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Welcome to the final Safety in the Market monthly newsletter for 2011. It seems only yesterday we were discussing how quickly 2010 had passed and here we are at the end of 2011!
To cap off what has been quite a volatile year, I would like to take you through a recent setup on the EuroBund (FGBL-Spotv in ProfitSource). Note that this market can be easily traded through your optionsXpress CFD account under the heading ‘CFD – Treasuries’. The current contract month is March, 2012.
The setup is a simple ‘Double Top’ trade, a technique David Bowden introduced to you in the Smarter Starter Pack.
In a Trading Tutors newsletter article in September this year, I mentioned that the EuroBund was trading at All Time Highs and that the 139 price level was a great place to watch for strong resistance and a possible major top and I continued this discussion in greater detail in the October, 2011 Platinum Newsletter.
This article examines how the last two months could have been handled by a competent swing trader. (Analysing and forecasting markets are great skills but you MUST be able to trade the swing chart to take advantage of your analysis.)
Chart 1 below shows the recent market action on the EuroBund (FGBL-Spotv in ProfitSource). Chart 1
click chart to enlarge
The first point to note is that the 23 September top came in at 139.19 with a big Outside Reversal Day and there was sufficient evidence to suggest this may have been the yearly top of the market. To revisit this evidence, check the newsletter archives by clicking here. (Section 11 of the Number One Trading Plan should also be considered and Platinum Students should re-read the October, 2011 Platinum Newsletter article.)
While the September top looked strong, it only ran down 630 points (6.30) into a Double Bottom in October, as displayed on the weekly swing chart (Chart 2) below: Chart 2
click chart to enlarge
Once the EuroBund had made the Double Bottom and started trading to the upside, a Double Top was always on the cards given the strength of the 139 price level.
Chart 3 below indicates that the Double Bottom itself pointed to the possibility of a Double Top, with the 200% milestone giving us a target price of 139.09. Chart 3
click chart to enlarge
Further, the 50% milestone of the First Range Out from the Double Bottom also predicted the 139 level, as shown in Chart 4 below: Chart 4
click chart to enlarge
And finally, as the EuroBund approached the Double Top at 139, it made a repeating range on the daily swing chart, as shown in Chart 5 below: Chart 5
click chart to enlarge
All this Price Forecasting work suggested a Double Top around the 139 level and indeed the market made a high on November 10 at 139.58. At a recent Gann Mastery Workshop in Melbourne, I demonstrated to Master Forecasting Course students how David’s Rating the Market lesson got you to within a point of this top.
This was a very tradable setup in the form of a ‘Short the Openers’ on the day of the top, or at the very least, a simple ‘first lower swing top‘ trade setup off the Double Top.
So, where to next for the EuroBund?
David tells us to watch the 200% milestone for Double Tops, which gives us a target of 126.98, as per Chart 6 below: Chart 6
click chart to enlarge
This setup has the potential to be enormous! There is a lot of harmony around these tops and they have arrived at the end of a twenty-year bull market. A more aggressive target in the long-term would be to a level of 110 or beyond. But that’s a discussion for next year!
Finally, I’d like to thank all Safety in the Market students for their hard work, enthusiasm and passion for learning. It has been a pleasure to work with you all over the last five-years and I have learnt a lot from you too. I wish you a Happy New Year and all the best for 2012 and beyond.
Be Prepared!
Mathew Barnes
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