The 3-2-1 Approach: A Simplified Method for Trading Any Market

[bthomas]

Market Still On Hold

F2 Comments: The market was on hold today setting up for tomorrow’s Unemployment news. It can be a market mover. The lowest risk way to play important news is on a setback with the news. Then if the range isn’t extended, exit the trade. NFP is expected at -103K and Unemployment at 6.1%; and ISM Services at 50.0. The economy is slowing and the rate of contraction has increased. This is long term supportive for Bonds.

 

[bthomas]

Charles Cochran's Comments for Monday 10/6

F2 Comments: Another trading range day. The Unemployment news was bullish. The Bond sold. Go figure. The ES finished weak. The Bond is set to trade higher given weakness in the ES. That said, if the ES is weak on Monday morning and the Bond doesn’t rally, the up bias should be set aside and the trading range dynamics will take over. No news to drive the market’s direction on Monday. The focus should be the direction of the ES. If the ES is lower, want to play the Bond form the long side. Buy zone under this scenario should be at 117-17/21. If the ES manages to recover over the weekend, then will look to sell the Bond at 120-03/07. Will be easier to see after Sunday’s OVN session

 

[bthomas]

Methodology Solid Under Pressure

As every experienced trader knows, an effective methodology must be able to withstand all market conditions. Today was another extreme day that will effectively test any method.

At 9:24am eastern time, the market began a 7 tick setback to a previous level of resistance that had turned to support. The trade was to buy at the close of the 9:40 bar.

The move from 121.035 to 121.31 was 27 tradeable ticks. We recommed a business plan of 4 to 6 ticks, which should have been easily achieved.

The point to be made is that the TIE methodology, and the setback trade specifically, performed as advertised.

 

[bthomas]

Volatility Continues

F2 Comments: The volatility continues. Big days in all markets and should continue until the stock markets settle down. No news today, nor tomorrow to drive the markets. Stock market meltdown is the force that is driving the markets. Investors have fled to Treasuries to protect some of their capital. When the ES breaks hard , this should continue. We should continue to get these large swings until the dust settles. Hard to say when that will be. First Buy zone is 121-05/09. Back up buy zone is 120-25/29. Market has to get through 121-24/28 to hold longs.

 

[bthomas]

Early Analysis for 10/8

F2 Comments: Another day of trading in a range from 120-08- to 122-00+. The news on the stock market was bad. The news in the banking industry was bad. The fundamentals still favor higher prices. If the ES does break 1000 and to continue to sell, the Bond should see some buying. Tomorrow’s news Pending Home Sales is expected to be off by 1%. Housing news has been bad and is expected to be bad in the near future. If the ES is sideways to lower, want to buy the ZB and see if the market can take out 121-10/12. If this price is rejected, will look to the short side of the market. First buy zone is 120-05/09, Back up buy is 120-01 OB.

 

[bthomas]

High Volume Bars Signal Possible Reversal

When a volume spike occurs, the expectation is for immediate follow through. When that doesn't happen, there is a strong possibility for a market reversal.

The volume histogram, in the first panel under the chart proper, is the place to watch for a volume spike. This view, which we call the F4 chart, gives a very clear view of volume, bar by bar.

When the width of the bar says "spike", and it is confirmed in the histogram, watch the price action for the possible reversal.

 

[bthomas]

Columbus Day

F2 Comments: The selling ended in C period this morning. Lost some selling momentum in the OVN session too. Big meetings in DC this weekend that will probably set the course for the market next week. The acceptance of the conclusions and proposed support programs by the markets is key. Non acceptance will lead to more selling in both stocks and bonds. No scheduled news to drive the markets until Wednesday when the schedule news slate fills up quickly. The structure and market analysis favors a retest of today’s lows. This weekend’s news will determine when and if this happens. If ES is sideways to lower, want to sell 117-07 or 17-15/19 and see if 116-00/08 can be retested. If not, will look to the long side of the market.

 

[bthomas]

Textbook Volume Exhaustion

When you look up volume exhaustion in the dictionary, this should be the chart that accompanies the definition.

To qualify, you need a bar whose volume is far and away higher than any other bar in the vicinity. There must be no follow through in the direction of the volume spike.

Take the trade when price goes below the low of the spike bar (in the case of a spike up). There was a maximum of 22 ticks (32nds) available to you in this trade.

 

[bthomas]

Pause After the Run-Up

F2 Comments: The market paused as we suspected after Monday’s sharp break. Pause/consolidation after a big move is the most likely outcome. While the market did pause until M period, volume did build lower and the pattern favored a “b”. This suggests lower prices and soon. Tomorrow’s news could be market moving: core PPI is expected at .2%; PPI at -.3%; NY Empire Index at -10.0; Retail Sales at -.4%; ex-Auto at .1%; Business Inventories at .4%. Crude inventories will probably discounted given the recession sentiment. Want to sell early strength and see if 113-24/28 can be taken out. If not, will cover and look for a buy. Aggressive sell is 114-9/13 and back up sell is 114-19/23.

 

[bthomas]

Volume Exhaustion on Wednesday 10/15

Once again, a prime volume exhaustion trade presents itself. I've labeled the bars on the chart as to which would be an aggressive or conservative entry.

This is one of TIE's basic staple trades. It presents itself generally at least once a day. It clearly marks a market reversal.