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.

How to put a Head and Shoulders to work for you

British Pound (Dec.) –There is a suggested short entry from the 16271 close of Sept.18. We believe stop protection can be lowered to intraday penetration of 16271 or a close at or above 16208. It appears that a Head and Shoulders formation that had formed has seen the neckline penetrated. We believe the price objective of this H&S counts to approx.: 15175. Retracement resistance levels are approx.: 16135; 16251; 16367. The next series above is approx.: 16244; 16394; 16544.

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

Finding a short entry point in the stock indices

click charts to enlarge

We definitely thought this would be of interest especially to stock index traders.

We are writing this at just before 2:00 pm Central Time.

What we have been following today is the come back rally in the stocks and the charts above show that these major indexes have retraced the Fibonacci .618 pct from their high made Wednesday Sept. 25 to their lows since the highs were made. For those who might believe the timing is correct for short entries, especially following the reversals of last week, we believe this may be useful.

There was holiday type volume today with the celebration of Yom Kippur. And it is possible that it provided just the setting for a rally opportunity following the key reversals of last Wednesday. What it does for the traders looking to be short is to provide a potentially lower risk entry level for their short positions. It would seem to us at least, that new highs above those of September 23 would suggest that the timing for short positions was inappropriate at this time but this rally today has brought the entry level to a more reasonable risk reward position.

In the Dow Jones Industrials we show the high of Wednesday the 23rd as 9918.00. The low of Friday the 25th was the lowest price since the high was made and we show that to be 9641.00. The .618 Fibonacci ratio value of the high to low we calculate as 9812.00 and today’s high as of the time we are writing this has been 9823.70.

In the S&P 500 we calculate the .618 ratio to be 1065.26 where today’s high has been 1065.13 and for the NASDAQ 100 we calculated the .618 as 1730.15 and today’s high we show as 1733.79.

Good trading to all

Jeff Majer
Diego Pilar

CB&S Division of MF Global Inc.

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