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Bonds failed to break support for the fourth consecutive try to spawn short covering despite a rally in equities.  Coming into today my resistance levels in the June long bond were near 116’13, now that we have seen these prices secondary resistance to be found at 117’19.  If the rally fails, we are headed back to 115…or lower.  I have a feeling that we will eventually see a temporary breakdown in this asset class.  However, if it does occur it will likely prove to be a long-term buying opportunity. 

On the economic front…today’s numbers weren’t a disaster but they certainly weren’t enough to give bonds the catalyst that they need to drop below technical support and send yields higher.  The Philly Fed index was reported to be a negative 15.6, better than projections and better than last month’s reading but still in contraction territory.  The NY manufacturing index, on the other hand, came in below estimates at -3.2.

In a nutshell, I wouldn’t buy or sell bonds here.  I am bearish, but it seems as though there is a strong tendency for prices to reach the top of the trading range in the high 117’s or low 118’s on the long bond, and the mid-116’s in the ten-year note.  Thus, if you are looking to sell futures it may be wise to be patient.  Likewise, on a spike higher call selling will be attractive. 

Option Recommendations

**There is unlimited risk in naked option selling.

May 12^th – With premiums relatively cheap you may want to buy a June 115 put for 10 ticks or less and a 120 call for 10.

Futures Recommendations

**There is unlimited risk in trading futures.

Flat