November 2009 Volume 1, Edition 12
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In this edition: • XJO Analysis - by William Chien
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• Turning Points & Fibonacci - Guest Contributor: Guy Bower • Technical Indicator of the Month: TRIX Indicator - by Jason Achjian • CFD Commodity Recommendations are here! - Information on our new service • Recommendation Program update - Commodities Basket Recommendations - William Chien's CFDs - Seasonal Spread Trading
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Analysis by William Chien
Please find below my latest projection of the local XJO index. A detailed examination fo the plotted trend channel lines on the XJO price chart suggests a significant price & time window as per circled area. I also want to draw everyoneâ€™s attention to the recent â€œDivergent trend in Volumeâ€? in the run up in October. Using the XJO analysis as proxy for the major stock market indices around the world, my analysis to date indicates the rally will likely continue till January 2010. Clients who take part in my CFD trade recommendations have profited greatly from the recent rally and I invite anyone interested to visit the following weblink. http://www.toptraderthinking.com/toptrader/files/N380_cfdperformance.pdf Furthermore, the potential future movement in the stock market will have implications on the forex & commodities market as well.
To receive William's CFD recommendations and advice please contat him using the following Email: William.Chien@stonebridgegroup.com.au or Phone: 1300 73 66 11
Some Turning Points Are Just So Logical Article by: Guy Bower
Have you ever looked back on a turning point in the market and thought “ah that was logical. If only we thought of that at the time”? In fact you could probably look back on almost all turning points and say the same thing. I agree with the view that markets frequently move from efficiency to inefficiency on both a small and large scale. Turning points in the market can often be the realisation that the previous valuation was wrong and the reversal is an attempt to get back to fair value. No, I am not going all academic on you. There will be no talk of efficiency frontiers here. All you need is a little bit of logic. Take for instance US bond rates. The government (risk free) rate is about 3.5%. BBB rated corporate are only 5.5%. US inflation is low and unemployment just hit the highest level in 26 years. This is why interest rates are low, but hands up anyone that thinks inflation and unemployment will remain the same for the next decade? If you think about it, there is no way you can come out ahead by buying a government bond paying 3.5% and holding it until maturity. You’ll earn 3.5% on your money and of course pay tax on that. After tax, is that rate of return going to beat inflation over the next 10 years? Highly unlikely. This is where logic can play a part. At some point bond prices will turn south. It will most likely need a few economic figures to trigger it – perhaps retail sales or business confidence – but it will happen. The really interesting thing is that it will take other markets with it. Think about it. Lower US interest rates compared with those overseas has hit the US Dollar. Have a look at the Aussie Dollar for example. Australian rates are also low, but not as low at the US. It’s the interest rate differential and the timing of recent rate moves and expected rate moves that has pushed this one from about 0.6200 to about 0.9200 in 2009.
The lower US Dollar has in turn pushed commodity prices higher. Commodities such as Gold and Oil have got cheaper in non-US Dollars as the US Dollar fell. As such, this created buying pressure and those markets push higher.
At some point the market will realise that 3.5% for a bond is a good shorting opportunity. That will in turn bid up the US Dollar and that will trigger some liquidation in dollar denominated commodities. It could well be a big move.
Learn About Fibonacci Ratios in 61.8 Seconds Article by: Guy Bower This area of study is actually quite interesting. Even if you do not use it in your trading, it is worth reading up on if you enjoy maths and number patterns. Back in the 1200s, a chap by the name of Leonardo of Pisa, also known as Fibonacci, published a book titled Liber Abaci (no, it was not about a pianist).
The book introduced/discussed a number of things including the Arabic number system and simultaneous equations. It also introduced the ‘Fibonacci sequence’. This is a mathematics concept that starts with two numbers: 0 and 1. These two numbers are added to make a third (0+1=1). Then the next number in the sequence is the sum of the previous two. So we have: 0 1 1 2 3 5 8 13 21 34 55 89 144 233 377 610 and so on “Big deal” you say. Well, what comes next is interesting. Take one number and divide it by the next number in the sequence. The further you move along the sequence the closer the result is to 0.618 (rounded). If that in itself is not interesting enough, you would be amazed to learn how often this ratio pops up in nature and in our everyday life. For example:
They say what us humans consider to be a beautiful or perfect facial structure exhibits a 0.618 ratio between chin and forehead and chin and nose. Similar measurements are taken of eye width versus nose length (sounds silly I know). The height/width of much artwork throughout the ages is close to a ratio of 0.618 – as that is what is pleasing to the eye. They say the Romans invented the perfect ratio between the height of a step and its length. It is close to 0.618. The Fibonacci sequence or ratio appears in nature also, such as in the arrangement of leaves, the fruitlets of a pineapple, the uncurling of a fern and many other examples. So how do we make money from pineapple fruitlets? I have no idea, but this ratio also appears in the markets. Some people use the ratio 0.618 along with its reciprocal which happens to be 1.618 along with 1 minus the ratio or 0.382 to measure retracements, support levels and projections. Now it gets interesting!
Catherine Davey Take a look at the Monthly DX Chart above. The market fell from a high of121.02 to a low of 70.70, then rallied to 89.62. That is very close to a Fibonacci retracement of 38.2%. The retracement was not spot on the line. They rarely are, but it was very close. When examining price charts the frequency of these percentages appearing is quite unusual, well worth adding to your arsenal of trading tools. By the way, most charting packages now have these Fibonacci levels built in, including the eBridge Trader.
Contributor information: Guy Bower is professional futures, options and spread trader. Guy is the author of two books: Options: A Complete Guide and Hedging: Simple Strategies
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Great new global commodity product for smaller accounts… CFD Commodity Recommendations are here! Now you can trade a whole range of commodities with less risk than outright futures contracts and tailor your dollar stop to the size of your account. That’s right, in 2010 we commence our Commodity CFD Recommendation Programme which is ideal for traders with smaller accounts who want a piece of the action in the US Commodity Markets. Instead of having to trade futures on say wheat whereby each cent is $US50 you’ll now be able to trade wheat and tailor the size of the dollar stop to your account balance whilst still having the same sized cent stop to keep you out of the market noise. Finally you'll be able to take advantage of some huge commodity market trends coming up throughout 2010. For example, let’s say we are recommending to buy wheat at $6.00 a bushel and the stop needs to initially be at $5.50 – in the case of futures that would mean you’d have to risk $US2,500 per contract which for some is way too much of their account in percentage terms. With Commodity CFDs you could buy say 1000 bushels or one fifth the size of the futures contract and with a 50 cent stop only risk $US500. So you can see that by trading the CFDs with a smaller account you can still participate in the great global markets without breaking the bank. Email Jason.firstname.lastname@example.org now to register your interest for 2010. We’ll only take 50 traders for this programme so get your name on the list straight away.
Technical Indicator of the Month By: Jason Achjian
TRIX Indicator What TRIX is a momentum indicator that displays the percent rate-of-change of a triple exponentially smoothed moving average of a security's closing price. Oscillating around a zero line, TRIX is designed to filter out stock movements that are insignificant to the larger trend of the stock. The user selects a number of periods (such as 15) with which to create the moving average, and those cycles that are shorter than that period are filtered out. The TRIX is a leading indicator and can be used to anticipate turning points in a trend through its divergence with the security price. Likewise, it is common to plot a moving average with a smaller period (such as 9) and use it as a "signal line" to anticipate where the TRIX is heading. TRIX line crossovers with its "signal line" can be used as buy/sell signals as well.
How To calculate the indicator TRIX, you must first select the period for the formation of an exponential moving average of closing prices. For the 15-day period, the calculation would be as follows: 1. Computes the 15-day exponential sliding average closing price; 2. Computes the 15-day rolling average of the exponential moving average, calculated in item 1; 3. Computes the 15-day rolling average of the exponential moving average, calculated in Clause 2 Now we have a triple exponentially smoothed sliding average closing prices, which considerably reduces the variability. 4. Finally, the calculated 1-day moving average percentage change, calculated in paragraph 3
When Since TRIX measures the rate-of-change of closing prices, a positive TRIX value is interpreted as a steady rise in the closing price of a security. A positive TRIX is thus akin to a positive trending price, allowing the indicator to act as a buy signal whenever it crosses up above the zero line. Similarly, crossing below the zero line suggests the price is tending to close down at the end of each period, which can be a sell signal. The "signal line" mentioned earlier is also a useful buy/sell indicator. Since the signal line period is shorter, a cross above it suggests that recent stock prices are closing much higher. A buy signal is triggered when TRIX crosses above its signal line, and a sell signal is triggered when TRIX crosses below its signal line. This method can generate false signals during sideways price movements, so it works best when prices are trending. It is therefore wise to use TRIX in tandem with other indicators for confirmation.
How to add this to your Charts in eBridge Trader Whilst in your workspace viewing a chart, click this >>> Oscillators >>> TRIX: TRIX Indicator...:
symbol at the top of the chart, then
The default fields that appear can be adjusted at this point for this indicator; you can also adjust them later if you wish. You can also adjust colour and the weight of the line: Click OK once you’re satisfied with the settings. You will now see the TRIX indicator added to a new pane below your chart. You can later adjust settings by clicking the ‘TRIX’ at the top left of new pane and then clicking on ‘Properties’, you can also delete the indicator from this menu. You can add a Moving Average to the TRIX by selecting Moving Average from the studies drop down above the chart. Once you select Moving Average, a window will appear, you will need to change the 'Add to' drop down to 'TRIX' to add the Moving Average to the TRIX opposed to the instument price data. If there is any feature of eBridge Trader that you’d like covered in next months newsletter please email your request to: email@example.com To open an eBridge Trader account or get further information on adding technical indicators to charts using eBridge Trader please contact Jason Achjian by Email: Jason.firstname.lastname@example.org or Phone: 1300-73-66-11.
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William Chien: CFD Recommendation Service
This program focuses on trading CFDs on ASX shares with a short term view (less than 8 weeks in most cases). William Chien uses technical analysis to zoom in on potentially profitable opportunities and then forwards email recommendations to his distribution list. William is very conservative and will generally do no more than 4 trades in any given month. When conditions are not right William will not trade at all.
Traders with a relatively high risk tolerance and who also want a degree of involvement in their trading decisions would be best suited to this approach. No positions will be entered or exited without prior confirmation from each individual client. If you disagree with Williams view on any particular trade you are under no obligation to enter or exit the position.
*Balance is in AUD based on minimum quantities and is net of all commissions. Results are unaudited. Updated COB 30-11-09
Conditions If you receive but do not take advantage of 3 consecutive trades you will be removed from the email list. A minimum starting balance of $20,000 is required for this service.
To register your interest, open an account or request further information about this service please contact us: 1300-73-66-11 William Chien:
Please refer to toptraderthinking recommendation discalimer: http://www.toptraderthinking.com/toptrader/marketnews.asp?id=288&action=viewarticle
Pro-Trader - Seasonal Spreads in Futures & Options In Brief Pro-Trader is a recommendation program designed to take advantage of historically high probability seasonal opportunities in a wide range of markets using futures and options spreads. On average, one trade per week is generated and the length of time in each trade is approx. 23 weeks. Stop losses are based on closing prices i.e. exits are made the following day if the market closes outside of the stop level.
Trader Profile This program suits those who want to take advantage of opportunities in stock indices, interest rates, currencies and commodities markets. Traders with a relatively high risk tolerance and who also want a degree of involvement in their trading decisions are best suited to this approach. No positions will be entered or exited without prior confirmation from each individual client.
*Last updated COB 30-11-09. Balance is net of commissions Past performance is no guarantee of future results
Commissions / Conditions The brokerage rate charged is US $15.00 per side of each trade +GST. If you receive and do not take advantage of 3 consecutive trades you will no longer receive fully detailed email recommendations. Minimum starting balance of $15,000 is required.
To register your interest, open an account or request further information about this service please contact us: 1300-73-66-11 Jason Achjian:
Please refer to toptraderthinking recommendation discalimer: http://www.toptraderthinking.com/toptrader/marketnews.asp?id=288&action=viewarticle
RECOMMENDATION PROGRAMS – UPDATE COMMODITY BASKET RECOMMENDATIONS (CBR) OCTOBER 2007 TO NOVEMBER 2009 UP 55.65% NET OF COMMISSIONS MINIMUM ENTRY LEVEL $A10,000
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Please contact the Futures dealing desk for further information on recommendation programs Phone: 1300 73 66 11 Email: email@example.com
NOTE: RESULTS ARE UNAUDITED – PLEASE CALL OR EMAIL TO REQUEST SUPPORTING DOCUMENTATION IF YOU ARE CONSIDERING PARTICIPATING IN ANY OF OUR RECOMMENDATION PROGRAMS
WANT TO RECEIVE OUR RECOMMENDATIONS? To receive recommendations on an ongoing basis you must be a client of StoneBridge Group Gold Coast Derivatives desk. To open an account email firstname.lastname@example.org or contact the dealing desk on 1300 73 66 11. Please see our Recommendations & Information disclaimer on www.toptraderthinking.com Click on 'Market News' to read thoroughly prior to entering into any of our trades. There is always a risk of loss in derivatives trading. Past performance is no indication of future results. Do not trade with funds you cannot afford to lose. Seek independent financial consultation before entering any trade recommendation program. All information and recommendations are general advice only and we have not taken your personal financial position into consideration
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