Thanks,
Tom
DAYTRADING by AMBUSH
by R. Thomas Logé
February 23, 2008
BONDS
First notice day in March TBonds is Friday. We’ll trade the March through the week with one eye on the Open Interest and Volume numbers. They will tell us if we need to make the move to the June contract after Thursday or before.
The Bonds gave us a nice 1-point gain on Thursday. The market launched a big move from near 116-00 very early in the morning prior to the RTH open. By the time RTH happened we were at 116-16 and we bought 116-19. The move from there was constant and without any significant retraces. We exited the trade at 117-15. On the failed double top at 117-20/19 I decided I would exit if 117-16 was violated and moved my stop to 117-15. This is a “Once Broken” play. The name is derived from the belief that once the market broke above117-16 … a number of prime importance to us in the Bonds … we would not want to continue to be long should the market retrace below that significant number.
Friday the market was quite skittish as volume was extremely light and looking ahead to a major supply increase next week on Wednesday. On Friday a FED President talked of rising inflation. On Tuesday we have the release of the PPI numbers, a major inflation tell. Watch for some unwinding of Bond positions on Monday unless the stocks are down aggressively. The bulls are firmly in control to start the week. We should see advances shortly after the unwinding. Beware of short positions, don’t avoid them necessarily, but do manage them very closely in anticipation of short runs with very quick reversals to the upside. If you’re not extremely comfortable with our short stops and tight management strategies you might consider passing on short plays altogether.
The Market ended Friday poised at the 117-00 mark. That will be our initial ambush point for Monday morning along with 117-16 and 116-16. Until we see the PPI numbers on Tuesday I think Bond traders will be holding their collective breath and be very unwilling to press Bonds very far in either direction off 117-00.
CURRENCIES
The direction of the wind changes quickly. We’ve done another 180. There is much press including the word “contagion” in stories. There is not only talk of a recession deeper than originally thought but, in fact, economic reports painting classical recessionary pictures. The WSJ and the rest of the bizrags can’t find the room to carry all the stories of the second wave of subprime. Now it’s student loans, commercial real estate and corporate bonds showing the effects. There is a continually growing stack of reasons to flee the U.S. Dollar. Rest assured there will be a flight to quality on Monday. I don’t see how the Dollar can avoid 7500 on Monday or Tuesday.
Canadian Dollar
The CD looks very vulnerable on the chart. I mean, geez, how many times can you make a run at 10100 and fail before the message gets thru the thickest of skulls. Set backs in oil and other Canadian commodity prices plus all the plague to the south don’t bode well for the Looney. I think the easiest path is down right now. Short trades are preferred; longs are suspect and demand very tight management.
Any retests of 10100, 10050 or 10000 are easy sells; likewise at 9975, 9950 9925 and 9900. I would pass on the buy at everything above 9950. There and below I will buy but enforce very tight management policy. 9880/75, 9850, 9825 and 9800 also make the ambush list. 9750 makes the list as does 9725 and 9700. From there to 9550 we are out of structure for guidance so we’ll be precluded from trading below 9700. I will sell a break of 9700 and use periodic RRR for management.
9850 is not really supported by the info on the chart. It really comes in at 9960 or thereabouts. I think that’s the way it got recorded but I believe the decisions were made based on 9850 so that will be my ambush point. I’ll chalk up the difference to poor recording secretary.
Any number mentioned is good guidance for management and stop rolling for entries above or below them. The stops as always are at the next higher 3 or 7 for the big risk takers on sells and the next lower 7 or 3 on buys.
Swiss Franc
If you followed our guidance in the Swiss you should have done well on 1 or 2 trades on Thursday. You should have been long by 9100 and out at close to 9140, Then back in about 9145 or so and out near 9200.
The Swiss will continue to be amongst the primary beneficiaries of the flight to quality and away from the U.S. Dollar. The Swiss National Bank has been able to back away from a rate decrease which all points to higher prices. 9200 will be a hard resistance point to break and convert to support. If it does it will probably have a rather easy go to 9250 … maybe even 9300. I look for the trade to struggle with 9200 chopping both sides for a while before the bulls prevail. With the magnet tugging from 9250/9300 it may not take very long though.
Obviously, we’ll sell any retest of 9300 or 9250 as well as a break below 9200. Beware the short from 9200 it could turn very fast and head north with conviction so be on your toes with solid, tight management strokes at the drop of a hat.
9175, 9150, 9120, 9100, 9075, 9055, 9030, 9000, 8980, 8840, 8800, 8750 and 8700 are all fair game for ambushes and management triggers. Same as CD, use the next 3 or 7 as stops on sell trades and the next lower 7 or 3 as stops on buy trades. Always be aware of where you sit proposition wise; you do that by calculating the periodic RRR all the time. I rarely watch a market move more than 5 points without having a clear picture in my mind of what the RRR is at that juncture, then the next, then the next. The constant and recurring question we need always to know the answer to is what am I now risking to make what profit based on the most likely scenario.
INDICES
The Stock Markets all continue to find excuses to hold prices at recent current levels. We have some classic recession numbers in several reports. We have a huge and unexpected drop in activity in one of the FED regions, we have many additional downgrades related to insurers and Fanny and Freddie. Yet we continue to trade relatively narrow ranges in all the indices. I think only a strong hint of another rate drop will stem the tide of negatives. That isn’t likely as the opportunity to do that on Friday saw the FED mouth du jour talking about inflation threats. The path of least resistance is down and I don’t think it can be thwarted or even temporarily stemmed without pretty direct and strong commitment to drop rates again from the FED.
Mini Russell 2000
It looks like we’ll be focused around the 700 mark for the Monday morning action. I don’t think there is any doubt we have downgraded the U.S. economy this past week and thus far there has been no price in of that fact in my opinion. We could get that Monday morning but my guess is we’ll have a relatively quiet trade until we see the PPI numbers. If they support the inflation case the FED mentioned on Friday we might turn again to bull control; if not … it could start a slide lower.
Here are the ambush numbers for the Russell for the coming 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
I think we are less likely to se a real serious pricing in of the negative in the DOW compared to the Russell. I look for more of the same range bound trade early in the week and then we’ll see. Percentage wise the DOW should be the least affected of the exchanges. There are more multinational companies in the DOW than other indices. Here is an angle for you to play around with. Multinationals will be hurt less by a drop in the dollar and should therefore hold on to prices better than most non-multi’s. It does usually work out that the upper end of the market suffers less than does the commoners.
Let’s trade these numbers this week: we’ll start with the quad top at 13850. We’ll 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 122 or 120 as they fail to push lower and turn back north.
GOLD
We should get a really definitive idea of Gold’s resiliency and star power this week. With all the dollar down speculation, with all the downgrades crossing over to more sectors in the economy the bulls should have a field day with Gold. Clearly we see on the chart the tough time Gold has had building the momentum necessary to take on the resistance at 950. I think all the current circumstances come together in a way that Gold builds the fuel stores for a run higher.
Clearly the chart shows a negative tone from the last 3 sessions. I’m really concerned by the sharp break resulting from the failure at the highs on Wednesday, Thursday and even Friday. I will be careful on any buys by being prepared to exit any long plays at the whiff of a stall or break lower. I will trade 940/950 or any channel lower. I will trade a break into the 960/970 channel
Have a great week of trading.
Tom
Ps: Those of you who may be new to my work, don’t 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.