Sunday 2 December 2012
The one question so many want to know is where to find a good trade? From our perspective, we could care less what the underlying futures/stock is, because when reduced to charts, they are all subject to the forces of supply and demand, and they all have the same underlying factors of fear and greed.
The single-most important consideration for any potential trade is knowledge of the trend, and then the location of price within that trend. What we want to do is ferret out the story being developed and depicted in any chart. By viewing various time frames, the objective is to find a consistency and synergy amongst them, for that is what can provide an edge in making a trade. Without an edge, it is like being in a boat without any guiding system to steer clear of unseen hazards.
The trend on the monthly 10 Year Note remains up, but weakened, and we chose the 10 Year over the 30 Year Bond because it has much greater volume and less volatility. A weakened trend leads to a possible turn, in this case from up to sideways, before turning down. The earlier one can catch a market turn, the less is the risk factor.
The rising wedge provides some important information, not because of its geometric shape, but because it tells us that each time the market makes new highs, there are less gains from the previous swing high. The straight line up from the last important low, marked A, B, and C shows the diminishing gains from the low to swing high A; from swing high A to B, and then to C. If the market in the Ten Year is indeed weakening, it should also be evidenced in the smaller time frames, weekly and daily.
The weekly gives a totally different look not apparent on the monthly. We see two trading ranges, and while the net gain of the second range is relatively small, it is the character of each range that adds to the context of a developing story. In range 1, most of the trading activity is close to the top of the range. This is an example of absorption, where buyers are taking all the offerings of sellers. While the sellers were persistent, it was the buyers who maintained control.
For the rest of the article and comparison to wheat, click on http://bit.ly/VdKKd3
