' are enjoying themselves in the Hamptons. Rookies are looked at as being over aggressive and are arguably a contributing factor to today's large price swings on very little news or data.
I heard several comments on business news television programs referring to today's trading environment as 'ideal' for traders. However, I beg to differ. Light volumes tend to increase volatility and make direction even less predictable than what it may have otherwise been. Large moves and questionable predictability sounds like a disadvantage rather than an advantage.
In previous reports I pointed out that a rally to 119'02 on the long bond was a real possibility. We witnessed the prophecy become a reality in Monday's session (the daily high was 119'01.5); regretfully it seems as though there may be a little more momentum on the upside. Despite a moderate pull back from the highs, the lack of trading interest seems to be supporting the bull camp and squeezing the shorts out of the market.
Insiders have noted 'fund buying' in an attempt to get ahead of month end squaring but the ultimate direction of the market will be highly dependent on activity on Wall Street. Bond traders look to be convinced that an economic recovery isn't in the cards until something positive comes of the financial sector. We will soon be in the midst of the 5th consecutive dismal earnings season for investment banking firms and pessimism and frustration surrounding the topic seems to be on an upswing.
If you are short the October 121 calls as recommended below, you should be near break even or slightly underwater on the trade. Not bad considering the distance that the market has traveled. I am not completely uneasy about this position, but recommend proceeding with caution. Should the market have another day like today, it may be a good idea to add on. If you are properly margined and
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| Meet the Author |
Carley Garner
Senior Analyst and Broker; Stocks and Commodities Magazine columnist; Author of “Commodity Options” to be published in early-2009 by FT Press a division of Prentice Hall.
The Bond Bulletin has contributed 153 issues.
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