c11 JWBT016-Busby September 30, 2008 14:18 Printer: TBD
124 STRATEGIES TO WIN
FIGURE 11.1 Both charts are 30-minute charts showing how prices responded
to some good news on May 2, 2008. The S&P equity index futures shot up and the
bond futures took a nosedive.numbers. The employment situation was reported at 7:30AMcentral time
by the U.S. Department of Labor. The governmental agency had expected
dire numbers, but the information was not nearly as bad as expected. There
was an increase in nonagricultural employment. As employment goes up,
there are fewer applicants in the job pool and employers are forced to pay
higher wages. Increased wages spur inflation. Bonds markets do not like
inflation. Therefore, in response to the news on May 2, 2008, the S&P went
up but bonds moved down in price. Figure 11.1 depicts this relationship.
The chart on the right is a 30-minute S&P E-mini chart. Notice that when
news was released, the S&P shot up. An arrow points to the upward move
of the equity index on the good news. The chart on the left is bond fu-
tures. It is also a 30-minute chart and shows the response of the bond mar-
ket to the news. Bond prices fell quickly in unison with the upward jump
of the S&P.
I trade the 30-year Treasury bond. The symbol for this bond is US, and
it is traded at the CME Group on the Globex. This bond trades in 1/64ths,
and each 64th is valued at $15.63, for a total value per point of $1000. I
make my bond trade after the first hour of trading. The bond pit opens at
7:20AMcentral time. I observe for one full hour. Then I note the high and
low during that hour. I use that one hour of trading as a reference bar. I
am looking for a break above the high or below the low. If I see a break,
I check the S&P futures for confirmation, and if I get that confirmation, I
make the trade. If bonds are going up, the S&P should be going down, and
vice versa. Figure 11.2 is a chart of the bond trade on April 22, 2008. Geof
Smith, our chief instructor, as well as some of our students, made the trade
on that date.