NEW YORK (
) -- Investors have dumped 30-year bonds as the fiscal-cliff crisis has abated. With the beginning of a new year, sidelined money has been put into riskier assets. (Just look at the 80-or-so handle move in the S&P 500 in the past two sessions.)
Bonds have dropped from just under the 149 handle to the low 145 handle. What makes this decline particularly significant is the fact that bonds have left a gap on the daily chart from 146'10 to 146'23. Although anything is possible, markets do not typically go straight up or down, and I don't believe this will be an exception. (Let's not forget that the S&P 500 futures have left a gap under the market as well!)
Should the S&P 500 decide to go down and fill its gap, that could boost bonds. In addition, according to my oscillators, the bonds appear to be in oversold territory.
Although the selling may exhaust itself shortly, in my opinion we could see a final "flush" down to the 144 handle area, which I think would be a good buy.
Looking at both the daily and weekly timeframes, and past market action around this level, I believe it will act as strong support for the time being and likely present a nice tradable bounce. Should this trade materialize, I would use the gap fill at 146'10 as an initial target.
I would look at getting long bond futures or selling puts if the market reaches the 144 area. For put sales, I would look to sell strikes in the 138/139 area. How one goes about it is a matter of personal preference, risk tolerance and trading style. Please feel free to email me to discuss any questions you may have or how to structure a trade for you based on your market views. Please note today is Jan. 3, and all trade data is based on the most recent information.
Futures and options trading is inherently risky and unsuitable for all investors. Past performance is not necessarily indicative of future results. Stop-loss orders intended to limit losses to certain amounts may not be effective because market conditions may make it impossible to execute such orders. Option writing has unlimited risk and an investor may lose more than their original investment.
Commodity Futures Trading Commission disclosure for licensed brokers: This material is conveyed as a solicitation for entering into a derivatives transaction.