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.