Charles Cochran's Comments from 8/18/08 F2 Comments: A very slow day higher. The Bond was supported by Fridayâs buying, a weak ES and crudeâs price falling, when Fayâs course was plotted East of the energy production in the Gulf. The close was strong. The market is pointed higher with the right kind of news. Down to the ESâs reaction to tomorrowâs news. PPI is forecast at .6%; Core PPI at .2%; Housing Permits at 949K; and Housing Starts at 963K. While everything is pointed higher, the lowest risk way to enter the market is on a setback trade w/an entry after the first surge tied to the news headlines. If the range isnât extended. The trade will be exited. Two buy zones---117-21/25 and 117-17 OB , assuming news as expected to better than expected.
Range Question The range Charles is referring to is the range that will occur after the news announcement. He is describing our basic set-back trade. After the market reacts to the news announcement, we wait for the first set-back of 6 to 12 ticks to enter in the direction the market moved after the news. The appropriate signals must be present - decel square, etc. If the range does not extend (let's assume the move is up) beyond the previous high, we exit the trade.
It's been quite difficult today to sell the pull back after the news releases ... apparently aside trying to sell the 118-00 handle in the first minute after the 730 data (from the lows at 117-22.5), any further try to sell the deceleration areas at 117-31 is proving to be quite costly with a 4 tick stop..it seems the game today is to move the prices totally in the opposite direction, looking for new highs. So remember; if it does not work, scratch that trade as soon as possible!
Pullback After News Release Bernard111 is correct. The pullback trade did not work today. The difference today from the trade that did work the last two days was the volume - specifically the location of the mode (the level with the greatest traded volume). Today, the mode remained high in the distribution and when the pullback occurred, it was still below the mode (in a downtrend). The previous two day's pullbacks were below the mode (in an uptrending market) thus you were buying low (below the mode) and selling high (above the mode). All that notwithstanding, this isn't a 100% winning trade. But it does give you the best chance for a winning trade after a news release. The next post will explain how I played the market today.
Volume Exhaustion By The Numbers After the market decided that inflation was bad for both the Bonds and the ES, they both began selling. At the first retest of the low there was heavy selling, as shown by the bright red bars, but no follow-through. In fact, the market came into balance, with deceleration squares above and below the 8:40 bar. When the 8:42 bar broke to the upside, that was your clue to the short term direction of the market. Buying with an expectation of a return to the mean/mode was the play.
Recognizing Volume Exhaustion The volume exhaustion trade occurs with regularity, even in slow markets like we are experiencing this week. The key elements are: 1. The volume exhaustion bar is wider than any of the other bars around it. 2. There is no continuation. This qualification can be a little bit tricky, as there is sometimes a one tick wonder. A one tick wonder is a one tick continuation of the move with a quick reversal. Some of the traders in the TIE room get around this by placing their buy 3/64ths above the volume exhaustion bar's high. 3. A deceleration square is present. You want assurance that, in this case, buying sentiment has subsided. 4. The icing on the cake is when the exhaustion occurs at a level. In this example, it is Charles Cochran's very conservative R2 level. The levels are identified using Market Profile analysis. When these conditions are present, you want to enter one tick below the exhaustion bar's low.
Wed Recap And An Idea To Start Thursday F2 Comments: Another dead day in the financials. Not much going on. The market is at a level that needs to be taken out or some long liquidation is likely. Tomorrowâs news could influence the trading , but optionâs expiration is likely to be the marketâs focus. The point for market makers in the 30Y as of this morning was 116 to 118 and 116 to 117 for the 10Y. Tomorrowâs news is likely to be supportive for Bonds w/Jobless Claims expected at 450K; LEI at -.2%; and Philly Fed at -14.1. If he ES is sideways to lower, want to buy 117-25/29 or 117-17/21. If 118-04/095 is rejected, I will turn seller on the idea that optionâs expiration will close the Bond below 118-00.
Entering/Sticking With A Slow Summer Rally Today, it took an hour for the market to trade down from 118.07 to 117.105. That's almost a $900 move per contract traded. But what if you missed the start of the move? How do you enter? I'm sure everyone has had the experience of jumping in and having the market reverse immediately. What if you're already in. How long can you stay with the move? Here's a simple observation that may be of assistence. Besides watching basic price action - lower highs and lower lows - look at the cross-over bar. This is a 2500v chart. I've noticed that, in a down trend, if the cross-over bar is red and all the bars below it are red, the trend is likely to continue. Take a look at the attached chart and you'll see what I mean. This has happened twice this week. Watch for it and see if it helps you get in/stay in a slow summer trend move.