TRADE Focus

05/014/2009

We invite you to call and ask about any of these market situations we have discussed or to ask about our considerations for the best trade opportunities for the day or for the week. We also welcome any comment on our weekly commentary as well. We believe, through our years of experience, that what we offer is of value. We are confident enough, in fact, to say to you to tell your friends, relatives and neighbors about us too. Please feel free to contact us at 1 800 321-5810 or email to cbands@cbandsbrokerage.com

The Trade Focus commentary was written Wednesday, May 13th and the market analysis section was written Thursday, May 14th.

Last week's edition was written prior to the monthly unemployment statistics were released which have been a closely watched economic barometer through this recession. It showed another large increase of 539,000 in the number of unemployed. This was below the anticipated 600,000 but above the ADP report released earlier that week which showed a decline of 491,000. These are big numbers regardless, as far as we are concerned, and we can not remember monthly declines of this size scanning as many months consecutively during previous economic downturns we have witnessed. The unemployment rate itself was reported jumping to 8.9 pct in the month of April from 8.5 pct in March. We have seen the rate at this and higher in our time and we believe we will see still higher before it's over. Other economic news of note was retail sales for April showing a decline of 0.4 pct compared to expectations of unchanged. Still to come this week will be inflation numbers in the form of PPI and CPI where flat to small increases are anticipated. Industrial production, capacity utilization, the Empire (New York) Manufacturing Index and the University of Michigan Sentiment Index are slated for Thursday and Friday. There was a USDA crop production report released too this week which for the most part was considered optimistic for prices in the coming months. As usual, we believe that there are more significant events driving price than the scheduled monthly economic reports. The previous few weeks saw the financial market place focused on the bank stress tests. These were well leaked and by the time of their release traders were fairly confident in what to expect and most grateful that there were no disastrous hidden surprises. Following the reports on the condition of these banks the market has watched as those in need of capital have set about their course of satisfying their requirements. New items spotlighting the news are the administration's endeavor to bring health care to everyone. The President stated this week that good progress has been made with members of both houses of congress. There is also a need to focus on how this plan will be paid for and that is beginning to take more shape as new things and ways to tax are probed. Existing health care benefits, for example, are being considered as a new source of tax revenue. The cap and trade plan resurfaced in the news and was reported making progress among legislators as was the administration's plans for limiting and or restructuring Wall Street compensation, this time extending beyond firms receiving government funds. Maybe this is too out of line to ask in this space but is that something the government should be doing? Isn't that for the shareholders to decide and change when they decide? And then what would be next? This we don't know but our experience seems to suggest that there may be a trend developing here. We believe it's wise to be prepared for more in this regard.

There is something that we believe is true within the small universe of trading markets and that is that anything can happen and usually does. It seems to be true too often. It is for this reason that trading plans prepare for the worst case scenarios. Let's face it; nobody knows what the next price of a market will trade let alone where it will close tomorrow or a week from now. There is an incredible advantage to having a plan of execution as opposed to not having such a plan. A plan of execution we feel includes not only how to enter a market position but how to protect it and how to exit. Possessing a great entry approach is certainly an asset but knowing where a trade idea and position becomes wrong, we believe, is infinitesimally more important. We have felt and been chided for our belief that how and where you get out of a position is far more important than how and where the position was entered. We have often considered it possible that a random entry method could prove successful given the proper exit strategy. What we mean by this is that regardless of entry, long or short, price or time, that if the proper stop protection is rationed and the reward to risk parameter is appropriate the results over a given period of time could, remarkably, prove successful. We liken this somewhat to how a local trader on the exchange floor might approach his trading. Whether this analogy is appropriate or not, the subject came up with a fellow trader friend who spent some time testing out this theory and discovered that it could indeed be made to work. He did some back testing focusing on what would be random position entries but with prescribed exit strategies employed. He told us that he discovered that he could make it work. His belief too was that the getting out part is much more important than the getting in and that is what he set out to prove. We believe this of great value in emphasizing the importance of exit strategy and a key aspect of money management strategy. We don't know the future and we don't know what the next tick will be. Therefore be prepared for the eventuality of both the good and the bad.

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