Since our trading method is based on technical analysis we seldom use fundamentals in making trade entries. However, there is one situation that arises occasionally that might cause us to enter a market based on an expected fundamental event. Such a case arose last Friday in the US Bond markets – both 30 and 10 year bonds – which are favorite markets of ours.

The jobs report is scheduled to be released on Friday morning, September 6, at 7:30 am CST. The market has been slowly pushing the bond markets lower in anticipation of the FED beginning to taper its bond purchase program. Everyone knows that the FED is between a rock and a hard place and the squeeze is tightening each month – they cannot keep it up but are scared to stop it too soon. The market is anxiously awaiting their next move – and very nervous about the situation.

Here’s the fundamental setup for a trade entry – in either the US Bond (30 year or 10 year) markets:

The markets have moved the bond markets lower in anticipation of the FED beginning to Taper at their next meeting on September 18.

The ADP report indicates that the jobs report may be weaker than expected – and could result in the market reversing some of the move downward in the bonds.

A long position in bonds, entered just before the report is released seems like a good possible play.

A small stop on the downside would be reasonable as the market has already priced in a favorable jobs report.

The chart shown in Figure 1 pretty much says it all.

Figure 1 US Bond 1500 ticks per bar.

An entry just before 7:30 could have been made in the area of 128 18/32.

By 7:31 an exit near 130 would have been possible.

A savvy trader – knowing that such moves usually overshoot a lot – cold have gone short near the top of this very large move and made a nice profit on the 50% retracement as well.

Now that is a way to have fun with fundamentals!

Such opportunities are not common, but they do happen from time to time. The technical trader can earn big dividends by paying attention to upcoming fundamental events and taking a position just before the report is released in situations such as that described above.


Leave a Reply

Your email address will not be published. Required fields are marked *

Comments Protected by WP-SpamShield Spam Blocker

See the Music of the Market

The unique trading method that is Trading Between the Lines