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 November 19, 2003
Commentary-
Today I'm going to fulfill my promise to the
swing and position traders to look at a larger timeframe setup. I'm going to
point out a setup that I have been watching on the daily chart of the 30-yr
bond. I've been keeping an eye on this for a few days now, and it's yet to
resolve. Let's start with a chart of the bond, without any groupings or
highlights. See if you can spot what I might be looking at.
If you trade
ABCD patterns, this will jump right
out at you. It's also a 5-point pattern. I'll go ahead and put a grouping on
the chart to show the area that I'm watching.
The bond has turned just a fraction below the grouping
(although on this daily chart it looks like it touched the bottom of the
grouping). There were some good choices for entry signals on this one. Let's
look at a 60-minute chart.
I dropped
down to the 60-minute chart to look for an entry signal. A very conservative
trigger could have been a trade below the swing low point from yesterday. The
downside to this entry is that a bounce in this area we are in right now is a
very likely possibility, and it might shake a trader out. I call entries like
these 'guaranteed heat'. And consider that any technically placed stop is going
to be quite far away.
What about a trigger below the high bar for
today, which I've also highlighted? What would be the advantage to that
trigger? And the downside? Would it be a difficult signal to see in real-time?
These questions should get you thinking. I'll give you a hint about what I was
looking at. Pull up a 15-minute chart. If you've read
Entry Techniques you'll have plenty
of ideas.
Now, let me discuss what I make of all this. First off, this ABCD
and 5-point pattern are set up to reverse the uptrend that has been in place
since August. Those familiar with my work know that I like to trade these
patterns if they are set up to continue the trend. If you are an Elliot
wave trader, this is also set up as a wave 3 of 3, and that would mean this is
going up from here. But there is something else of importance right here beyond
just this trade.
This could be a crucial area for the long bond (and a few other
long maturities). I see this as a decision point. And it's a decision point
about interest rates. Did you check those charts that I mentioned yesterday?
This interest rate decision is happening as gold traded over $400, oil is going
up, the CRB is breaking out on a weekly chart, and the dollar index is close to
breaking below 90 and is setting new lows for the move. This is an important
time for the economy, in my opinion. Right now, I'm more interested in what the
long bond does here than I am in how this one trade plays out.
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