Here we are at Superbowl Weekend 2008. I say this every year, I know, but where did the last year go? Just a little over 1 year ago I had just finished figuring out how to survive my bout with Valley Fever and began a long road I hope terminates next week. Iâll be visiting the esteemed Dr. Bernstein for what I hope will be the final time. My last blood test, my last Chest X-ray. I will be celebrating thatâs for sure. In 2006 when I caught mine there were less than a thousand cases in the county. 2 years prior there were less than 100. This year, 2008, they are predicting over 5000 cases. This is a nasty deal this Valley Fever ⦠and growing out of control.
While we are on the topic of concluding things, we went to court last Thursday for a status follow up on my daughterâs petition to regain custody of my 7 yaer old grandson who most of you know has been under a guardianship order from the court and living with Jacki and I. Long story short he is back with her and an era ends. I will miss Jaidenâs presence in our house. He is a great kid. I think it is too soon for him to return full time as she clearly has some remaining issues to address. I believe she is clean and sober but retains some absence of parenting skills. I hope it all goes well and he lives a happy, safe life with his parents. I understand I can not insulate him from some likely unpleasantness, that he has to experience it for himself but, man, itâs hard to turn the little guy over to them.
On a positive note I had a very pleasant dinner at my favorite restaurant tonight. Jacki was out with girlfriends and the cousins planning the menu for Super Bowl Sunday. The middle one, Chyanss, was at a friends birthday party so I had the pleasure of KeâLeâs company tonight. She has turned into a beautiful and bright young lady. You should have seen some of the looks we got in the restaurant as they tried to figure out what was what with us.
I hope your team wins if you have a fave. I donât care who wins but Iâd like to see an entertaining game. Jacki and I are off to Palm Springs to watch the game. Have a great week of trading. I think we have âem correctly in the crosshairs!
BONDS
Interesting to note that the economic reports from late in the week and particularly the employment report would have produced a big move up in Bonds. The prior weeks have driven Bond prices to a level where there isnât any room left for further advances. It will be very, very difficult for Bonds to push higher from here. Stocks even had a tough time edging higher on economic data and the blockbuster Microsoft bid for Yahoo that would have had the market soaring a month ago.
This set of circumstances should bode well for our type of approach. The ceiling is there in spades. We need to protect ourselves primarily only on the downside. I think trading will be dominated by profit taking days and economic report driven corrections ⦠all producing swings lower. If Iâm right we should be able to capture many, consistent runs both ways as we correct and then press higher, correct and then press higher. I canât imagine a trade above 122-00 and canât even conceive of hitting 123-00. Weâll gleefully sell, sell, sell any retests into those areas. 117-00 will probably add structure and strengthen as a floor. Its emergence will benefit us as well. 118-00 to 120-00 is likely to confine trading at least for this week.
For Monday weâll be all over 119-16 and 120-00. If we get a failed retest of 120-00 do not get between the window and me âcause I will be aggressively puttinâ money down on a sell there. I might even load up on the number of contracts.
CURRENCIES
The U. S. Dollar looked to me to be staged to break out from the recent lows. The 2 final days of last week saw some very positive action despite some very negative jobs news. The markets have become so sensitive to the attempts of the FED to keep us out of recession we lean very heavily in favor of their success. Iâm not a believer yet. I think we all perceive 125 basis points should do it. Thatâs a lot for sure but I think things are much worse than 125. The fed was quite aggressive because they donât want to do another non scheduled adjustment and they donât meet again until March 18 ⦠a very long time given the critical nature of where we are right now. Itâs going to be a very volatile week I think. If we continue to get a solid diet of negative economic data the dollar will have to break out of the 7500 support area. Wanting to belief will only sustain the prices so long.
Canadian Dollar
The CD went riding with the U.S. on Friday. The sentiment was that with the FED hot on the heels of the recession bandit the undertow from a weak U.S. economy wouldnât reach north of the border. That relates back to my comments above that reality will prevail ⦠at some point. Personally I expect action at lower levels to take over before the end of the week. Whether it will kick in Monday or not until Friday is open for speculation. I see no reason to change the numbers from last week so I will leave those comments (slightly amended) in place as guidance for this week as well.
CD closed at 10055 on Friday. Iâll sell or buy a decision by the market at 10050 on Monday. Same thing goes for 10100. Weâll certainly sell anything that even remotely looks like a retest of 10000. Iâll buy there also on a break out higher but the management will be very tight indeed. At 9975 Iâll either buy or sell dependent on whispers. 9950, 9925, 9910 and 9900 as well. 9880, 9850, 9825 and 9800 work both ways. I think weâll stay within this range of prices for the moment. Weâll use the mentioned prices higher for rolls on longs and numbers lower for management of short trades. The initial stops go in at the next highest 3 or 7 for buys and the next lower 7 or 3 on shorts. By example: if we bought 9880 the initial stop would be placed at 9893 preferred or 9897 if you wanted a bit more room to breathe. As we passed thru 9850 weâd roll our stop to a minimum of B/E ⦠a very loose management play or to 9863, which would certainly qualify as a tighter move and might even be categorized as a âOnce Brokenâ play.
The higher numbers weâve added donât have as much structure to derive management guidance from as do the lower numbers. This, of course, means weâll look harder at periodic RRR to keep us safe.
Swiss Franc
The Swiss has taken on the mantel of the safe haven currency. In all likelihood weâll constantly be pushing new highs unless the U.S. Dollar starts making noises resultant from some actual evidence a recession is not happening. Thereâs a novel concept ⦠react to something real rather than an Aesop fable. The bull bias is solid for now. Nothing can be done above 9250 and I wouldnât buy 9200 either. Sells are the only action Iâll take.
Any retest of 9250 or 9200 gets sold instantly. 9160 can be sold as it breaks on any retest higher that fails. There is a band of SR between 9120 and 9110. Weâll play this as a SR range buying a retest below 9120 as it rises back above it and selling a break below 9110. Although 9110 has more hits it is 9100 that really holds the key to future Swiss price flow. If 9100 goes down I suspect the gates are open to 9000 and maybe to 8970/60 where resides the next most likely to hold area of support. If we wind up selling 9110 you have to very suspect of the trade at 9000. You must roll the stop to B/E as soon as the price threatens 9100. 9080, 9035, 9000, the range at 8970/60, 8940, 8920, 8900 and 8880 are the numbers to set up ambushes on and to use as management triggers.
The stops are the 3 and 7 above on sells and the 7 and 3 below the entry point.
INDICES
We have just witnessed an impressive weekly rally in the stocks with most advancing by 3- to near 5 percent with the exception of the Russell which Iâll address in a moment. Nobody wanted to talk Mortgage insurers and whether theyâll pay up and bail all the dumbass lenders out. Duh. You mean just because I didnât require any proof you could pay now youâre not paying? No one wanted to talk a very negative jobs report; no one wanted to talk unemployment forecasts by some knowledgeable pundits that begin with a 6. No, all they wanted to focus on was a 45 billion stock swap offer from Microsoft and the belief that surely 1.25 will keep the recession wolf from the door. Unless ⦠or maybe until is a better qualifier ⦠we see something breathtakingly negative on the economy I look for stocks to grind higher. I fully expect to have the DOW retest 13000 â 13050. That may not happen by Friday but Iâll betchaâ we see a 129 something. Iâm typing this at a Kinkoâs in Palm Desert and my quotes are being whack. I think we stay with all the Russell and DOW numbers as weâve got them. Iâll be home Monday and give it another look to make sure then.
Mini Russell 2000
Of all the indices the Russell dropped the most since December. Guess which one made the biggest percentage rebound this week? The Dow with all its blue chippers? No. The Nasdaq with all its hi tech gizmo companies? No. Thatâs right, our very own Russell lend the league in boards (get it? Rebounds). Doing what we do in the timeframes we do it I like to see volatility. The more the merrier ⦠as long as itâs measured and the pace can be matched with the execution demand. This is another great example to explain the constant question of âwhy the Russell?â The Russell is the working guys index. Itâs OUR index.
The Russell may be one of the more volatile of the equity indices. I think it will prove an advantage for us but it does carry with it some demand for focus and preparation to manage our trade to a very high level this week. Iâve done some fine-tuning on the numbers weâre allowed to play. Make sure you review and incorporate the additions and subtractions.
Here are my numbers for the Russell to kick off the week: 648, 665, 672, 682, 685, 688, 692, 695, 698, 700, 704, 706, 708, 713, 717, 722, 728, 735, 740, 745, 747, 750, 752, 756, 758, 760, 762, 764, 767, 770, 773, 775, 778, 780, 785, 790, 794, 798, 800 and 802. I will not sell anything below 648 and I will not buy anything above 794.
$5 Mini DOW
We popped back enough to give us a little structure to explore without need to dip into the weekly charts. It always comes back; itâs always just a matter of time and patience. Things are pretty easy to figure out in the DOW this week. It is ALL on the chart this week. Whatever the fundamental focus issues the chart tells us the plays to make in irrefutable black and white ⦠or should I say red and green.
While not the strongest line on the chart 12400 is certainly the most important. If we break above we will climb to the magnet line at 12600. THERE is where the DOW will decide its short-term future. 12800 is beyond argument the strongest line on the chart both in terms of hits and considering what the market has done on prior visits to that price level. Assigning strength to an SR line is clearly about the frequency of hits but observing what the market did at that level on those prior visits can derive an unmistakable sign of true power in a number. On the downside the support at 12200 must hold or we are in danger of a major bloodletting.
Letâs trade these numbers this week: weâll start with the quad top at 13850. Weâll sell a failed retest there but not buy yet ⦠exactly the same play at 13800. 13750, 13700, 13650 (#2 on the hit parade of strength), 13600 (mostly on its big fat round number credentials as opposed to hits), 13550, 13500 (see 13600 above), 13450, 13425, 13400, 13350, 13300, 13240 (probably is really 13250; play however you see it) 13200, 13150, 13125, 13100, 13050, 12940/50 as a range, 12880, 12840, 12800, 12650/60 as a range, 12600, 12550, 12500, 12400, 12200 and 12000. No sells below 12200. You can buy any retest at or near those 2 as they fail to push lower and turn back north.
GOLD
We are now trading the April contract. We are all about flight to quality. Secretly, I think, there is an varying size doubt about the FEDâs commitment or ability, in fact, to thwart the recession and therefore we see at least a percentage of portfolioâs holding some metal ⦠Gold or Silver. I expect Metals, Bonds, etc to continue to show great strength for some time. Oh, for sure there will be corrections, backfilling and profit taking along the way. Until some ability to read the true depth and nature of the mortgage insurer default problem becomes assessable and quantifiable I think the physicals will benefit in demand and price stability.
We can trade Gold up to and including the 940/930 channel. For you Friday traders it was like shooting fish in a barrel ⦠or should we coin a new phrase ⦠it was like shooting fish in a channel!
Have a great trading week. Catch you soon.
Tom
Ps: Those of you who may be new to my work, donât be shy about emailing any questions you may have. The manuals should be available soon but in the meantime I have no problem answering any inquiry. My direct email is tom.mostlikely@verizon.net
Trading commodity Futures and options on futures involves significant risk. You must consult licensed professionals or your own advisors before trading to determine if it is suitable for you. Nothing contained herein is a solicitation to trade or a recommendation of a specific trade. You must consult your broker or advisor before making any trade to insure current prices, margin requirements and other factors determinant to suitability. By reading this newsletter you agree to make no trade relying in whole or in part on the comments of the writer. You agree before doing any trade contained herein to consult your charts and advisors to verify all information and make your own decision.