Stock Indices Plunge / How to guage Trend

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It’s hard not to make the stocks the focus of our blog again today. We are just a bit through the midway point of the day and the indices are down sharply. It is virtually a double reverse with today reversing the strong rally following the GDP figures which had reversed the sizable losses of Wednesday’s action.

The S&P 500 and the NASDAQ Composite and 100 are back below their respective 50 day moving averages and below the major up trend lines dating back to the March ’09 lows. The Dow Jones Industrials have now reached the 50 day moving average for the first time since testing it October 2.

The NASDAQ has become the weakest of the three majors. The Composite is now very near the October 2 correction low. Also of interest is the Dow Transportation Index which has made its downward turn before these others. It may have signaled a double top confirmation by falling below the low made between its two highs of September 17 and October 21. There are other lows in this price area from August 17 and September 2 that may provide an obstacle to further decline; at least for the near term. And as far as the double top, there may be a possibility this formation in the Transports could morph into a complex double headed Head and Shoulders top. But at this point in time that will be left to the crystal ball gazers.

The October 2 correction lows we believe are the next significant barometers.

We realize there is still time to go in this week ending session but we find this type of action negative and believe spells lower prices yet to come.

We are including here our S&P 500 market section from our Trade Focus written Thursday 10/22/09:

S&P 500 (Dec. EMini) – Last week we presented a short entry approach that would have been elected with the intraday penetration of 106625. The December contract proceeded to a low of 103725 today (Thurs.) before its sharp rally to close at 106150. We believe stop protection for this short entry can be lowered to intraday penetration of 109350 or a close at or above 109025. We believe we can keep the other new or additional short entry approach from last week also which is to initiate short entries with a close at or below 101150. Stop protection for this short entry approach should be intraday penetration of 105725. Retracement resistance levels are approx.: 106085 (hit); 106800; 107550.

Good luck and Great trading

Jeff and Diego

CB&S Division
MF Global Inc.

312 261-7380

Futures and options trading contain substantial risk of loss and may not be suitable for all investors.

How Confidence In Short Entries for Stock Indices Grows

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The charts included above are of the daily cash S&P 500, daily cash NASDAQ Composite and daily cash Dow Jones Industrials. It seems we can sum things up quickly and simply here today. These major indexes have now seen the major trend line connecting the March and July lows breached as well as their respective 50 day moving averages. These are not good closes today, unless of course a trader is short.

We believe these to be levels of significance that have now been broken and provide another signal that lower prices are on the way. There may be a bounce back upward in price but it doesn’t necessarily have to do so. We would view bounces, and we will be watching for them closely, to be opportunities to suggest additional short entry approaches.

We would also like to point out that the cash Dow Jones Industrials has not penetrated its respective trend line or 50 day moving average.

We are inserting the S&P 500 section from our last Trade Focus edition.

S&P 500 (Dec. Emini) -- Last week we ended this section saying that next level that may serve as an objective is the .500 retracement from the October 2007 high to the March ’09 low which is approx. 112625. We do not see a long entry suitable for this near of a possible objective. Certainly it could go beyond but we will watch for developments that are more indicative. We do, however, believe that if this “bull run” is nearing an end that short entries can be initiated with intraday penetration of 106625 or with a close at or below 106925. Suggested stop protection for this short entry approach should be intraday penetration of 110275. We believe another short entry approach for new or additional short entries would be with a close at or below 101150. If this short entry approach is elected we believe stop protection should be intraday penetration of 105725. We will update retracement levels following additional pattern development.

Good Fortune and Good Trading

Jeff and Diego

Futures and options trading contain substantial risk of loss and may not be suitable for all investors.

How to Manage A Short Position In The T-Bond Futures

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The CBT/Globex December T-Bonds reached a significant trend line of support and the reaction off of that has been a strong one rallying more than a full point. It also sets up as a two-bar low formation going into tomorrow. The rule of thumb initial target of this type of formation is the length of the two bars and in this case makes it approximately 120-11. Fibonacci retracement resistance levels are approx.: 120-17; 120-24; 121-15.

It is impressive too that they have performed this way with the huge supply of Treasury paper being auctioned this week. So far the first tranche has been well received both from a demand and rate perspective. The $44 billion in 2-yr notes auctioned today came off with a yield of 1.020 pct. with a bid to cover of 3.63. The average for the previous six 2-yr auctions was a bid to cover of 2.92.

It is action like this that would cause us to suggest to holders of short entries to reduce their exposure by liquidating some portion of their position. It is also the type of event that provides reasons for those wanting to place long entries to take action. Our most recent Trade Focus has active short entries in the T-Bonds and this action has given us reason to discuss the position with individual clients.

Good trading to all

Jeff and Diego

Futures and options trading contain substantial risk of loss and may not be suitable for all investors.

How to Take Advantage Of The Short Side Of Gold

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We haven’t talked about Gold for quite some time. It has achieved all time all time highs as probably everyone who reads this is aware. Over the past year, since October 24 of 2008, it has gone from the low of 69900 (basis the December Comex/Globex contract) to its October 14 2009 high of 107200.

We have been watching Gold as well as many other markets and market groups, for signs of exhaustion to their bull market rallies. Much of it has to do with the value of the US Dollar, which we have talked about at times in our Trade Focus. We noticed, in the case of Gold, a top heavy look developing on intermediate time frame charts. If there was to be a correction or perhaps the start of something larger, we wanted to be prepared particularly if the risk reward was warranted.

We have included a chart of the 120 minute December Gold for illustration and the Section on December Gold from our most recent Trade Focus prepared October 22.

Gold (Dec.) – As in the Silver we will stay with our suggested long entry approach from last week which is to initiate long entries with intraday penetration of 107550 or with a close at or above 107330. Stop protection for this long entry approach we believe should be intraday penetration of 104170 or a close at or below 104270.

We also believe now that we can suggest a short entry approach with intraday penetration of 104170 or a close at or below 104270. Stop protection for this short entry we believe should be intraday penetration of 107550 or with a close at or above 107330. Retracement levels of support are approx.: 103820; 102770; 101720. The next series below this is approx.: 101680; 99980; 98280.

Today's action (Monday 10/26/09) in the December Gold contract elected the suggested short entry approach in our weekly Trade Focus. Stay posted.

Good trading to all

Jeff and Diego

CB&S Division

MF Global Inc.

Futures and options trading contain substantial risk of loss and may not be suitable for all investors.

How To Approach Suspected Resistance in Mini S&P500

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There appears to be levels of resistance at or near the current price of the stock indices. We have included charts of the cash S&P 500 to help illustrate. The charts were prepared early on Thursday October 22. What they show are major trend line resistances and also the .500 Fibonacci retracement.

The action of this week has been interesting to say the least. New highs on Tuesday followed by heavy selling pressure on Wednesday but strong recovery on Thursday. Friday morning has seen selling pressure reemerge even with positive earnings news from Microsoft, Amazon and others. It looks like the willing sellers were satisfied selling to the “news” buyers.

Here is an approach we suggested in our weekly Trade Focus written yesterday (Thursday) afternoon:

S&P 500 (Dec. Emini) -- Last week we ended this section saying that the next level that may serve as an objective is the .500 retracement from the October 2007 high to the March ’09 low which is approx. 112625. We do not see a long entry suitable for this near of a possible objective. Certainly it could go beyond but we will watch for developments that are more indicative. We do, however, believe that if this “bull run” is nearing an end that short entries can be initiated with intraday penetration of 106625 or with a close at or below 106925. Suggested stop protection for this short entry approach should be intraday penetration of 110275. We believe another short entry approach for new or additional short entries would be with a close at or below 101150. If this short entry approach is elected we believe stop protection should be intraday penetration of 105725. We will update retracement levels following additional pattern development.

Remember you can sign up for a trial subscription to the Trade Focus email list. This will get the information to you a day sooner than waiting for it to appear on the web.

www.cbandsbrokerage.com

Good trading

Jeff and Diego
CB&S Division
MF Global Inc.
312 261-7380
800 321-5810

Futures and options trading contain substantial risk of loss and may not be suitable for all investors.

How To Manage A Winning Long Wheat Entry

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The wheat market has maintained its bullish price focus with another push into new highs since the October 5 low at 439.25. Today’s high reached 548.50. The last time we talked about December wheat in our blog on October 12 we mentioned that if long (particularly if from our Trade Focus recommendation) that participants might consider reducing the number of positions after it had reached 529.00 in order to not only book some profit but also for the purpose of capital preservation.

We had determined that level off of one of the possible Fibonacci retracement levels we illustrated. Other targets to consider near term are the Fibonacci extensions at 550.00 and 561.75. The first of the extension targets in this series just happened to coincide with a .382 Fib retracement at 548.25. That is determined from the down leg starting June 1 2009 at 725.25 and ending with the October 5 low.

Stop protection for original longs which occurred with the suggestion to initiate long entries with the intraday penetration of 48550 should at least raise it to intraday penetration of 49200.

The next Fibonacci resistance levels we feel are of importance are approximately 582.25 and 616. These would be levels to consider quantity and risk reduction also.

One last point of interest is that Wheat has been able to make this advance even after the latest USDA Crop Production report which was considered negative toward future price levels. We are hearing now, though, of smaller Wheat crops than originally expected out of some of the Eastern European producers.

Good trading to all

Jeff and Diego

CB&S Division
MF Global Inc.

312 261-7380
800 321-5810

Futures and options trading contain substantial risk of loss and may not be suitable for all investors.

How to rely on techincal indicators in Natural Gas

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We are talking about the natural gas today as it appears in the process of clearing another hurdle. After first catching our eye and introducing it to our Trade Focus in the September 10 edition we have seen an initial run up in price followed by a broad pattern of consolidation. The initial high since bottoming for the November contract was 5120 on October 6. This was slightly shy of a former peak at 5133 on August 3.

Today’s price action has it clearing this price level by reaching 5195 (as of 3:00pm central time). It would seem to us that a close above this 5133 level should set it up to test the next level of resistance which we show to be just above 5500.

Another aspect that got us stirred up over this market was that there was a reversal bar at the low on the daily chart and perhaps much more significantly, the month of September posted a large sweeping reversal off the low. All this in light of record supply. That’s impressive and deserved attention.

We would not be surprised at a move eventually into the 7000’s or near 8000 if and once the 5500 level is cleared.


God trading to all

Jeff and Diego

CB&S Division
MF Global Inc.

312 261-7380

Futures and options trading contain substantial risk of loss and may not be suitable for all investors.

How to take advantage of significant resistence in Dow Jones

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The chart above is a weekly Cash Dow Jones Industrials. The reason we are looking at this today is that it is approaching the .500 Fibonacci retracement level of the October 2007 high to the March 2009 low. Some of our clients that have been expecting the market to rally toward this significant price level are talking to us about a “Sell and Hold” strategy.

This has been quite a rally since the March lows were put in. We are seeing some analysts suggest though that stock prices in general have reached overbought or more specifically overvalued levels. One that we saw very recently stated that these were historically overvalued levels. We must admit we have seen over time many interpretations of “value” measures so it is difficult for us to put our faith into these claims. There may be, however, many factors that are coming into play that should cause all of us to be alert to what could be a sizable correction. We never truly know what lies ahead ultimately and what starts out as a correction could be the resumption of the bear market which many believe began in March 2000.

We have also seen the Daily Sentiment Index break above the 90 percent level which contrarians would be keen to follow. Many of us are familiar with this and realize that if such a large percentage of people are bullish of something a top or correction of some sort is likely imminent. We also are aware that there is that faction of economists that have been warning about the double dip recession. Foreclosures continue and may even escalate according to some accounts. Could there be another credit crunch around the corner if this were to happen?

The uptrend since the March low is rather discernible. One thing we would key on as an approach to short entries is a break of the trend line connecting the March and July lows and particularly a close below it.

We are not suggesting this doom and gloom scenario will come to pass but thought that since this major stock market index is in ear shot of a significant retracement resistance level that it was worth presenting.

Good trading to all

Jeff and Diego

Futures and options trading contain substantial risk of loss and may not be suitable for all investors.

Bond Rally Stopper

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We have posted the weekly chart of CBT/Globex T-Bonds. We note how the high of the recovery from June 01 low stopped at the .500 retracement level and at the 50 week moving average.

We have talked about the Bonds in previous blogs and thought that since we had mentioned ways to enter the short side of this market we would present another for those looking to establish new or additional positions.

This is taken from our weekly Trade Focus prepared Thursday October 15:

T-Bonds (Dec.) – The T-Bonds have experienced a key reversal back on October 2 and have made a nice set of stair steps on their way down off their top. We will suggest at this time that short entries can be initiated at a price level of 119-30 or better. We believe stop protection for this if elected should be intraday penetration of 121-11 or a close at or above 121-06. Retracement levels of support are approx.: 118-21; 117-01; 115-14.

Good trading and Happy Week End to all

Jeff
and
Diego

Futures and options trading contain substantial risk of loss and may not be suitable for all investors.

How To Choose Target Levels For Short Dec. T-Bonds

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The December T-Bonds have begun a nice progression to the downside. We had presented the case for initiating short entries in our blogs of last Tuesday and Wednesday. (You can check the older posts for verification). The chart above shows a near term Fibonacci Extension sequence where what we refer to as the targets, are approx.: 118-30 and 118-15. Short term traders could consider using these as levels to reduce or cover short positions.

We also display on the chart a series of Fibonacci Retracements which are approx.: 118-19; 117-00; 115-13. We are thinking that there is potential down to the lower retracement levels and possibly even lower eventually. But how it gets there is always the $64,000 question. We will be updating the progress as best we can along the way.

How to utilize these various levels and other tools that are involved is something we are able to discuss in greater detail with our clients. We suggest you contact us if interested in finding out more.

Hit ‘em long and straight

Jeff and Diego

Futures and options trading contain substantial risk of loss and may not be suitable for all investors.

Employing Trade Management in November Soybean Position

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We are coming back to the November Soybean market today as important price levels have been reached. First of all we’ll get the mention of the psychological 10.00 per bushel out of the way. Psychological price levels don’t effect, in our opinion, supply and demand considerations, nor should they effect, taken on their own, trading decisions.

What we do find significant is that key Fibonacci retracement levels have been reached or nearly reached. Today’s high so far has been 1012.25 (we are preparing this at just about Noon Chicago time) and that takes it above the .618 retracement resistance level from the August 11 high of 1066 to the October 5 low of 878.75 which was approx. 994.50. It has also come within a whisper of the .618 retracement level using the June 11 high of 1099.50 and the October 5 low of 878.75 which is approx. 1014.75.

This is a situation where depending on the individual certain options can or should be considered. We would say at the minimum stop protection should be raised if it hasn’t been already. Another option is to liquidate a portion of the position while also raising the stop protection. And then, some traders may decide that this is a good place to liquidate their entire position and watch for further developments.

Truly we never know when or at what price a market will make a high or low. For this reason we tend to favor reducing exposure but leaving some portion of the original position on the books in case a particular market catches fire. If the price continues to move favorably stop protection can and should be raised too. This is something that we discuss with clients on an individual basis.

We believe trade management is the biggest contributor to trading success in the long run. Take nothing for granted; don’t try to out guess or second guess. Adopt discipline and patience into your strategy. We believe you will appreciate the benefits over time.

As far as moving stop protection in the November Soybeans we would suggest either to a break even level or using a close beneath the 50 day moving average which is currently approx. 960. If nothing else we suggest stop protection be placed at least at 927.50. 927.50 puts it just below the .618 downward retracement using today’s 1012.25 high and the 878.75 low.

We are noticing the Wheat extend its gains as we are writing this. The December Chicago Wheat contract has reached that first level of 511.75 where we suggested considering raising stop protection. Some traders may have other ideas of how to approach this price advancement. Let us know if you care to share.

Futures and options trading contain substantial risk of loss and may not be suitable for all investors.

Trading a Long Entry in Wheat

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Trade Focus added long December Wheat entries to its suggested trade positions with today’s action. Here’s what we said in our last edition:

WHEAT (DEC) - We will stick with last week's suggestion: “We believe long entries can be initiated with intraday penetration of 48550 or with a close at or above 48250. Stop protection if elected we believe should be intraday penetration of 44500 or a close at or below 44900.” Retracement levels of resistance are approx.: 49450; 51170; 52910.

This suggestion has been in the past two issues actually, and due to certain circumstances we were unable to publish this past Thursday as usual. But, the point is Wheat has been on our radar for a while now and may provide a very tradable retracement or correction. There are two sets of Fibonacci retracement levels that the December Wheat may seek. The first set is approx.: 494.50; 511.75; 529.00. The next set above is approx.: 547.50; 581.50; 615.25.

The latest USDA crop production report did not paint a very bullish picture for wheat prices but we certainly have seen markets behave opposite to such reports in the past.

As always, a trade is only a trade and needs to be approached and treated with a planned strategy and discipline. It’s wise to know not only where a position should be entered but where it goes wrong and therefore where stop protection needs to be placed. Along with these, a profit objective or plan of how to liquidate a position when right should be part of the plan.

In the case of this December Wheat example, there was an entry method that was satisfied triggering the trade suggestion. Notice that the September high was cleared and also that the 50 day moving average was cleared on a closing basis. There has also been a stage 1 breakout above the steep trend line which acted as a first alert. We have also identified what we believe to be valid stop protection. The last piece of the puzzle now is exiting a winner.

Exiting a winner is not as easy as most people and traders might expect. It is our belief that this is the time to take all the emotion out of the equation. When trading in multiple units, for example, we believe it very beneficial to choose a target level where a portion of the entire position is liquidated while simultaneously moving the stop protection in a favorable manner. The idea is to reduce risk exposure while still maintaining a piece of the position in case it continues in the desired direction and particularly if something special develops.

Using this example, or any example for that matter, it is up to the individual trader to determine exit strategies based on his/her own set of variables. We might suggest here, as a general strategy, to begin moving stops at the 511.75 Fib level and with partial profits coming off at the next 529.00 level. If the price of December Wheat continues to gain there may be points along the way where adding positions would become warranted. We will be watching for these opportunities.

These types of strategies are something that we discuss with our clients on an individual basis taking into consideration their personal viewpoints. We find that there is benefit in working together on a strategy. If that is something you are interested in or would like to know more about let us know.


Good trading to all

Jeff and Diego
CB&S Division of MF Global Inc.

Futures and options trading contain substantial risk of loss and may not be suitable for all investors.

Triggering Long Soybean Entries

Futures and options trading contain substantial risk of loss and may not be suitable for all investors.

Today we thought we would look at soybeans. We have included the daily and monthly charts here for reference. While considering how to describe what we are thinking regarding the soybeans we thought cutting and pasting our soybean section from the last (Sept.30) edition of our Trade Focus would help get the job done.

SOYBEANS (NOV.) – The monthly data shows that the soybeans have corrected to very near the 50 month moving average as well as an uptrend line. We believe we can begin to look for a long entry from this price area. We realize harvest is upon us but price pattern and action we believe is what will dictate. We believe we can suggest a long entry with intraday penetration of 94400 or a close at or above 93900. Looking ahead, if this should begin to proceed higher, we suggest new or additional long entries can be initiated with a close at or above 96200. Retracement resistance levels are approx.: 95830; 97870; 99930.

Since we wrote that a week ago Wednesday there was a new low made that slightly penetrated the 50 month moving average before the price did turn around and elect both long entries first by pushing through 94400 and then with today’s 96400 close electing the second long entry. There has been concern over potential frost conditions for northern portions of the corn and soybean belts and there was a USDA Crop Production report released this morning.

The report was considered by traders as less bearish than expected but the weather concerns provided the energy needed to extend the soybean market’s gain not only from the opening today but also has helped to fuel the move off the lows made on October 5. Since that date the November contract has gone from the low price of 878.75 to today’s high of 968.50. Many analysts have said that a freeze would not be as deadly for the soybeans as such a large percentage of the crop is “made.” But there still is that small percentage that could be greatly affected and there is the problem the weather has caused in delaying the harvest. This puts pressure on near term supplies.

A quick update on a previous blog topic of this week dedicated to the T-Bonds. The trigger price for the second short entry approach was elected with the intraday penetration of the 121-22 level on Thursday the 8th. Today’s low was all the way down to 119-20. Much of the reason for the quick and large break in price seems to be credited to remarks from Fed Chairman Bernanke regarding the Fed’s plan to reverse the extraordinary measures taken since the financial crisis began. He may not have said anything new but we believe the market senses the timing of such action is becoming closer than what had been previously anticipated. It also seems, from various comments by various analysts, that there is a growing number of hawkish Fed Governors. We saw that term hawkish more today than in many many months.

If you would like to receive our weekly Trade Focus by email you can request a free trial by contacting us using the contact us link on this blog page. And if we can help you achieve your trading goals please let us know. There is an Open An Account link on this page as well. As always any comments, questions or better yet any answers are always welcome.

Good trading and happy week end

Jeff and Diego

Taking Advantage Of A Head And Shoulders In The British Pound

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Futures and options trading contain substantial risk of loss and may not be suitable for all investors.

The chart above is a daily continuation chart of the front month British Pound futures contract. We believe this to be a Head and Shoulders top formation where the Neckline has already been broken. Frequently markets will retrace a return to the Neckline and that may be what is occurring. This often provides an opportunity for a trade if not already involved.

Typically when there is a H&S set up traders who look for and follow these developments will enter a position upon the breaking of the neckline. If not, a return to the neckline affords that second chance opportunity. In this example the return to Neckline is currently at ~ 16190.

Measuring the price target is determined by taking the distance from the top of the head to the neckline subtracted from the point of where the market price breaks the Neckline. In this case the high and Head (Basis front month) on this chart is the August 5 high of 17043. When we draw a line down from the Head to the Neckline we find that point to be approximately 16040. This distance, then, is approximately 1000 points. We can see that the market broke through the Neckline on September 24 when the Neckline was at approx. 16135. Subtracting the distance from the Head to the Neckline of approx. 1000 points from the point of Neckline break - ~16135 – provides a price objective of approx. 15135.

In the British Pound each point, or tick, is worth $6.25. Short entries from the point of the Neckline break to the ~15135 price target could gross approx. $6,250. If a short entry were to be made at today’s approximate value of the return to the Neckline at ~16190, a move to and trade exit at the price target of 15135 if realized would be $6593.75. This is all based, of course, on not only being provided the opportunity but seizing it if presented and then the most important part the magic of the market seeking and reaching the price objective. It doesn’t always work perfectly, in fact more like rarely, and anything can happen and usually does. That’s why trade management is so integral to success.

We have also provided Fibonacci Retracement levels incorporating the January 23 low and the August 5 high as other price support possibilities. They are ~15700; ~15275; ~ 14856.

We hope this is found to be helpful and beneficial if not somewhat educational for those not familiar with this process. If any questions, comments or better yet any answers please make sure to contact us.

Cheers and Good Trading

Jeff
Diego

Adding Fuel To The Fire/ Bond Entry Follow Up

Futures and options trading contain substantial risk of loss and may not be suitable for all investors.

We wanted to not only follow up but add some additional fuel to our bond blog of yesterday. We find it helps to build a bit of a case for taking a position and it seems reasonable that when a number of circumstances occur at the same time that it adds to the confidence level. We recall Frank Taucher, author of “The SuperTraders Almanac,” saying to let the market “force you to make the trade.” We see benefit in that too.

It is also a good time to remind those who read our blog or our Trade Focus that we believe that in the long run what really separates the men from the boys/ winners from losers is the discipline employed in trade management. Every trade is a risk and each should have its own risk defined and reduced whenever possible. There’s much more to this of course but we wanted to restate this at this time since it may have been a while since we have done so.

What we see on the daily chart is that since the reversal day high to its low since that high was made, the .618 Fibonacci retracement is approximately 122-31. So far today the high has been 122-30 (as of 3:05 CDT).

Using the weekly chart we wanted to show that the high price of Friday October 2 touched almost precisely on the 50 week moving average. Also from the weekly chart we can see where the move off the June low to this recent high has just slightly penetrated the “half-way” back point starting from the spike high made when the Fed announced it would be buying treasuries to that June low. We believe that spike was a likely price of significance particularly since it marked a high preceding a 20 point decline, let alone the substance of the announcement itself, and therefore a good measuring point.

Many may ask “what now?” Well, we would say that the action that could be taken and perhaps more so for those more aggressive, is to initiate short entries from this level (currently 122-27) with stop protection above the reversal day high of 123-25.

Another approach that could be used to either initiate a new position or add to an existing short entry would be with penetration of the 121-22 low of yesterday Oct. 6. Penetrating that level may add confidence to the possibility the bond market price is weakening. Likely stop protection for this entry would be above whatever the high will end up being from the recovery off that initial 121-22 low. And we need to state that this entry approach is predicated on the market price not exceeding the 123-25 reversal day high prior to the penetration of 121-22.

We wish you all good trading.


Jeff Majer
Diego Pilar

CB&S Division of MF Global Inc.

You can contact us as indicated on the blog page.

How To Choose A Short Bond Trade

Futures and options trading contain substantial risk of loss and may not be suitable for all investors.

What we see here in the T-Bond chart above is what we consider a very reasonable trade set up. There is always risk when making a trade so choosing them under some set of guidelines is very advisable.

In the case of the T-Bonds there was a reversal day bar at its high of October 2. The high registered that day was 123-25. The current price posted is 121-30. Presuming a short entry position from this price level we would think stop protection could be a price just above the recent high posted of 123-25.

What is also very interesting to us is that the upward advance in price from the June 11 low of 110-08 occurred with a reversal day bar. Therefore a significant low was made with a reversal and there is a similar opportunity for a significant high having been made with a reversal.

In determining where profit objectives could be we have included the Fibonacci Retracement levels using the low and high prices mentioned as the base to calculate the ratios. We have observed over time that markets frequently retrace 50 percent to nearly two-thirds of a given move. Thus in this case a retracement of .500 from the low to high would provide a target of approximately 117-00. The .618 retracement level is approximately 115-13. In gauging target areas for a declining price we typically feel comfortable at least initially, to shoot for the .618 retracement. It seems market prices find it easier to fall than they do to rise. In nature it is easier to push something down than it is to hold something up.

We hope this has presented a situation for consideration.

Jeff Majer
Diego Pilar

CB&S Division of MF Global Inc.

Follow up to Determinig A Market Correction Or Change In Trend

Today we are following up our previous blog that discussed the potential of a correction in the stock indices’ rally and/or the possibility that what is in process is the end of the proverbial “Bear Market Rally.” We thought this a good idea in light of this morning’s Monthly U.S. Unemployment Report.

The report itself was a bearish surprise as the number of unemployed was greater than what was expected. The number came out at a minus 263,000 versus the expected minus 175,000. The unemployment rate rose to 9.8 pct from 9.7 pct.

Today’s action started out lower and accelerated to the downside after the release of the report. But as often the case, with the news out of the way the stock indices caught some footing and were able to actually trade slightly higher just after midday. Heading into the close now the S&P 500 shows 5.00 lower, Dow down 25 points and the NASDAQ down 3.5.

But we really don’t mean to give a market recap here. What it has described, though, is not atypical of a big report with a big surprise type of day. What we do wish to illustrate is that the 50 day moving average in the S&P 500 pointed out yesterday was touched but so far has held. And as can be seen on the chart, the .618 of the near term Fibonacci retracements was breached a bit and with the market closing almost right on it. We have noticed that the indices often breach this magical ratio on the shorter waves but this time the response has been muted.

Secondly, the major uptrend line starting from the March ’09 low came in today around 1010.00 and will be near 1012.00 on Monday.

Looking ahead, the economic news will be less of a factor as the schedule is rather light for next week. It appears that the 50 day moving average and the uptrend line are in ear shot but remain key barometers of support until penetrated, and most importantly, on a closing basis. At least for this phase of the game.

We look forward to hearing from you.


Jeff Majer
Diego Pilar

CB&S Division
MF Global Inc.

312 261-7380

Futures and options trading contain substantial risk of loss and may not be suitable for all investors.

Determining a market correction or change of trend

The chart above is a daily cash S&P 500. We would like to point out a few of the significant developments shown here. Certainly, we will either miss or leave out a few, but our intention is to bring attention to what may potentially be developing.

First we see that the market broke through and closed below two near or short term support levels. Those would be the 20 day moving average (in red) and the up trend line connecting the July and September lows. We will note here that the 50 day moving average (in blue) is currently 1020.73 and represents another key level and barometer of support. We believe a close below that would bear some weight.

Today’s penetration and close under last Friday’s low of 1041.17 confirms a series of lower lows and lower highs which is a key aspect of trend definition. The next up trend line underneath the market which connects the March’09 low and July’09 low came in today at approximately 1008.00. A close below this would likely be a very significant development. The Fibonacci retracement levels using the July low and September high are 999.61; 974.735; 869.32. These mark potential levels of support.

Now from a larger prospective we will point out that from the October 11 2007 high of 1576.09 to the March 6 2009 low of 666.79 there were what we interpret as a full 5 wave structure completed. From what we understand of wave theory a 5 wave structure defines trend direction. The price move since the March 6 2009 low appears to this point to have gone in a distinct 3 wave pattern, marked by A-B-C. We understand this to be corrective. For those ascribing to the secular bear market theory this could then, mark the end of the proverbial “Bear Market Rally.”

As Yogi was known to say “it ain’t over til it’s over.” We won’t know for sure if what is occurring is the start of a normal correction like was seen during the June to July time period or if in fact this is the start of something bigger and more bearish until we get further along in the pattern development. And in reality we won’t truly know until it’s over.

Futures and options trading contain substantial risk of loss and may not be suitable for all investors.