The luck of the Irish came a day early yesterday. June T-note futures hit and then dipped below our most recent downside target of 124-00 before recovering after the Fed’s announcement of a 25-basis point rate increase. Can T-notes fall even further? Certainly. The Fed is now officially in tightening mode. The punch bowl is gone. The party is over.
The depressive economic effects of the war in Ukraine is often cited as a reason the Fed won’t tighten as much as investors fear. But the war is also causing supply shortages which increase inflationary pressure. The UK just announced another rate increase. The European Union shouldn’t be far behind. T-notes are in a bear market so our bias will remain bearish.
Data Source: Reuters/Datastream
Use a Corrective Bounce to Re-establish a Bearish Position
But that doesn’t mean we won’t see some impressive corrective rallies along the way. We’ll wait for one and use it to establish new bearish positions. T-note futures are rapidly approaching oversold territory, so it wouldn’t surprise us to see a bounce soon. Our new Fibonacci-derived downside target for T-note futures is 121-00 in the front contract.
RMB Group trading customers who took our suggestion to buy April 126-00 puts and who haven’t already exited their positions, should consider doing so immediately. Our April 126-00 T-note puts settled yesterday for $1,812.50. They are going for $1,500 as we write this. Consider placing a new order to buy June 124-00 T-note put options for $656.25 or less as a replacement.
Your maximum risk is your entry price plus transaction costs. June 124-00 puts will be worth at least $3,000 should the market hit our new 121-00 objective prior to option expiration on May 20, 2022. We’ll need a bounce in T-notes to get filled on this trade. Prices can and will change so contact your RMB Group trading professional for the latest.
Please be advised that you need a futures account to trade the markets in this post. The RMB Group has been helping our clientele trade futures and options since 1991. RMB Group brokers are familiar with the option strategies described in this report. Call us toll-free at 800-345-7026 or 312-373-4970 (direct) for more information and/or to open a trading account. Or visit our website at www.rmbgroup.com. Want to know more about trading futures and options? Download our FREE Report, the RMB Group “Short Course in Futures and Options.”
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