Paring or Pairing the Exchanges

• Posted by Greg Harmon
• on September 8th, 2011

The financial sector is a complete mess. But there are still ways to trade financial stocks without risking a bankroll. A pairs trade can often make a lot of sense. One pair I follow in the financial sector is the CBOE Holdings, $CBOE, against the IntercontinentalExchange, $ICE. The ratio chart of these two exchanges is below and shows a rising trend line of support since mid July, now converging with resistance creating an ascending triangle. Above the top of that triangle at a ratio of 0.222 there is some previous resistance at 0.230 and then 0.244. The Relative Strength Index

(RSI) of the ratio is rising and the Moving Average Convergence Divergence (MACD) indicator is playing with a possible cross positive. A break above the top of the triangle also has a pattern target of 0.254.

Trade: Buy 9 shares $CBOE and sell short 2 shares of $ICE on a break of the 0.222 ratio

With the breakout triggering, use a stop just under it at a ratio of 0.219. At the first target of 0.230 it pays $9.18-9.50 and at a ratio of 0.244 it pays $22.09-24.25 per pair traded, risking only about $2.10. That makes for a reward to risk ratio of over 4.3:1 at the lower target and over 10.5:1 at 2.44

As always you can see details of individual charts and more on my StockTwits feed and on chartly.)

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The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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