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

Sell Into Early Strength[/b]

F2 Comments: It is almost like it is getting too easy. Almost everyday our mantra is “sell into early strength”. Been working like a charm too.

Once again the analysis was to sell early strength, 128-19/23. OVN session high was 128-23. Sell band was revised lower to 127-19/23. First rotational high was 127-20. The day session low was 126-25. Sweet!

The 2Y auction was being sold, when the Fed announced that they would do Note passes tomorrow and the market exploded hitting 129-115 off this news. The post day session activity took the market to 128-025.

Some news to drive tomorrow’s trading, plus the 5Y auction. Durable Goods is expected at -2.0%; New Home Sales at 300K. The 5Y auction comes at 1300 EDT.

Can trade from either side tomorrow. Can buy into early weakness at 128-05 OB. Or sell failure at 129-08/12.

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ZN vs. ZB

The ZN is approximately 55% as volatile as the ZB. The volume on the ZN is approximately 3 to 4 times that of the ZB making for virtually no slippage on fills.

Setback trades work better in the ZB because of the volatility, but retrace failure trades work better in the ZN. Retests are often to the tick in the ZN.

If you trade size, you will want to explore the ZN.
 
Charles Cochran's Comments for Friday 3/26

F2 Comments: The market traded sideways w/a lower bias as per the analysis. Auctions tend to move markets sideways and this was the case today. By the close the distribution favored higher prices w/out new news.

Think the market will trade both ways tomorrow with quick moves lower used to stimulate interest in the 7Y and rallies used to move the when issued 7Y note. To seal this week’s auction I believe tomorrow’s market will close strong. Little in the way of news to drive tomorrow’s trading. The auction and ES’s direction should be the market’s focus.

Want to sell early strength and see if 126-25/127-00 can be taken out. If support does hold, will move to the long side of the market. Sell band is 127-27/31. Buy band 126-29/127-01.

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Market Rallies on 7 Year Auction

F2 Comments: Today’s 7Y auction controlled the activity. When the OVN session’s low held, the auction dynamics took over and rallied the market into the Bond’s close. The close was strong.

The market activity analysis favors a retest of 128-24 and/or higher prices tomorrow. Some news to influence tomorrow’s trading: Personal Income is expected at -.1%; Personal Spending at .3%; Michigan Sentiment Indicator at 56.0.

Want to buy early weakness and see if 128-24/129-00 can be taken out. If resistance holds, will move to the short side of the market in anticipation of long liquidation. First buy band is 128-09/13 followed by 129-01/05. Exit and/or reverse, if 128-24/129-00 holds.

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Quote from bthomas:

ZN vs. ZB

The ZN is approximately 55% as volatile as the ZB. The volume on the ZN is approximately 3 to 4 times that of the ZB making for virtually no slippage on fills.

Setback trades work better in the ZB because of the volatility, but retrace failure trades work better in the ZN. Retests are often to the tick in the ZN.

If you trade size, you will want to explore the ZN.
More...
What kind of size are you talking about?

Are you saying the retail trader--small size--should trade ZB or am I misunderstanding your point?
 
Rolextrader, I'm saying that you get more exact fills with virtually no slippage in the ZN because there are typically hundreds of contracts resting at every price. If you happen to be a person who trades size (20 lots or larger), you will appreciate this attribute of the ZN.

Either contract is fine for the small trader, but if volume is light at a particular level in the ZB, you could experience 1/64 to 1/32 slippage, if the market is moving fast. Put up a trading dome for each contract and you'll see what I mean.
 
Option Expiration Caps the Rally

F2 Comments: The market did trade higher today as per the market activity analysis. Option expiration capped the rally as the call sellers defended their positions above 129-00. Call and put open interest favored a close between 127 and 129 and that is what happened.

No news to drive Monday’s trading. The focus should be the direction of the ES or administration statements.

Given the spill from 129-00 I think the first trade is a sale to see if 128-00 can be taken out. If this level holds, will cover and begin to look to the long side of the market on the idea that the market is still in a bracket. Want to sell 128-23/31. If 128-00 then holds, cover.

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End of 1st Quarter Today

F2 Comments: Tomorrow Tuesday) is the end of the 1st Qtr. 123-035 was the close of the Note at the end of the 4th Qtr. Could be the story for tomorrow’s market/close.

Some news to drive tomorrow’s trading: Consumer Confidence is expected at 27.0; Case Shiller Home Prices Index at -18.5; Chicago PMI at 34.7.

If the ES is higher, can sell against 129-00 and see if 128-08 can be taken out. If ES is sideways/lower, can buy early weakness, especially below 128-16 w/an exit above 129-12. Can also sell failure at 129-16/20 w/a cover, if 128-16/20 holds.

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End Of Quarter

F2 Comments: The market was set to trade higher off the EOQ window dressing and early supportive news. The buying was present into the close.

The market is pointed higher tomorrow w/some help from the news. If the buying doesn’t start early, then selling becomes more likely.

Big news day tomorrow: ADP Private Employment Index is expected at -648K; construction Spending at -1.6%; ISM Index at 36.0; Pending Home Sales -2.0.

Want to buy early weakness and see if 130-00 can be taken out. If 130-00/08 is rejected, will look to the short side of the market. Buy 129-17 OB. Exit and/or reverse, if 130-00/08 holds. If short, 129-00/04 has to be taken out to stay short.

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