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

[bthomas]

Being Patient on a Slow Day

Tuesday, January 13th was a difficult trading day early with plenty of consolidation and back filling. Just before noon an uptrend formed - higher highs and higher lows. Note the pivots on the attached chart.

There are a number of ways to enter a pivot trade, but one of the most popular is to enter at the close of a bar that closes above the high of the prior bar. This is, of course, after the requisite minimum 6 tick setback.

The trades at 13:10 and 14:51 made the wait worthwhile.

 

[bthomas]

News Should Support Bonds on Wednesday

F2 Comments: The market found sellers at 135-00 in the OVN market and this selling continued until the sellers covered their shorts below 134-00. The ES stalled below 875 and began to sell and the bond recovered to make new intraday highs post day session. Tomorrow’s news, if as forecast, should support the buyers. The ES’s reaction to this news is what will probably drive tomorrow’s trading. 137-00 is 50% retracement of the sell off from 141-28. Retail Sales is expected at -1.0; ex-auto at -1.2%; Business Inv. At -.5%; and crude inventories. Want to buy early weakness and see if 135-08/12 can be taken out. If OVN resistance does hold, will look to trade from the short side of the market. First buy zone is 134-29/135-01. Back up buy is 134-21 OB. Exit the trade if the OVN session high holds.

 

[bthomas]

07:00 Comments from Charles Cochran

(07:00)_The market failed to attract buyers OVN and found sellers above 135-00. Near resistance si at 134-26/30, then 135-02. The news forecasts have been revised lower too. The news, if as forecast, should continue to be supportive. Focus is still the ES’s reaction to the news. Equity news round the globe was negative OVN w/bank write downs/recapitalization articles the featured news. Think the big money will remain sellers/on the sidelines in equities. And the only impetus w/out new news I can see for the stock markets would be short covering, which should set up the next sale in the ES. This longer term weakness in the ES should continue to support financials too. Want to continue to buy weakness in the financials until proven wrong.

 

[bthomas]

Closing Comments from Thursday's Trading

The market did trade higher as per the analysis hitting 137-31 in the OVN session. Supportive news failed to break the ES and the Bond sold hitting 136-085 before the selling was over. Given the close the market may be close to a tradable high. If the market doesn’t make new highs tomorrow, would expect more EOW profit taking as longs liquidate prior to the weekend, MLK Holiday and Tuesday’s Inauguration. Profitable positions are hard to ignore. Tomorrow’s news: Core CPI is expected at .1%; CPI at -1.0%; Capacity Utilization at 74.7; Industrial Production at -.8%; and Michigan Sentiment at 60.0. If ES is sideways to lower, want to buy early weakness to see if 137-16/20 can be taken out. IF not, will look to the short side of the market.

 

[bthomas]

Here Is The Chart That Accompanies The Last Post

 

[bthomas]

Shortened Session on Monday

F2 Comments: The selling continued from Thursday’s high of 137-31. Good news was ignored as players fought to salvage swing trade profits. EOW profit taking was a given after the early news was out. The surprise was that supportive news brought in little buying. The economy continues to soften. The post market announcements of bankruptcies and layoffs should also be supportive. IF not, lower prices will be confirmed. A shortened session on Monday. Doubt that we will see much activity. Might be a day to study and work on your trading skills. Want to sell early strength and see if 134-00 can be taken out. If not, will look to the long side of the market.

 

[bthomas]

5 Year Note Auction on Thursday

F2 Comments: The market got whacked today from uncertainty over the size of the impending bailout and stimulus packages and the recovery in the ES when 800 held on the retest. Northern Trust’s earnings were also better than expected. The ES extended its range late in the session and the ES made new intraday lows. Some news to influence tomorrow’s trading: Housing Permits are expected at 615K; Starts at 610K; Jobless Claims at 548K; and crude inventories. Want to sell early strength and see if 131-00 can change form support to resistance. If 131-00 holds, the 5Y Note auction should bring in some short covering to further support a rally.

 

[bthomas]

options Expiration Friday

F2 Comments: The market ignored very bullish economic news this morning and sold. When bullish news is ignored, the professional component of the market will turn sellers and longs will liquidate. The focus has shifted to the new administration’s policies and the size of the deficit. Sell bonds!

Our first recommended sell zone (131-27/31) held w/a high of 132-02. The market sold hitting 129-10 before the selling was over. Options expiration and EOW profit taking should be the major issues we face tomorrow. No scheduled economic news on tap.

Want to sell early strength and see if 129-10/20 can be taken out. If not will cover. Sell zone is 130-07/15. Cover, if 129-10/20 then hold.

 

[bthomas]

Nailed It On Friday

F2 Comments: Had the day nailed. Analysis had the day as a sale and sell it did. Bids were hit off the opening and when 130-00 wasn’t retested the selling increased until 128-17 was touched. The trading was dominated by EOW profit taking (short covering) and Option Expiration. Great support at 128-00 from put buyers and resistance at 132-00 from call buyers. The break below 130-00, a very round number, capped the rally into the close at 129-31. The structure is mixed, but does slightly favor a sale Monday. Some news to influence Monday’s trading: Existing Home Sales is expected at 4.4M and LEI at -.3%. Want to sell early strength, especially above 130-08 and see, if 129-00/12 can be taken out. If not, will cover.

 

[bthomas]

Consumer Confidence Today

F2 Comments: The market sold as per the analysis and retested Friday’s lows and then some. Support held and the market recovered to trade between 128-20 and 129-08 and closed at 129-04. While the analysis favors sideways to lower prices tomorrow. Some news to influence the trading tomorrow: consumer Confidence is expected at 38.0; and Case Shiller at ???. Wednesday’s FOMC announcement and the continuous string of debt offerings should hold the market in check. Can see two trades tomorrow, a sale at 129-07/11, or a buy against support at 128-20.