BONDSFirst 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

Reporting trades from 2/20/08.
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1: MARCH 30 YEAR T BOND
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USDH8 O=11524 HI=116-05 LO=115-07 CL=115-29

We continued the run south as economic reports out this morning
were slightly better than expected. Together with some comments
from FED members had the market in a mood to discount recession
talk and focus more on inflation.

I sold 115-14 shortly after the open and exited at -07 for $218.
We almost got low enough to let us play 115-00 but not quite. A
play of the quarter at -08 would have worked nicely. I bought
115-19. I didn’t like this trade from the start. In fact, I almost
didn’t take it as I felt we’d been on a bit of a long run. I exited
at 115-31for $375. I next bought at 116-03 and was stopped at
115-31 losing $125. I did 2 sells at 115-28 and got stopped at
116-01 losing $156 on one and BE on the other. I bought 116-03
once and was stopped at 115-29 losing $187. I made a net $125
on the day.

A very disappointing gat to say the least. On the bright side I
kept my discipline and kept the day positive. At least that reinforces
the confidence level in the methods we employ.

For Thursday we’ll watch 116-16, 116-00 and 115-16 for first
action.

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2: MARCH CANADIAN DOLLAR
========================================================
CDH8 O=9922 HI=9890 LO=9802 CL=9873

Dang it. We had the numbers so pegged. Problem is it did the break
of 9880 in the wee hours of the morning. It was a thing of beauty.
I thought the retest to 9802 was good enough to play so I bought
9807. I exited at 9828 on a pullback from just above 9830 for
$210. I missed a sell on the break below 25 but wasn’t too worried
by it. We retested 9800 again … or close enough at 9802 … I bought
9807 a second time and exited at 9825 for $180. I thought I was
entitled to a fill closer to 40 but you can guess how that conversation
went.I bought 9827 as we climbed above 9825. I could’ve had my
stop at 23 or 17 I chose 23 since we’d favorable moved some. I got
stopped at 9820 on a real violent spike lower for a loss of $70.
Naturally it took off to 9870 shortly thereafter. Not only did I suffer
the loss but it deprived me of an opportunity to get back in … so a
double whammy you could say. That’s why we call it trading and
not winning.

All the weekend numbers for tomorrow, Thursday

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3: MARCH SWISS FRANC
========================================================
SFH8 O=9096 HI=9107 LO=9076 CL=9102

I never got hooked up with the SF today. I watched the open of
RTH ready to go at 9100 but it happened really quick and I had
other fish fryin’ as well. I did nothing here but will sure be looking
for a resolution at 9100. Nice little triangle shaping up. It may
have happened already since we’re now at 9070. We’ll see at the
open.

========================================================
4: MARCH MINI RUSSELL 2000
========================================================
ERTH8 O=706.40 HI=712.90 LO=694.30 CL=711.70

The market saw tough sledding early as some caution krept into the
mindset of traders. I sold the break of 700 at 698.80 and closed
it at 697.10 for $170. I held this a long time in the overall scheme
of things. It just would not move so I gave up to tell the truth. I
sold 699.40 and exited at 695.10 for $430. I tried to buy the 698
break but couldn’t get it done until the 700 break. I bought 700.60
and exited at 699.50 losing $110. I bought 700.50 and patience
paid a dividend. I exited at 707.90 for $740. I sold 707.40 and
exited at 705.10 for $230.

I closed down at that point. The focus had diminished.

All the weekend numbers are in play.

========================================================
5: MARCH MINI $5 DOW
========================================================
EYMH8 O=12255HI=12465 LO=12230 CL=12429

I was waitin’, poised to go off at 12200. It didn’t get there but it
came close. I took a stab at selling 12400 late in the day. I made
lunch money and that was it.

Stay on the Weekend numbers.

========================================================
6: APRIL GOLD
========================================================
GCJ8 O=930.60 HI=949.20 LO=916.10 CL=937.80

I bought 921.50 and exited at 924.80 for $330. I couldn’t get
back in again until 930. I bought 931.50 and exited at 937.80 for
$630. I was gone from trading by the time 940 showed up.

There was almost $300o in play today. We got about a third of
that. We did good, not great, but good. Sure I would have liked
a bigger piece of the available pie. We had a little bad luck in
the way that the price flow played out today or it could’ve been
a much bigger day.

I’ll play 940/950 tomorrow if given the chance.

An assignment from the college had me in Chicago most all week. I returned home Valentine’s Day night. Obviously, I did not trade. That felt a little weird. Here I was in Chicago within a stone’s throw of the exchanges and I couldn’t trade. The numbers I put out in the weekend edition, if followed, produced a nice array of trades that should have easily produced a $3 – $4,000 week.

Were I in your shoes this would really be exciting for me. Here’s a trading discipline where I am not tied to the teacher. A regime I can trade on my own at my own pace without being joined at the hip to the teacher.Stay tuned here. I may have a surprise for you all. There is a chance I will be speaking in Denver before the Denver Trading Group on April 4th. I’m working on the details now and should have something definitive for you by the end of the week. The 4th is a Saturday and we’ll go all day long so it’ll be a great opportunity for those new to my approach to get in a full day of learning.

Shaggy is working her heart out on the website. I’m hopeful we’ll launch within a week or so. I’m also working on the hard/software allowing us to get together once a week or so to knock things around in a live webinar or something similar. Stay tuned here for more word on our progress.

Bonds

The past week’s weakness ended Friday on thoughts the U.S. economy is more resilient than previously thought mixed with the potential for more drastic rate cuts may be leading us into a sudden inflation spell. Economic reports thru the week were much more positive than expected. I think the turn had more to do with the overnight downgrade of the first of the bond insurers. The logical extension of this thinking is that in turn those holding the securities insured by the downgraded insurer will downgrade the securities which will in turn cause their downgrade. I think the market is looking for and expecting more bad news in the sub prime story.

Frankly, I don’t believe we have even seen half of the effects yet. I believe this will have wider impact thru June and maybe even into the 4th quarter before we can truly assess the magnitude. With a holiday Monday and a weak schedule of reports throughout the rest of the week it looks as though the Bonds will react to the output of the talking heads and look to the stock market for guidance. After a week with a 4-point trading range I expect things to be quieter this week. We’ll start off Tuesday focused on 117-16, 117-00 and 116-16.

CURRENCIES

Currencies seem now to divided into 3 camps – the U.S.Dollar, the “flight to quality” currencies and those benefiting from further evidence the recession is only a virus afflicting the U.S. Dollar. The Dollar seems unavoidably headed back to 75 unless it can muster some way make 76 hold on Tuesday. Although U.S. markets will be closed Monday, world markets won’t and I look for the Dollar to get pummeled in the interim. Word from the European front paints a quite rosy picture and more trouble for the Dollar as the Euro has lots going for it that must be valued into prices.

Canadian Dollar

The CD saw benefit this past week from better than expected US numbers, confidence from the Canadian economic reports and perhaps because of ongoing price strength in some physical Canadian commodities. However, if the US stock market comes under aggressive selling pressure and the financial/credit problems in the US create fresh anxiety, I think the CD could see some pressure. In fact, to avert weakness altogether, the CD might have to have another good set of reports this coming week. We have been essentially on target for the past 2 weeks.

The ranges weren’t great enough to produce any notable trades until Friday. If you got it, good on you. There is no need to alter our numbers any at all. We’ve been locked up in a 1005- to 9950 channel for the better part of 2 weeks. Given Friday’s big failure this may be over but I think not. There is still good reason to suspect next week will be 10050/9950 biz as usual.

CD closed at 9904 on Friday. I’ll sell or buy any retest of 10000 or 10050 on Tuesday. Same thing goes for 10100. 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 â?¦ 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.

We added a good deal more structure in the past 2 weeks but we’ll still employ periodic RRR for help whenever we feel the need.

Swiss Franc

I clearly see the Swiss as the primary flight to quality play in the face of the upcoming Dollar weakness. In fact, given the recent oversold status of the Swiss around this past week’s lows, I think the Swiss is poised for a rise above the 92.00 level. I wouldn’t be surprised to see the March Swiss regain levels above 92.50. Any retest of 9250 or 9200 gets sold instantly. 9160 can be sold as it breaks on any retest higher that fails.

We’ll also buy a break above 9160. 9140 is only good as a management number in my opinion. 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 9100 is still an important number. We saw it break this past week and then a big swing to the upside on Thurs and Fri. 8970/60 is still a very sporty area to play if we get there anytime soon.

It is an area most likely to hold 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 at which to set up ambushes and to use as management triggers.

The past week didn’t really alter our numbers of interest so we’ll stay with them. The stops are the 3 and 7 above on sells and the 7 and 3 below the entry point. Use periodic RRR and any of the numbers discussed here as management guides to trigger rolls or places to set stops or define “OB” plays.

INDICES

There are so many things going on at the same time it gets hard to really zero in on where we are and what to keep your thumb on to feel the pulse of stocks. Stocks have been quite volatile so far in the New Year and I see nothing on the horizon that will diminish the unease. I believe the 2 biggest factors are the continuing subprime fallout which I stated earlier has only about 50% of the iceberg showing and number 2 the FED’s continuing preoccupation with inflation to the exclusion of more intelligent and in depth monetary policy.

Developing cogent policy and implementing same is not simply opening a tin box of band aids. What might be overlooked by all the economic noise last week that I think may be the most important piece of economic data of the week is industrial production. This is a far more important economic number that may be more telling about current circumstance than many … maybe ANY … others.

IP rose 0.1% in January and is now back to the record level it hit in September. This report suggests there is no indication that manufacturing is slowing or going into retrenchment mode as almost always happens before a recession Mini Russell 2000

I think I’m not alone in my feeling about the IP numbers. What else might have kept the lid on selling on Friday when you have a major Citibank hedge fund barring any withdrawals, a major downgrade of a bond insurer, you have the ex-FED chair saying that the US economy appears to be headed into a recession. In fact, even the current Fed Chairman admitted to further US slowing ahead and suggested that US financial markets would remain under significant pressure.

The Fed Chairman also suggested that he expected more write downs ahead and expected further housing market travails. We need to watch the world markets tomorrow, Monday. Tuesday could be a wicked ride.We broke from 725 on Thursday on profit taking after Bernanke’s comments. I think the mid/late session rally on Friday was profit motivated as well as having to do with the IP strength. 722 acted just as we suggested it would in defining the highs on Wed and Thurs. We’ll be initially focused on the 700 line and our ambush points close by on either side for early action on Tuesday UNLESS we see movement away from there in Monday’s world trade.

Here are the 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 You can fill in the blanks here with all the comments from above. 12400 played a major roll in defining and limiting action last week. It will be crucial this week too. 12200 is a potent line in the sand. If price flow arrives there we’ll see a battle royal as the enemy will have max assets to play there. Almost more than any other market periodic RRR is your best management friend in the DOW.

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

I have no idea why Gold isn’t at $1000. I can’t imagine how anyone could dream up a more price supportive flight to quality scenario than presently exists. The bulls are firmly in control despite Friday’s almost $15 range lower. Some … including me … might say it is fitting to take another swipe at 900 proving the support there real and capably showing shoulders stout enough to hold an attack on $1000. Tuesday I’d love to see a retest of 900 that fails to press lower turns and allows us in at 901.50 and then sets sail for 920. I can see that so clearly. 920/930 is the highest channel I’m comfortable playing. All of them up to that level are in play. Have a great week of trading.

-Tom