I have to say it is pretty tricky today despite what looks like a very focused market structure. There is just too much mixed information and too many wide rejection/combo acceptance areas to make many high probability directional bets. Despite heavy volume yesterday and what appeared to be temporary strength with a strong close, we were noticing some conflicts that cannot be outrun. Through all of it and continuing overnight and into the morning the Euro continues to sell off and the bonds continue to be slowly bid. The fact is the S&P cannot sustain any up move with that running underneath. Overnight saw this come to pass as institutions lead the selling. The bigger the order sizes, the shorter they are. The line in the sand is right around that 53/54/55 area which we think will provide significant resistance from above. Though it isn’t a clean rejection area and also an acceptance area, we feel a fade there is likely the highest probability play today. The 47 and 49 handles are just too weak in our eyes and unless we get order flow info way to the contrary we will likely only scalp those rejection areas short. The OH area through the 60s is also very dicey and in spots like that with no clear line you just get run over. It could fail anywhere from 57 all the way to 62 so we will just have to watch and see IF we get there. There is also a potential long break above 50 into 52 or so in a likely fast market across those prices. But you can’t really trade it unless you really think there is a fundamental reason for the market to move up including participation and leading from the cash and the Euro and to a lesser extent the 10s which is the key maturity to watch right now as the curve traders adjust positions. On the other side the OL is also VERY tricky as it is in the middle of the huge selling tail from Friday. Again, it could reject anywhere from 40-43 and we haven’t decided yet if we will bet it will hold. My sense is that it won’t but I will reserve judgement this time until the last minute. If they are hitting bids hard into it we may look to sell a break of 40 short into 37 but wouldn’t trade past that as it starts to get messy below the day session S2. If we do flush way down we like the 31/32 area a bit but it is such a mess of unknown and whippy volume it is too tough to call a clean long fade. We will call it a scalp until we can see how it shapes up. We may end up sitting out unless we see some clean info that helps handicap one of these levels a little better…
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