Strategy Based Trading: BULL TREND CORRECTION

Strategy Based Trading is a methodology that focuses on the applied strategy verses a specific market and looks to align strategies with markets whose current technical behavior matches the strategies criteria. Please review the following CME sponsored tutorial for a complete overview of this approach.

STRATEGY BASED TRADING
http://progressive.powerstream.net/008/00102/edu/interactive/js_services/strategy_based_trading/index.html

Today I'm going to go over a BULL TREND CORRECTION technical state. A MKT in this position has an underlying positive trend but has produced a negative signal against that trend. This is a dynamic technical state with opportunity on both sides of the trade equation.

Sell signals can be accepted as the MKT has produced a negative signal and the potential for further "corrective" action can be expected. Sell signals are valid but will have a shorter profit objective as the trade is counter trend. Markets in this technical state tend to be "stop and go", with sharp counter trend reactions.

Buy signals are the still the better opportunity as they are in the direction of the underlying Trend bias. FADE and REVERSAL strategies off support are expected to be more successful over BREAKOUT strategies as the CORRECTIVE action will keep the trade “choppy”.

For today, September 21 2009

The following MKTs are in a BULL TREND CORRECTIVE state:

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BKX = KBW Bank Sector Index - 4817 R Level - Inflection Pivot

XOI = Oil and Gas Index - 1058 R Level - Inflection Pivot

LH = Live Hogs - Z'09 51275 R Level Inflection Pivot

CL = Crude Oil -X'09 73.16 R Level - Inflection Pivot

HO = Heating Oil - V'09 18088 R Level Inflection Pivot

RB = RBOB Gas - V'09 18580 R Level Inflection Pivot

GC = Gold - Z'09 - 992.50 R Level - Inflection Pivot

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Each of these MKTs is technically in play with a negative corrective signal against an underlying positive trend. They are each individually going to either follow through on the negative signal, digest, or revert to the positive trend.

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Sell Strategies

Sell strategies should maintain an aggressive position management as the trade is counter trend. The MKT does have the potential to ultimately transition into a negative Bear Trend posture however the chances of this happening are lower and any break in the negative momentum will be an exit opportunity.

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Buy Strategies

Buy strategies can be a little more generous but should only be accepted after a positive sentiment shift. If so the chances of a positive acceleration back into a Bull Trend state are good.

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Behavioral Sentiment

The MKT's sentiment is determined by it's psychological turning point or INFLECTION PIVOT. This is the key price point to focus on for the BULL TREND CORRECTION strategy as it is at this price the sentiment will shift from a "corrective negative" to a "positive trend". Entering at or near this price will provide the best risk adjusted opportunity to participate in both buy and sell signals.

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R LEVEL

This Inflection Pivot is the Reversal or R LEVEL on the JS Services Price Map. This level provides a behavioral confirmation of the MKT's technical state.

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Summary

In summary if the MKT is trading below its Inflection Pivot the corrective trade is in play and must be respected. Avoid trying to pick a bottom as expectations are for the MKT to probe lower. A better strategy would be to enter using a REVERSAL entry strategy where the MKT 1st breaks below a major support level and then rallies back above the support and stabilizes. If the MKT is above its Inflection Pivot there is a good chance that the MKT will try to return to its positive trend state producing a sharp rise.

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By understanding the MKT's technical state you can align your strategy with expectation improving the likelihood that your strategy will succeed. In addition by using a defined behavioral inflection pivot as a confirmation of the technical signal state you can properly define the best risk adjusted trade opportunities.

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JS

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This post supports JS Services Strategy Based Trading approach. For more information please contact me at info@jsservices.com. You can also visit http://www.jsservices.com/.The Inflection Pivot levels are available as a chart overlay on the following platforms; Ninja trader, Strategy Runner and eSignal. Sign up for a Complimentary Trial.

VIX - Fear Factor

The VIX is showing signs of resiliency here but will remain on the soft side below 24.29 down to 22.12. If MKT sentiment is going to turn it will here. If not the low volatility trend is set to continue with 15.81 the lower target.

A held rise above 24.29 brings some skeptics into the MKT for a premium increase up to 26.15. If the fear factor is going to deflate it will here. If not the potential for an emotional pop up to 28.92 and 30.48 is real. 34.57 is the high point for any controlled panic.

JS

This post supports JS Services Strategy Based Trading approach. For more information please contact me at info@jsservices.com. You can also visit http://www.jsservices.com/.The Inflection Pivot levels are available as a chart overlay on the following platforms; Ninja trader, Strategy Runner and eSignal. Sign up for a Complimentary Trial.

SP500 Index - FAZ / SDS - EVENT HEDGE

The DEC'09 SP500 futures contract is searching for resistance and is fast approaching a major inflection points at 1067 and 1078. A strong early morning surge into this area would be the optimal opportunity to put on a hedge in front of the potential for some expiration volatility. Any trading above 1060 will be exhaustive so look for signals to jump on.

Use the 1044.25 as a momentum guide today. The longer the index is below here the more likely its in for a retreat with 1023 the initial target. This is the turning point. Hold or fold.

The trade should play out by by Tuesday and a daily close above 1067 negates the opportunity.

There is no sell signal at this time. Just the potential for an extended MKT to have a reality check in front of an event. Insurance with potential.

JS

This post supports JS Services Strategy Based Trading approach. For more information please contact me at info@jsservices.com. You can also visit http://www.jsservices.com/.The Inflection Pivot levels are available as a chart overlay on the following platforms; Ninja trader, Strategy Runner and eSignal. Sign up for a Complimentary Trial.

British Pound [Z'09] - On the Fence

The DEC'09 BRITISH POUND slipped back into a corrective posture and will remain on the defensive below the 16626 Inflection Pivot. If yesterday's negative signal is going to mean much the MKT will not spend much time if any above here. If so expectations are for the buyers to return for another challenge to 16724. Be patient. Although a test of this resistance is positive a reaction should be expected. A violation of 9724 and the rally starts to accelerate with 16835 the initial target on a move that has the potential to extended up to 17147.

A dip under 16529 is needed to turn the heat back up pressing support at 16432 on any lower probe. Keep it tight. If the MKT is going to find its footing it will here. If not further losses down to 16237 is the outlook. 16092 is the extended target.

JS

This post supports JS Services Strategy Based Trading approach. For more information please contact me at info@jsservices.com. You can also visit http://www.jsservices.com/.The Inflection Pivot levels are available as a chart overlay on the following platforms; Ninja trader, Strategy Runner and eSignal. Sign up for a Complimentary Trial.

30YR T-Bond - Digestive Bull Trend

The Dec'09 US 30yr T-Bond is stuck in a Digestive Bull Trend today in a difficult roll. Expect the contract to stay on the soft side below 120-12, targeting 119-06 on any new weakness. Stay nimble. This is a major directional area for the underlying sentiment and the session Inflection Pivot. Expect a bounce and accept any REVERSAL signals. Only a held failure here signals a negative turn targeting 116-30 initially.

A rise above 120-12 and the Bulls will try to run with it targeting 121-18 on any positive showing. Don't press it. More stop and go action is expected.

JS

This post supports JS Services Strategy Based Trading approach. For more information please contact me at info@jsservices.com. You can also visit http://www.jsservices.com/.The Inflection Pivot levels are available as a chart overlay on the following platforms; Ninja trader, Strategy Runner and eSignal. Sign up for a Complimentary Trial.

US 10YR T-NOTE Z'09 - RESILIENT

-The Dec'09 10YR T-NOTE bounced back on its feet and will keep a higher hope above the 117-105 Inflection Pivot. Keep your dancing shoes on. This roll is shaping up to be messy and more of the same is expected. A held breach of 118-02 is needed to confirm yesterday's positive signal putting the 119-10 and 119-185 targets in play.

A rebuke from the 118-02 and sentiment can quickly turn. Think big. A break under 117-105 is needed to negate the positive signal targeting 116-195 for any negative turn of events. Be patient. No follow through is expected. 115-115 is the extended target for any reversal from the current levels.

JS

This post supports JS Services Strategy Based Trading approach. For more information please contact me at info@jsservices.com. You can also visit http://www.jsservices.com/.The Inflection Pivot levels are available as a chart overlay on the following platforms; Ninja trader, Strategy Runner and eSignal. Sign up for a Complimentary Trial.

EUREX BUND - Scare Tactics

The DEC'09 EUREX BUND slipped lower and is threatening a major sentiment shift. 12108-12091 is the high point for any positive reaction today if the contract is going to keep yesterday's edge. Look for FADE and REVERSAL opportunities off both Inflection Pivots. A he;d trade under 12021 has the MKT probing lower down to 11986. If the contract is going to stabilize it will here. If not things have the potential to come unglued with 11845 the extended target for any event.

Key off the 12056 Directional area today or an indication of the session tone. If the MKT is going to stay hard pressed it will struggle to maintain a trade above here. A rise above 12056 sets up a challenge to the 12108-12091 resistance inflection band. Expect a reaction. A breach of 12108 and negates the negative signal targeting 12161 on the initial surge. Work any held trade. 12214 and 12305 are the extended targets.

JS

This post supports JS Services Strategy Based Trading approach. For more information please contact me at info@jsservices.com. You can also visit http://www.jsservices.com/.The Inflection Pivot levels are available as a chart overlay on the following platforms; Ninja trader, Strategy Runner and eSignal. Sign up for a Complimentary Trial.