Dubai seems to be the word of the day. See my UAE comment from earlier today. March Treasury Bonds are up 23/32 from Wednesday’s close as I write this morning. Overnight, March Bonds hit a high of 123:00 on a spike resulting from the news that Dubai, one of the seven members of the UAE, wants to suspend payments on $60 billion owed to 70 international banks for the next six months. In my opinion, $60 billion is a drop in the bucket in the scheme of things these days in world finance. But with the Thanksgiving holiday in the US and religious holidays in the Middle East, many markets were closed yesterday when the announcement was made. So, low volume is leading to a lot of volatility. My experience with these scenarios is to take advantage of windfall profits and take them and be very careful beginning anything new until the smoke clears a little. This announcement was apparently totally unexpected around the world and caught a lot of investors off guard.
It is so ironic that this announcement comes about one month before the tallest building in the world open for business in Dubai. This kind of reminds me of the mid to late 1980’s in Houston when several tall building were completed only to be virtually empty when the economy here went bad, and you could literally see through the glass windowed buildings. It wasn’t but a few years later and Houston was bustling again, so I see this issue in Dubai as a short term problem. Abu Dhabi, the capitol city of the UAE, could easily solve this problem is they wanted to. The UAE has the 6th largest oil reserves in the world. If $60 billion is the total amount involved, as reported, then I don’t think that this is a big deal. What I do think, is that many markets including stocks and gold have risen a long way over the past six months, so this could be an excuse to finally get a much needed correction for these markets.
But, what does the chart say?
The included chart shows that this rally in the bonds just approached the highs made in late September just above 123:00. The visual trend is up but now spiking. The directional movement indicators are bullish and the ADX line is beginning to rise. So, the charts suggest that there could be more rally ahead for the bonds, but you have to be careful about chasing a price spike. Aren’t we glad that we liquidated the covered put write spread the other day. Had we not, we would be in a severe loss at this time, but the technical’s told me to get out days ago.
Followers should also be long one March Bond (114:00 strike) put from 2 12/64 and short 2 March Bond (110:00 strike) put options from 1 9/64 each for an overall credit of 6/64 or $93.75 gross.
You should also be long one March Bond (108:00 strike) put option from 52/64 and short 2 March Bond (105:00 strike) put options from 29/64 each or an overall credit of 6/64 or $93.75 gross.
March options expire in 84 days.
David Hall
The information and opinions contained herein comes from sources believed to be reliable, but are not guaranteed as to accuracy or completeness. The risk of loss in trading futures and/or options can be substantial. Each investor must consider whether this is a suitable investment. When trading futures and/or options, it is possible to lose more than the full value of your account. All funds committed should be risk capital. Past performance is not necessarily indicative of future results.
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