Day Trading Not Your Style? We Can Help! Get a 30-day Trial of our Newsletter Here

Want a better way to trade?

Sign up for a complimentary 2-week trial account from TrendPhonic and receive COMPLIMENTARY Charts, Mad Dog Research, T-4 Trading Platform (with demo) and Chat Room for questions. Learn why TrendPhonic is the better way to trade, sign up for your complimentary 2-week trial account today.

Hello to all Fast Break readers:

It is hard to recall a time where the markets have been more volatile. Times like these require a tremendous amount of conviction and discipline. You need to accept the irrational nature of the markets and not fight it. Stick to your stops and your outs. Do not get caught up in what the market should be doing; trade what the market is doing. When you have hit your goal for the day, walk away. Volatility does not always spell opportunity. When I traded on the floor of the Board of Trade during very irrational times, the best trade I could make sometimes was to put my hands in my pockets. Here are some of the things I noticed in the market this week:

30-Year Bonds
One of the interesting dynamics of the market this week has been the lack of a flight to quality with the sell off of the S&P.  Flight to quality is taking a position out of the equities market during a volatile time and buying treasuries. The high in the bonds on Sept.8th was 123 27. At the start of this week one month later, on October 6th the high in the bonds was 122 14.5. The low as of Thursday is 116 23. We have had a 6 handle sell-off while the S&P has broken over 144 points for 6 straight days. The ten years has experienced a similar sell off.

10-Year Notes
The ten years hit a high on September 8th of 119 11.5. This week the high on October 6th was 118 02 and the low as of Thursday is 113 17.5. A 4 1/2 handle sell off. Times like these are further complicated by irrational moves in the yield curve. As I mentioned in my bond discussion I would have expected contracts to rally and the yield curve to strengthen. This morning the NOB (ten year note over thirty year bond spread) was 30 tics earlier this week and rallied back to unchanged during the morning session. It clearly shows traders are at a loss and moving into cash as they await calming seas.

S&P
It is hard to believe that the Dow and S&P closed at all time highs one year ago today. As of this Oct. 2nd the high was 1175 an area long term I feel we need to get above again to have any substance to a rally. The market has broken for 6 straight days adding some significance to that area. The high on Monday was 1104 and the low as of today is 960.25. That is a 144 point sell-off. The rates were cut worldwide to add some confidence to the markets. This has had very little impact so far. The equities are still searching for a bottom and until it can find its legs you need to be cautious. Always remember your best and worst days are ahead of you.

Gold
Gold has shown remarkable strength despite deflationary pressures and general chaos in the markets. Prices shall continue to be linked with the prices of different currencies and especially the dollar because the exchange rate of two currencies will always be equal to the price of gold in one currency divided by the price of gold in the second currency. Wide ranges are expected, and deleveraging of various short dollar positions is the most bearish and volatile factor in the price of gold. Current impressive gold prices reflect a flight to quality alternative to assets denominated in dollars. The end game for the gold bugs would be if the dollar lost status as the reserve currency the world needs to buy energy products. Given the predilections of politicians to debase the dollar, this scenario is not necessarily that difficult to imagine. Expect to see record volatility in gold and wide ranges of over $100.00 weekly. Support can be found above $750 with resistance above $900.

Silver
Silver has continued to trade with unprecedented volatility, given the uncertainty of market conditions. Notably, the wide ratio between the price of gold and silver indicates that silver has not received the benefits from the flight to quality that gold has lately. Storage and transportation costs make silver less attractive than gold as an uncertainty hedge. While industrial demand for silver remains robust, investment demand for silver represents a fringe of precious metals investors, the way precious metals investors represent a fringe of equity markets. Silver is also a de facto currency like gold, sharp dollar rallies are bearish for silver as well as gold. After the significant retracement from the highs earlier this year, silver should stay firm against gold. Expect to see record volatility in silver and wide ranges over $2.00 weekly. Support can be found above $10.33 with resistance above $12.90.

Corn
Corn had a range of over 50 cents this week, mostly due to the current credit crunch seen affecting all markets. We were down early in the week only to put in a bottom at 4.10 which is support we haven't see since late 2007. Fear is currently ruling the grain complex making trading off fundamentals hard currently. If we can find stabilization in the markets globally we see a rally in corn (mostly due to short covering) back to 5 - 5.10 possible. We would be looking to get short if we get back to 4.10.

Wheat
Much the same story as corn as outside influences weighed on the market to new multi-year lows. Trade opened up lower from the start of the Sunday night session and established a range for the week of 6.20 to 5.90. We still feel there is a bearish tone to the market with a record world wheat production looming. We think that wheat will not stay at current levels long and have orders working on both sides of the market.

Soybeans
Beans gapped opened lower on Sunday night and traded to its recent low end of the range around 9.20. Beans have seen rallies this week of over 70 cents in one day alone. Like the rest of the complex, beans is trading solely on fundamentals but rather on fear. We see increased volatility in beans and have orders working on both sides of the range like in wheat.

Trading Tips
As I tried to state earlier, these are definitely historical times and (hopefully) something we won't see for in the near future. It is not uncommon to see the S&P, bonds, currencies and energies hit all time high ranges lately. Although these big ranges do provide opportunity they also offer plenty of opportunity to get steamrolled.

When you are in this type of trading environment, I would strongly advise you to have an exit plan thought out before entering a trade, and implement it. The main reason for this is that the market has proven itself to move quickly and in large chucks. A stop can provide you proper risk management because you don't want to get caught of the wrong side of the trade and have to trade out.

Thanks and the best of trading to everyone!!

Opinions expressed are subject to change without notice. This report should not be construed as a request to engage in any transaction involving the purchase or sale of a futures contract and/or commodity option thereon. The risk of loss in trading futures contracts or commodity options can be substantial, and investors should carefully consider the inherent risks of such an investment in light of their financial condition.

Want a better way to trade?

Sign up for a complimentary 2-week trial account from TrendPhonic and receive COMPLIMENTARY Charts, Mad Dog Research, T-4 Trading Platform (with demo) and Chat Room for questions. Learn why TrendPhonic is the better way to trade, sign up for your complimentary 2-week trial account today.