Bearish counter-attack line

Following a white candlestick in an uptrend the market opens sharply higher and then closes flat or slightly up from the prior session’s close. From a psychological point of view, what does that mean? It means sellers have regained control by squeezing buyers very quickly. In other words, this is the perfect situation for shaping an intermediary top (at least 10 bars).

ADAPTED OPTION STRATEGY: BEAR PUT SPREAD

As the downside is potentially limited by the next significant support area (112.9-113.2), a bear spread allows you to lower the cost of the strategy (in comparison to a straight long put) by selling a put out of the money. As a result, the strategy consists of the simultaneous purchase of a put with a strike of 11350 and the sale of a put with a strike of 11300 for a net debit.

BEAR PUT SPREAD: Leg 1

Trading Symbol RY U6
Option Type PUT
Option Strategy BUY
Strike 11350
Expiration Sept 2016

BEAR PUT SPREAD: Leg 2

Trading Symbol RY U6
Option Type PUT
Option Strategy SELL
Strike 11300
Expiration Sept 2016

ADAPTIVE FUTURES STRATEGY

Trading Symbol RY U6
Strategy SHORT
Entry Point 113.68
Target 112.90
Stop Loss 113.92
Contract Expiry Sept 2016

BEARISH COUNTER-ATTACK LINE: RY U6 AUGUST 22ND

ACTUAL OUTCOME

POTENTIAL GAIN PER CONTRACT

Following such a long squeeze, you can at least expect the price to come back towards the previous significant support set at 113.2 in last August 18/19th (triple impacts).

POTENTIAL DOWNSIDE PER CONTRACT

If the price bounces above the candlestick high (113.92), the risk of a continuation of the rise towards 114.55 (significant overlap) will be likely.

Bearish counter-attack lines happening now in the market

Corn: ZC

Chicago SRW Wheat: ZW


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