Patience Pays Off 2.0

After months of scalping the swings (in itself very profitable) we finally got the opportunity we were waiting for as bonds breached important support levels last week and finally triggered our short entry:

Our admittedly over-worn patience was amply rewarded with a quick drop toward our first target area within a mere two days, which is where I suggested to take at least partial profits. There was no reason to overstay your welcome – if you are a short term discretionary trader that is.

To many trend traders however this may have been only a first short term entry toward building up a truck load of long term positions. As the chart above shows – targets are only that – they are reasonable assumptions based on prior observations which feed into what is defined as our ‘edge.’ If you don’t have exit rules then you are basically flying blind. And in case you are wondering – no, there is no perfect exit rule and most of the time you will either be too early or too late – you have to learn to live with that. The chart above makes that very point – after taking a quick breather at 128 the 10-year futures continued to sell off into 127’250.

But this post is not about exit rules – we have covered that on many occasions. Rather it may be the beginning of a story about a rather magnificent trend trade – one that doesn’t come around very often. In order to get a better grasp of what all the excitement is about we need to zoom out a little and look at the long term picture. I have also some interesting perspective on silver and gold – RBW, are you listening?

So here’s what all the hoopla is all about. Let’s first take note of two facts: One, what should have been daily support turned out to be wax under a hot knife. Two, we are now trading at the lower and drooping end of the weekly 2.0 Bollinger. If we hold here, and that’s not unreasonable to assume – at least temporarily, then there won’t be a story to tell. However, if we continue below 127 then gravity will most likely drag us toward 124’300 – which is where we find the 100-week SMA as well as the 25-month SMA. I do expect some type of response if we wind up there as dip buyers would most likely form a defense there.

If you are a trend trader and are still short then hanging on to your positions here is absolutely permissible. Most likely you will always exit late anyway according to your exit logic. And that type of trading approach allows you to fade out the daily noise and catch the big moves. I personally think the odds here are 50/50 but trend traders don’t care about short term odds – they care about their rules and then their long term odds. The short term odds are usually against them but once they catch that one trade out of ten – it will pay for those nine stop outs and then some. Suffice to say that this type of trading is not for everyone and it requires lots of discipline and heaps of patience. Which leads me to believe that Northern Europeans should make good trend traders but I have no evidence to that effect.

Personally I am pretty excited about this first stab down as it may be the overture for more pain in bonds to come. Even if we push higher from here – there’s still new resistance looming above now and I’m curious as to how this is going to play out. From a trading perspective the recent tape also paves the way for future setups – as you can personally testify from the equities side – nothing is as frustrating as a market that only goes in one direction for extended periods of time.

The daily spoos dropped into their first NLSL at 1394 today and instantly bounced back. That’s what it is and we should not over think it.

The hourly spoos chart found support late but is now above a NLBL which already got us back to ES 1400. Note that we are running into the 25-hour SMA there, which should be good for a few gyrations.

I also wanted to show you the view on the AUD/JPY chart, which IMNSHO is equally clear. The hourly support level was spot on I may add.

Gold has remained in a downtrend and if we drop below Thursday’s lows we should proceed toward T1 at 1580.

As you can see silver is below its 100-day SMA and is riding that drooping lower 25-day Bollinger line.

Let’s also not forget our long term P&F charts – here’s gold, which is peeking over the edge of the abyss right now. There may be an echo but I’m not one to yodel.

And here’s silver – near my own diagonal support line (highlighted in yellow) but thus far holding. I think a drop below 31.5 gets us to 29 or perhaps even the 27 bearish price objective.

Crude has been going sideways for a while – it’s now back at its 25-day SMA and you can be long here until you get stopped out a few ticks below that SMA. Here’s why I favor this approach:

Yes, the P&F is still bullish and is showing us a bullish PO – however if we drop and get stopped out from our long trade then we will also paint a high pole reversal warning on this P&F and that may lead us lower.

IF we continue higher then it’s very good to see that my P&F and time based charts line up nicely. So either way this should turn out to be an interesting and hopefully profitable setup.

Well, I think that should keep you guys busy for a while 😉

Cheers,