International Index Trading

[Edwood]

LOL!

sheesh I didn't realise stagflation looked that scary!!!

 

[wayneL]

LOL!

sheesh I didn't realise stagflation looked that scary!!!

I wonder if depressflation is possible.

Recession + inflation... that would be a corker.

 

[Magdoran]

The usual suspects for indecies (Naz, SP500) but to be honest I was waiting for the cavalry to turn up so missed a huge chunk of this.

Could the cavalry finally be out of bullets? .... interesting moves in the bond markets eh?

I had exactly the same perspective as Wayne on the US Bond market.

McLaren has been calling for T Bonds to tank recently well before last night's price action. I expected a brief rally attempt then the fall, hence my timing on the US market was to see a terminal rally into a blow off high.

The move down in bonds (raising interest rates) happened much faster and much more strongly than I was expecting. I’m still not sure if there will be an attempt to fill the gap (and would suspect that the more likely scenario is that if there is such an attempt, that it will halt, and the bearish price action continue).

With the recent price action it is hard to tell if this is a significant bearish move in the early stages, or a pull back to wash out the sellers before a strong drive. I really don’t know.

I tend to be persuaded by McLaren’s recent report on US Bonds that this may be the start of a sustained long term move down in bond prices (effectively raising interest rates). See the link below:


http://www.mclarenreport.net.au/art...ay-30-2007-CNBC-Power-Lunch-Report/Page1.html




Regards


Magdoran

 

[wayneL]

I had exactly the same perspective as Wayne on the US Bond market.

McLaren has been calling for T Bonds to tank recently well before last night's price action. I expected a brief rally attempt then the fall, hence my timing on the US market was to see a terminal rally into a blow off high.

The move down in bonds (raising interest rates) happened much faster and much more strongly than I was expecting. I’m still not sure if there will be an attempt to fill the gap (and would suspect that the more likely scenario is that if there is such an attempt, that it will halt, and the bearish price action continue).

With the recent price action it is hard to tell if this is a significant bearish move in the early stages, or a pull back to wash out the sellers before a strong drive. I really don’t know.

I tend to be persuaded by McLaren’s recent report on US Bonds that this may be the start of a sustained long term move down in bond prices (effectively raising interest rates). See the link below:


http://www.mclarenreport.net.au/art...ay-30-2007-CNBC-Power-Lunch-Report/Page1.html




Regards


Magdoran

Another perspective on the interest rate conundrum is that a lot of traditional support for the US dollar (By either pricing commodities in USD or buying bonds) (NB far from an expert here so forgive if cocked up) is evaporating around the world. Consequently he Fed may be forced to raise interest rates to attract bond buyers.

Maybe this is what bond traders are betting on?

As far as the SM... It wouldn't surprise me if the muppet dip buyers give this one more crack before facing reality. There is still a helluva lot of denial about.

Cheers

 

[wayneL]

Oh nearly forgot!

There is at least one CB with balls... NZ just raised rates again.

SNIP:

Mr Bollard has blamed "easy money" policies by world central banks for allowing a credit bubble to develop, made worse by the emergence of debt securities and derivatives.

"It has allowed less disciplined economic behaviour by households and firms. It has allowed global imbalances to build up and persist beyond what might have previously been considered sustainable.

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/06/08/cnnz108.xml

 

[Edwood]

yes well unfortunately mine are getting squeezed as a result Wayne. we're buying a house in Auckland & the rising rate is attracting carry trade + kiwi riding Aussie's coat tails meaning we're printing post float highs against USD, rapidly rising against sterling, and at the same time base rate is up to 8%!! oh well, makes the hedging process a bit more interesting if nothing else

 

[Edwood]

looks to be getting ahead of itself

 

[wayneL]

looks to be getting ahead of itself

It's worrying the SM too. Futures were up 30 earlier... now down nearly 30.

 

[wayneL]

Bonds staging a recovery and dip buyers active again before the open... we goin' green tonight IMO.

 

[Magdoran]

DAX


Last night's price action looks to me like the DAX has found some support, and would expect a brief rally from here, and then a retest of last night’s low.

There seems to have been a completion of sorts in the DAX in the 2nd harmonic cycle I’ve been working with resulting in a high on 02 June (please see the work in the Trading the SPI Gann techniques thread to get a full coverage of this campaign), and in isolation, the normal behaviour for such a completion is to either retrace into 08 July or 20 July to find support, or alternatively to extend up into these dates.

This could also signal a longer term counter trend (perhaps to find support around 06 September) or even a trend reversal, but I’m not convinced this is the case yet (but still have to be open to this interpretation as a possibility which will become clearer as the DAX trends into the listed dates shown on the chart).

Since I have two valid cycles running, there is some ambiguity. Hence my thoughts here are still embryonic. But I recognise this is where some people who use this kind of time cycle analysis come unstuck by not taking into account all the relevant cycles sufficiently.

The last time I saw this kind of pattern, the underlying counter trended from the high and tested down to find support (in that case one third of the range up – for this drive it is around where it is now but could move a little further down after a brief rally), and then trended up into a major high (with an ending diagonal pattern). The pull back was sharp like this one while in a strong upward trend. If this is the case, then I’d expect the DAX to make a significant high around 20 July (maybe 08 July).

Now, I’ll put that more simply in English from the above paragraph – the pattern is to move sharply down (as it’s done), find support, and then trend into 20 July for a high. Currently I’m favouring this as the most probable forecast with the current data.

The price action will tell a lot about what the DAX is likely to do. If my estimation that the US indexes should complete their bullish legs in mid to late July, then the 20 July high or 08 July high scenario makes sense. A lot depends on how the US markets trade. Also, 25 October and 29 November may also be significant dates depending on how the index trades. I will elaborate more on this later as the price action unfolds.

 

[Edwood]

interesting stuff Magdoran - there seem to be a few uncertainties in there - do you mind if I ask how you trade using your charts? i.e., do you set limit orders / OCO's / straddles or something at turn points aiming to catch the move either way?

 

[wayneL]

Bonds staging a recovery and dip buyers active again before the open... we goin' green tonight IMO.

Bonds back on the slippery slope before the pit open... and Dow futs of 40 before the bell as well.

Maybe next leg down from here?

 

[Magdoran]

interesting stuff Magdoran - there seem to be a few uncertainties in there - do you mind if I ask how you trade using your charts? i.e., do you set limit orders / OCO's / straddles or something at turn points aiming to catch the move either way?

Hello Edwood,


Why not read through my various posts (good threads are the “Improving chart analysis” thread and the “Trading the SPI Gann techniques” thread) for a more comprehensive coverage of my style.

In most forecasting styles there is uncertainty necessarily built in to the projection where certain events either must happen to validate a plan or must not happen or they will invalidate a pattern. Think about Elliott Wave, for the forecast to work, certain events must unfold in a specific way to validate the wave structure. With cycles, it’s the same kind of thing in that the pattern must not be invalidated; hence criteria are established based on the analysis.

Exit on pattern criteria failure is calculated based on trying to exit on a favourable counter trend in your favour. I usually also set partial exits to lock in profit usually on a date, sometimes at a price level, or both.

Often I’ll have a core option position with a longer time value, while trading ratio positions around it where I think a counter trend will occur. Say if the core position is a set of long OTM options (say I was aiming to be long on the underlying these would be bought calls for example) with longevity, I may sell a ratio position into strength.

Essentially say on the 02 June for a long DAX position sell a set of calls deeper in the money but less of them than the OTM positions to form a ratio (maybe 2-3 strikes away from the OTM calls) as close to the money and preferably slightly in the money if possible with the maximum volatility I can get to extract the most amount of premium possible, and probably do this as a diagonal selling the front month if possible, or the next month out – preferably not the same expiry month of the long OTM calls in this case if I can help it, but can be done if the risk to reward parameters are ok.

What I’m aiming to do is sell some slightly in the money calls at the high for 02 June, and continue to hold the OTM longs if I thought the index was going higher but was likely to pull back in the interim. Selling the near the money calls means that a lot of time value and hopefully volatility will yield very good premium to both protect my OTM calls and hopefully set up a guaranteed profit in the process, but also leave the possibility open of still maintaining an unlimited long position due to the ratio – there being more long contracts open than short (although the short options of course are deeper in the money, but should have been sold with more premium).

The aim is to buy these sold calls back if the DAX pulls back, and do this on the day (and price if available) based on the technical analysis - in this case 08 June. In this case the calls should have been bought back at a cheaper price then they were sold (probably around 80% of the value should have been wiped from these for this kind of move). Hence the idea is to exceed the original purchase price for the OTM calls. This kind of move probably netted at least double the initial outlay, but with the bought calls still worth most if not more than their original purchase price.

This allows another set of calls to be sold again at the next counter trend point in a diagonal ratio back spread if warranted. If the underlying looks like failing here, then near the money calls can be sold, or the original OTM calls sold to wind out the trade.

This process can be repeated all the way up in a drive. If the criteria is invalidated, then the position can be managed in a number of ways. Say the pattern indicated a short was on, the way to manage the position may be to just sell the OTM calls, and enter OTM puts, or hold the OTM calls, and sell the same number of ITM calls. As you can imagine there are a range of options open to deal with this. The analysis should be able to project where and when to exit a net short position to take advantage of a bearish move in the underlying. Of take partial profits, or if invalidated how to change the configuration to reflect a bullish outlook. As you can imagine you can trade puts in the same way for bearish moves, or calls if this is the better selection.

Hope that made sense as this is easier to show visually on a chart or whiteboard real time, but I gather you probably got the gist.


Regards


Magdoran

 

[Edwood]

Hello Edwood,
Hope that made sense as this is easier to show visually on a chart or whiteboard real time, but I gather you probably got the gist.
Regards
Magdoran

hi Magdoran
cheers for taking the time to post - ah-ha options - yes now it all makes sense. he he makes my trend following spreadbets & futures look a bit simple wot?! altho the fun for me is in mixing up the timeframes to change the definition of the 'trend'. Wayne has put me onto a good options book so I'll refer to that rather than ask you both what will likely amount to innane questions for the educated!

lovely range on Dax o/night, looking like it could go higher from here but its consolidating so will just stick to trading the range for now & wait for it to make up its 'mind'

all the best

Ed

 

[Edwood]

Bonds back on the slippery slope before the pit open... and Dow futs of 40 before the bell as well.

Maybe next leg down from here?

hi Wayne - yeah things are looking a bit shabby but am not taking up positions yet, happy to be in & out from extended states until there is a convincing breakdown

 

[Edwood]

Dow o/n - one of the posters on another site put up this piece of code to identify hamonic patterns - looks like a good little tool!

 

[Magdoran]

hi Magdoran
cheers for taking the time to post - ah-ha options - yes now it all makes sense. he he makes my trend following spreadbets & futures look a bit simple wot?! altho the fun for me is in mixing up the timeframes to change the definition of the 'trend'. Wayne has put me onto a good options book so I'll refer to that rather than ask you both what will likely amount to innane questions for the educated!

lovely range on Dax o/night, looking like it could go higher from here but its consolidating so will just stick to trading the range for now & wait for it to make up its 'mind'

all the best

Ed

Indeed Ed,


I’ve fused a lot of different style together, hence it’s hard to work out what I’m doing, but if all boils down to recognising the trend, and the time frame, look at the wave structure, time cycles, and centrally the pattern of trend – combined with pure charting (looking at the chart and volume without indicators), then using specific tools to work out where the counter trends are, and forecasting support and resistance in time as well as price.

Add in derivatives, and all that requires. My early posts were pretty much focused on derivatives, whereas my later ones cover technical analysis… it’s all there is you’re interested!

Good luck!


Mag

 

[>Apocalypto<]

opened a mini on the dow showing some support, possible new trend beginning.

waiting on more confrimation to add.

also now watching the XJO,

 

[wayneL]

Is anyone getting a bit seasick from these wild daily changes of direction? I mean I'll trade it, but WTF?

 

[Edwood]

Dow 5min ....