Wow! What a week. A week almost without precedent as the FED made a preemptive strike on the recession. The prez and congress got into the act as well. Giving us a stimulus package. Forget that the benefits of said package won’t hit our wallets until June when this might all be over. Oh well.
Shaggy continues her hard work getting our website up and running. We should hear soon. The weekend after the launch I’m trying to put together a launch webinar. I’m thinking a Saturday morning and a midweek … probably Wednesday afternoon/evening. This will be a get acquainted with the basic tenets of my trading methods so that all you new to the village have a basic grasp of what it is I do and how I do it before the manuals arrive. Those are still further out than I’d like but coming along. Every time I make a bunch of progress it opens up a new thought process and sends me back for a rewrite. Very frustrating; very, very exciting though.
Things are going smoothly in the Loge’ household. All the kids continue to amaze and astound on all levels. Ke’Le is finishing off her night diving SCUBA certification, dancing and getting mostly A’s and B here and there. Chyanss is making short films and killing the report card. Jaiden, has been moved into the GATE program, doing judo and plays computer games at a level I just shake my head at. It appears Jaiden will be returning to his mom and dad soon. I think the court may order this at the next status conference January 31st. I think more work needs to be done by his parents but that’s just my opinion. Hard to keep objective as I’ve really become attached to him. I have to remind myself often that he really will be better off with his parents and return me to Grandpa status. We’ll see.
The coming weeks or two will be very tough trading I think. Things are likely to flip and flop back and forth … sometimes wildly, I suspect. It becomes imperative that we manage tightly and know the CURRENT proposition of any position in which we are involved. I am certain we will see some quick and potentially lethal reversals and changes in sentiment. Be in control at ALL times.
BONDS
Well, maybe not idiotic as the FED sprung one on us dropping rates by 75 basis points. Odds are high they aren’t done yet. We should see another drop at the FED meeting this week. The prevailing opinion is another 50 bp. It looks to me as though Bonds will be tied to the equity markets this week. The quick rebound was bound to produce some softening in Bond prices. To play on Greenspan’s famous “irrational exuberance” comment what we saw here was irrational anxiety. The news that the stimulus package would be $100 billion, would benefit 117 million families and would also allow Freddie and Fannie maximum mortgage limits to expand, should provide some lingering economic confidence to the marketplace.
This will buoy the stock market and should give cause for some long bondholders to exit. Friday was a recovery of sorts from the Wednesday/Thursday weakness as stocks rallied Tuesday and Wednesday and then held their own showing only a little slippage on Thursday/Friday. I do believe the as the equity markets go this week the Bonds will go inversely.
Things are very much still on edge. These swings in sentiment and direction have the potential to go at you quick and hard. You have the proper tools to combat this scenario. Stay loose, light on your feet and myopically fixed on constant calculation of the proposition and the periodic RRR. Initially we’ll be set up for action at 120-00 and 119-16. Probably the strongest SR line on the chart is 118-00 in my opinion. It actually calculates a little above but we know anything below 118-04 or so is really 118-00. You can expect that number to function as a magnet or, if you will allow me, as a moon on the tides of price flow.
The gravitational pull is weak right now at 119-28 but if we break 119-12 look for the effect to come into play. We could certainly bust right thru 119-16 in which case 119-00 gets the focus. The same thing could happen with the price flow busting thru 120-00 but that would be surprising. I’ll buy the break higher but I will be gone at 120-16 and I will NOT buy the break above -16 but will sell it happily. On your toes with a game face, all.
CURRENCIES
There are a number of things at work … stimulus package, decline in jobless claims, profit taking in the wake of an awful lot of consolidation support on the chart … but I think the U.S. Dollar will have difficulty breaking above 7622 anytime soon. If the “irrational anxiety” is quickly replaced by “irrational exuberance” things could get wild and wooly with lots of choppiness in the lesser lights of the currencies. However, as long as the US stock market maintains positive, I wouldn’t rule out a further bounce in the US Dollar.
Canadian Dollar
One to one looks a whole lot like a ceiling to me. I can’t imagine better than that for the CD unless much stronger and more frequent evidence the US will dodge the recession. Rebounding physical commodity price sentiment helps the CD cause but I don’t think it’s enough to overcome the oversold status.
CD closed at 9935 on Friday. We’ll certainly sell any thing that even remotely looks like a retest of 10000. I’ll buy there also on a break out higher but the management will be very tight indeed. At 9975 I’ll either buy or sell dependent on whispers. 9950, 9925, 9910 and 9900 as well. 9880, 9850, 9825 and 9800 work both ways. I think we’ll stay within this range of prices for the moment. We’ll 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 we’d 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 “Once Broken” play.
Swiss Franc
The Swiss is hanging out just above some very strong support numbers about 9110 or so. We can expect to see some tough to discern motivation for this market coming from the U. S. Equity Markets and fundamental news on the recession or lack thereof. It’ll be choppy and fast changing.
Any retest of 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. We’ll 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
As is the case with most, if not all, of the markets I cover this will be an interesting week. It could go down that the stacks will be thee MOST interesting. There is a strange dynamic at work. On the one hand the recession in the form of fundamental sentiment together with earnings and the guv’ment’s reaction to the sentiment in the form of the FOMC meeting Tuesday and Wednesday are huge and will be the lead story I’m sure. Given the initial lackluster response to the stimulus effort I’m a little surprised that the bulls have managed to drive stock prices up so long after the announcement. The WSJ on Friday had an article I think has much to do with what we’ll see happen this week. The article makes the point that the influx of foreign money into US financial sector shares, a bigger portion of the sub-prime burden is being absorbed. In fact, the presence of sovereign fund capital is a very significant development that has clearly provided very important bailout capital! A very sound example of thinking outside the box. If the stocks hang or advance on the week we’ll get some clarity, I think.
Mini Russell 2000
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. I’ve done some fine-tuning on the numbers we’re 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; it’s 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.
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 those 2 as they fail to push lower and turn back north. GOLD
Gold set a new all time high on Friday at 924.20. We wound up settling back about 911, $13 off the all time high and high for the day … a very strong outing for the yellow stuff. I view this as a collective world statement they don’t believe the recession story line and are, instead, more focused on the inflation issue, which they think, will arise from all the rate drops and stimulus packages, etc. Remember Canada is also highly likely to drop rates this week with the U.S. That all goes right along with the rekindling of physical commodity interest … lots of talk about the new Chinese investment office taking 200-330 billion out of the several trillion dollars of currencies they own to diversify into physicals. That could be a huge factor to assess.
I’ll be focused initially on the 920/910 and 910/900 channels. I will not play the 920/930 yet.
Have a great trading week gang. It’s likely to be a challenging one so be prepared and focused. 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@daytradingbyambush.com
Posted January 30, 2008 
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