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

F2 Comments: The analysis favored lower prices on Wednesday and the market did trade lower hitting support at 116-18/20 before the selling was over. The auction went as expected. Take the market lower to generate demand then rally it off the auction results.

The Fed’s Beige Book was mixed/as before: some signs of the economy bottoming, the end of the recession is near/may have started, some manufacturing recovery/but not across the board. The auction results were again good.

The Note did rally off the auction results and did close strong. That said, I do not have a strong feeling for tomorrow’s market direction. Can trade from either side tomorrow. Can sell failure at 117-00/08, or buy support at 116-20/24 with signs of buyers with me.

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Market Continues to Rally After 30 Year Auction

F2 Comments: The market bottomed on the 10Y auction and has rallied since. This was the week of much stronger bid cover ratios than we have seen since the reintroduction of the 30Y Bond. The market found buyers off the opening and when the auction results were announced the market extended its range hitting 117-315 before the buying was over.

The close was strong. The analysis favors higher prices on Friday. Tomorrow’s news: Import/Export Prices; Michigan Sentiment at 67.8; Wholesale Inventories at -1.0; and Treasury Budget at -162 B.

If ES is sideways to lower, want to buy early weakness and see if 118-00/05 can be taken out. If not, will begin to look at the short side of the market in expectations of EOW profit taking. First buy zone is 117-21/25 followed by 117-17 OB.

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Opening Comments for Friday 9/11

(06:51)_The pattern since July’s auctions has been for the market to attempt a rally, exceed Thursday’s highs and then get profit taking from the lunch hour on as traders bail before the weekend. Not much in the way of news this morning to increase the trading. Focus should be the direction of the ES, then the potential for a short squeeze, then profit taking into the weekend.

Still like our buy idea from yesterday. Will keep the recommended buy zone at 117-21/25 and 117-17 OB. If market can’t extend the OVN session’s highs, will look to the short side of the market in anticipation of EOW profit taking, long liquidation.
 
PPI on Tuesday, 9/15

F2 Comments: The market ran into selling where we expected it to at 118-04/07. The OVN session’s high was 118-045. The day session was lower and sold for the rest of the day and did close weak. The market activity analysis favors lower prices without news.

Tuesday’s news: Core PPI is expected at +.1%; PPI at +.8%; Retail Sales at +1.6%; ex-Auto at +.5%; Empire Index at 15.0; Business Inventories at -.8%.

Want to sell into early strength and see if 117-08/12 can be taken out. If not, will cover. Aggressive sell is 117-19/23. Preferred sell is 117-23/27. Cover, if 117-08/12 holds.

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Opening comments for Tuesday 9/15

(06:56)_Pretty quiet session OVN. Mkt did just get to the lower band of our aggressive sell recommendation of 117-19/23. And is sitting at near support at 117-12. 117-08/12 is support then basically the buck.

The inflation and Retail Sales numbers have been increased this morning. Looking for better numbers in Sales due to autos and inflation up due to crude oil prices. Focus should be RS ex auto and Core PPI.

Still like the sell side. Want to see if 117-00+/- can be taken out. If not, will cover and start to look to the long side of the market. Sell zone has moved lower 117-15/19. Cover if 117-08/12 or 117-00+/- then holds as support.
 
F2 Comments: The market sold Wednesday after catching negative economic news at the beginning of its day session. A treasury repo supported the market and the Note hit 117-075 off this repo before the selling restarted. The market sold into its close, which was weak.

116-20 is near support and is an important support level. If it comes out, it is a straight shot to 115-00.

Thursday’s news: Building Permits are expected at 598 K; Starts at 583K; Jobless Claims at -580K; Continuing Claims at 6.1M; and Philly Fed at 8.0.

Want to sell early strength at 116-31/117-07 and see if 116-20 can be taken out. If not, will cover and begin to think long. The aggressive sell is 116-31/117-03. Back up sell is 117-03/07. Cover, if 116-20 holds.

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F5 Comments: The market did follow our analysis and sold off its opening on Thursday. 116-20 was the trading target and turned out to be the low of the day session. The market slowly recovered from there and did close strong. It is pointed higher tomorrow too with some help from the ES.

No news to spur the trading. Can the market take out resistance at 117-20/24. If so, the market can trade higher and retest 118-20 over the next several days. If 117-20/24 is rejected, then 116-20 is again a valid trading target.

Want to buy early weakness and see if 117-20/24 can be taken out. If not, will exit this trade. First buy zone is 117-05/09 followed by 117-03 OB. Exit and/or reverse, if 117-20/24 is rejected.

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Friday's Comments

F2 Comments: The overnight session held and the day session opened at support. The OVN session’s low at 117-105 fell and that was it. The rest of the day was a sell. The close was weak. The analysis favors lower prices on Monday too.

Little in the way of news to drive Monday’s trading. LEI is expected at +.7%. There is a Treasury auction this week and the FOMC announcement too.

Want to sell early strength and see if 116-20 can be taken out. If not, will cover. Aggressive sell is 116-29/117-01. Back up sell is 117-03/07. Cover, if 116-20 holds.

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Monday 9/21 Opening Comments

(06:36)_This is a big week for news from the regulators. FOMC announcement with some players looking for language on tightening interest rates this ??? G-20 meets in Pittsburgh on 9-24/25 and the news services are reporting that capital requirements, trading activities and compensation guidelines will be discussed, and perhaps, imposed. This uncertainty tends to keep the markets on hold.

I do not offer a strong opinion this morning. If the indexes continue to sell, the Bond and Note should see light buying. If the indexes recover, then I see the financials drifting lower. LEI, if as forecast, would support the indexes and not the financials. News services say this week’s economic news supports a modest economic recovery.

Can sell failure at 117-02/06 or buy support at 116-25 OB for now. It is a Monday morning and things were very quiet OVN.
 
F2 Comments: The market traded both ways Monday. Our first recommended sell zone was breached and the market traded to the LV # at 117-12, which stopped the buying. A new distribution lower came out of the 117-08 area and this selling carried the market to 116-24 before a close at 116-265.

The market is pointed lower tomorrow with some help from the news and ES. Little in the way of news to drive the trading Tuesday. Best supportive news tomorrow will be the 2Y auction. Worst dynamic tomorrow will be near support at 116-20.

Tomorrow’s news is the FHFA Housing Index which is expected at +.5%; Want to sell early strength and see if 116-20 can be taken out. 1st sell zone is 116-31/117-03. Cover, if 116-20 then holds. If 116-20 holds on the retest, can trade from the long side based on the normal strength of the 2Y auction.

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