Trade Strategy 08.12.15


World stocks, Asian currencies, commodities and government bond yields are all heading south after China allowed the yuan to fall sharply for a second day, triggering concerns over the country’s economic health. China set today’s yuan daily midpoint reference at 6.3306, even weaker than Tuesday’s devaluation, pushing the currency down 4% over the last two days. Meanwhile, the IMF has offered a cautious endorsement of the new pricing regime – which lets the market play a greater role in setting the value of the currency – in a step that may help Beijing win reserve currency status for the renminbi later this year.

Today’s Economic Calendar

7:00 MBA Mortgage Applications
10:00 Atlanta Fed’s Business Inflation Expectations
10:00 Job Openings and Labor Turnover Survey
10:30 EIA Petroleum Inventories
1:00 PM Results of $24B, 10-Year Note Auction
2:00 PM Treasury Budget


World markets are getting yet another shaking as China continues to let the yuan fall sparking talk about possible currency wars. Investors abhor uncertainty in the markets as they sell first and figure it out later. Historically, the month of August has seen it’s share of price volatility in recent years and this month appears to be holding consistent with the past.

In overnight trade, price has declined and bounced off key pivot low (2056.50), extending yesterday’s price weakness. Bulls will need to step-in aggressively to stem further decline.

Today is Cycle Day 2 (CD2)…Normally is SPILL UP…Price will need to recover above CD1 Low (2070.75) and convert to stem further price damage.

Odds of Rally > 10 = 83%; Odds of Rally > 20 = 45%; Average Range = 14.50; Max Average Range = 22.50; Possible HOD = 2093.00; Possible LOD = 2056.50

***Note: The odds highlighted are NOT predictions or trade recommendations, rather a guide based upon historical observed occurrences.

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Today’s Hypotheses: September (U) Contract

*****The levels outlined below are more general framework within a larger range…They are to be used are reference prices from which to consider trade opportunities, not hard trade levels.

Scenario 1: Price is currently trading below PL (2070.75) and has bounced off 2056.50 KEY SPOT…IF price clears and converts prior low, THEN odds (83%) favor a rally greater than 10 handles, initially targeting 2063.75…Further price strength above this level target 2073.50 handle, then 2082.75 Three Day Central Pivot.

Scenario 2: Failure to recover PL (2070.75) keeps downside pressure and bulls on the retreat…CD2 Violation Target (2059.50) and Key Pivot (2056.50) have already been tested in overnight trade…Should this zone be violated and converted during cash session, expectation is for long liquidation targeting 2045 handle.

Trade Strategy: Our tactical trade strategy will simply remain unaltered…We’ll be flexible to trade both long and short side from Decision Pivot Levels. Continue to focus on Bull/Bear Stackers and Premium/Discounts. As always, remaining in alignment with dominant intra-day force increases probabilities of producing winning trades.

Stay Focused…Non-Biased…Disciplined  ALWAYS USE STOPS!

Good Trading…David

“Knowing is not enough, We must APPLY. Willing is not enough, We must DO.” –Bruce Lee


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