With stocks all breaking higher out of bull flags, it makes sense we could see a breakdown of the bond out of it's bear flag. We are recommending a short on the 30 year bond based primarily on the strength of the stock market, the inverse relationship between stocks and bonds, and the bear flag forming on the bond.
Barely a week ago, we took a long trade on the bond because the bond was beginning a new daily cycle. We kept the stops tight however because we knew bonds were in the timing band for an ICL. Looking at the weekly chart, bonds are showing weakness and today we were stopped out at 179. A typical bond Intermediate Cycle will last 18-26 weeks. Bonds are on week 23, so we are in the timing band for an ICL.
As you look at the weekly chart, you can see that the weekly RSI and Stochastics have a way to go to reach extreme oversold levels you need to see at ICL's.
We could be early but Moore's shows when you short the bond September 3-15 it is a profitable trade 13 of 15 years.
Seasonally speaking, bonds transition from the best month of the year into one of the worst months of the year about now.
So yes, it is time to short the 30 year bond. Because the September bond only has 6 trading days remaining, we will transition to the December bond.
Margin on a 30 year bond position is $5170. We recommend shorting the December 30 year bond at 177'16 with a stop 1 points higher at 178'16. The target is 4.5 points away at 173. This gives a 4.5 to 1 risk reward ratio. Every point on the 30 year bond is worth $1,000. A 4 point move would be worth $4,500.
There are also 10 and 5 year bonds with lower margin requirements which would probably work. The margin on the 10 year is $1705 and margin on the 5 year is $715.
Mocha is of course coffee and cocoa mixed. Today, we are recommending a cocoa trade and a coffee trade which are both trading into cup and handle patterns. This is one of our favorite price patterns to trade.
Seasonally, Cocoa performs well in August and September.
Cocoa margins are $2090. Each point is worth $10. A long position at 2470 with a stop at 2400 is risking 70 points, or $700. A breakout of this pattern should yield 300 points or $3000. This is a better than 4-1 risk reward ratio.
Coffee is also trading into a cup and handle.
Coffee margins are $4455. Each point is worth $375. A long position at 121.50 with a stop at 117 is risking 4.5 points, or $1,687.50. A breakout of this pattern should yield 12 points or $4500. This is a better than 2.5-1 risk reward ratio.
Moore's Research does not recommend buying either as a trade, but they do recommending exiting a short coffee trade on August 25.
The stock market is high on crack right now. This is not a trade I feel comfortable recommending, but since cycles and sentiment readings no longer matter I am looking at how insane the stock market is trading. There are two stock indexes which are lagging which could pop today or tomorrow and that is the Nikkei index (Japanese Stock Market) and the Rusell 2000 (Small Cap). Both of these are trading into bull flags and could break out at any moment like the Dow Jones did today.
Both of these indexes look poised to break out of bull flags and follow the other major stock indexes. I would keep your positions size small. There are no micro contracts available for these indexes.
The 30 year bond has made a swing low and this morning it is trading above the 10 day moving average. possibly indicating the start of a new cycle. Bond cycles typically last 35-50 days. If Bonds bottomed on the 13th it would be a 48 day cycle. Today is day 52. Confirmation of a new daily cycle will happen once the price pushes above the red daily cycle trend line.
According to seasonal data this is the best month of the year for the 30 year Bond. That along with low interest rates and no indication interest rates will be increased in the near future lead me to believe this can be a profitable trade.
Sentiment is low on the 30 year bond though not at extreme levels. I would prefer sentiment to be lower but sentiment this low can still provide support to the price of the bond.
Both the 3 and 5 day RSI have given us a buy signal on the bond indicating a price reversal.
Margin on the bond is $5,170. You can trade 10, 5 and 2 year bonds also for less margin and they will all probably trade pretty close. Each dollar the bond trades is worth $1000. They trade with an apostrophe instead of a decimal because it trades in 1/32 increments. If you see a price like 178'16 it is the same as 178.5.
This will be a short term trade where we will push stops up faster than usual. The weekly charts do not look good for a long term trade. We will enter near 179 and push stops up daily until we are stopped out.
Coffee is another soft commodity like Orange Juice that is signaling it is time to sell. I am anxious to really find out if Coffee is good to the last drop!
After a strong run up, coffee gave us a shooting star candle today.
The weekly chart looks pretty good as well. The RSI is overbought and the Stochastics is almost overbought.
This would be one of Moore's better trades. Moore's states that between August 5 and August 25, coffee shorting has been profitable 14 of the past 15 years. We just came into that time zone today and coffee left us with a nice shooting star to kick off the trade.
A coffee contract is for 37,500 pounds. The margin required for a coffee contract is $4,455. Every full point that coffee moves is worth $375.
Our recommendation would be to short coffee at 122 or higher with a stop at 127. This would have you risking 5 points X $375 = $1875 on the trade. According to Moore's, the average drop on the trade is around 7 points. I think coffee will make a pretty fast descent into the small cluster of candles from back a couple weeks ago in the 108 to 110 area. A drop in price would be a 12 point drop. 12 points X $374 is a return of $4500. This is good enough for a 2.5 to 1 reward to risk ratio.
Recommended entry or exit prices may not necessarily be reflected on the track record. Markets can change quickly resulting in stops being moved or profit levels changed based on new information. Brokerage customers are the recipients of these potential price adjustments made after initial recommendations.