Speculators are adding to shorts in both stocks and Treasuries

Treasuries, both the 10-year note and the 30-year bond, have recovered from Their dramatic 2022 lows.

We've talked about the shorts in stock indices, but what about Treasuries?

Treasuries, both the 10-year note and the 30-year bond, have recovered from Their dramatic 2022 lows. But with the Fed still hiking rates and inflation still high, there are more bears than bulls in the futures markets.

Further, US banks likely learned the hard way what interest rate risk could do to the solvency of an operation that borrows on the short end of the curve, to lend on the long end. Those lessons have likely pushed them (and other individuals and institutions) into aggressive hedges (selling short Treasury futures to hedge their long Treasury portfolio). As a result, similar to the historically large short position held by E-mini S&P 500 speculators, traders appear to have gotten "too short" Treasuries.

Treasury Futures Markets

30-year Treasury Bond Futures

Large Speculators are Sitting on Historical Short Positions.

With the exception of 2018, speculators have never been more short Treasuries than they are now. Sometimes, market positioning and the unwinding of overcrowded trades have more of an impact on price than market fundamentals. We could be on the verge of one of those times.

The 30-year bond daily chart has formed a reverse head and shoulders pattern. If the neckline is penetrated, the rally could be stunning, but the first target would be about 138'28.

Treasury futures market consensus:

The 30-year bond will likely seek to test the head and shoulders neckline near 135'24; a break above this level would likely trigger quite a bit of upside volatility.

Technical Support: 131'03, 128'05, 126'12, and 122'03 ZN: 114'31, 114'06, 112'13,110'27 and 109'26

Technical Resistance: ZB: 134'10 135'24 and 138'23 ZN: 117'02 and 119'15

Stock Index Futures

The ES is testing the breakout trendline.

The S&P 500 broke out a few weeks ago but couldn't muster a full-on short-squeeze or FOMO rally. Nevertheless, the selling has been orderly, and we see several significant support levels on deck. The first will be 4060; this is the breakout trendline. A retest of this level is par for the course and could lure fresh buyers. But if 4060 fails, the 200-day moving average comes into play near 4000, and the uptrend line dating back to the October lows lies at 3935. Somewhere between here and 3935 support, should turn the tides back to the bulls based on market positioning.

Stock index futures market consensus:

Earnings season hasn't been a disaster. With the masses short the market, this low bar is bullish.

Technical Support: 4060, 4000, 3935, 3790, 3600

Technical Resistance: 4140, 4278 and 4450

E-mini S&P Futures Swing/Day Trading Levels

These are counter-trend entry ideas. The more distant the level, the more reliable, but the less likely it is to get filled

ES Day Trade Sell Levels: 4170 and 4270

ES Day Trade Buy Levels: 4060, 4000, 3935 and 3790

In other commodity futures and options markets...

February 16 - Buy March Live cattle 163 puts near 75 ticks.

February 21 - Buy May NG 2.50 call, sell 3.00 call and sell 2.00 put.

February 24 - Buy April week 3 4100 call, sell the 4200 call and then sell a 3775 put for a credit of 15.00.

February 27 - Buy June bond 127 call, sell the 130 call, and sell the 120 put for a credit of about 24 ticks.

February 28 - Buy May sugar 20.00 put near 65

March 1 - Buy May wheat 7.25 call, sell 7.75 call and sell the 6.75 put for a credit of about 5.5 cents.

March 7 - Buy July soybean meal 450 put near 8.25.

March 10 - Buy July corn $6.50 call near 13.5 cents.

March 13 - Buy June cattle 153 puts near 2.40.

March 20 - Buy August crude oil $70 call, sell the $80 call, and the $55 put for a small credit.

March 20 - collar strategy in December cotton. Go long the December future near 79.00, buy the December 70.00 put and sell the 90.00 call for a small credit (limited risk and limited reward).

March 22 - Risk reversal in Christmas hogs - Buy the December 90.00 call and sell the 66.00 put for a net credit of 70 to 100 points.

April 3 - Buy July natural gas $2.75 call, sell the $3.50 call and sell the $2.25 put near even money.

April 5 - Buy July Sugar 22.00 put near 79.

April 11 - Scale into September oats.

April 25 - Buy July corn $6.25 calls

Due to time constraints and our fiduciary duty to put clients first, the charts provided in this newsletter may not reflect the current session data.

Seasonality is already factored into current prices, any references to such does not indicate future market action.

There is substantial risk of loss in trading futures and options.

**These recommendations are a solicitation for entering into derivatives transactions. All known news and events have already been factored into the price of the underlying derivatives discussed. From time to time persons affiliated with Zaner, or its associated companies, may have positions in recommended and other derivatives. Past performance is not indicative of future results. The information and data in this report were obtained from sources considered reliable. Their accuracy or completeness is not guaranteed. Any decision to purchase or sell as a result of the opinions expressed in this report will be the full responsibility of the person authorizing such transaction. Seasonal tendencies are a composite of some of the more consistent commodity futures seasonals that have occurred over the past 15 or more years. There are usually underlying, fundamental circumstances that occur annually that tend to cause the futures markets to react in similar directional manner during a certain calendar year. While seasonal trends may potentially impact supply and demand in certain commodities, seasonal aspects of supply and demand have been factored into futures & options market pricing. Even if a seasonal tendency occurs in the future, it may not result in a profitable transaction as fees and the timing of the entry and liquidation may impact on the results. No representation is being made that any account has in the past, or will in the future, achieve profits using these recommendations. No representation is being made that price patterns will recur in the future.