Monday 25 October 2010

So we are 10 days from the US mid-term elections and 12 days from the much anticipated FOMC announcement of the next round of QE.  The pesky G20 meeting  photo-op is out of the way without any firm agreement and if tonights action is anything to go by no one believes Timmy and his strong dollar statements.  The run up into elections and QE are typically bullish for risk and so despite reversal patterns in the dollar crosses, bonds and shiny metals there is a good chance we have a risk rally into those events and so I am trading small and taking profits quickly this week.  
Data out of Japan was really good ~ despite the strong yen Japan exports are up 14% y/y and exports to the USA are up 10% y/y.  USDJPY is under pressure tonight and I think it is unlikely that the MoF will intervene so soon after the G20 and on the back of this strong data.  

Saturday was a full moon, often an interim turning point and the week has kicked off with new highs in stock index futures, the dollar getting crushed (again), commodities on a roar with China buying everything - cotton limit up in the first hour and at new all time highs and Gold on its way back up.  Sometimes the big rallies in Sunday night Asian session get faded once the week kicks off.  I am a bit skeptical this week with all that is going on but it is a possibility.
Goldman Sachs have thrown fuel on the fire by saying they see the possibility for as much as $4 trillion in additional quantitative easing going forward based on more than expected US economic weakness.
Mortgage bank mess has not gone away but you would not know it.


S&P

A big Asian open for the indices, the Dow industrials have broken above the 200dma and the S&P has made a clear break above the resistance zone and 1200 next is just about a certainty (I have fib extension resistance at 1198) and then the big fib level at 1234 which would also be the completion target of this summers diamond reversal pattern.
Last week which should have been a correction swing the index basically went sideways and held its level, very bullish.  Interestingly the Dax broke out higher Friday and is leading the way.

Dollar Index
We have a push lower to test the lows and the 3 year trendline support is around 75.80-76.00

EURUSD

Weekly chart has a doji followed by a bearish weekly hanging man at resistance which suggests a reversal.   A break of the highs has resistance at 1.4270 and then bigger resistance, the 61.8fib and trendline resistance at 1.4450

On the daily chart I am watching this possible flag forming.  While the trend is clearly bullish the two weekly candles warn of correction back to support at 1.3330



The same pattern is clear across all the USD pairs with GBP possibly the weakest.  I won't post all the charts, in this market, if one goes they all go.  I am watching 0.9980 AUDUSD,  1.0095 USDCAD and

USDJPY has broken support and is at 15 year lows, setup to test the 80.00 level and below that the all-time low at 79.75.  Fib target for USDJPY short is 78.50

Yen crosses are all a sell at this point, I am selling GBPJPY



All sterling crosses are weak (as is the CHF)

Here is GBPAUD which has fallen right out of bed after consolidating for the past two weeks.  Support / fib targets are 1.57 and 1.5050

GBPUSD - weekly chart
Cable could be a weekly double top forming (needs to break 1.5295 to confirm) and has fallen out of the rising channel with a complete daily candle opening and closing below it.  This could be a throwover but the bottom of the channel should now be resistance for a short entry.  A break of 1.5295 projects a target low of 1.46 but support at 1.50 and 1.4880

USDCHF weekly chart
Broke long time trendline resistance, should now be support for a long entry back to 0.99 initially and a break above there sets up 1.007 then 1.032

AUDCAD monthly chart.
Broke the big trendline resistance going back to 1995 tonight.  It makes sense, Asia is on fire and the US is not.  Australia exports to Asia and Canada exports to the USA.  I am a buyer on a retest and support at the trendline.

Good luck!

USD flash crash

The USD index dropped 4% in 10 minutes after stocks closed on Friday night before bouncing back again.  The low was 74.60 and apparently all trades below 75.85 are being cancelled.  Fortunately the arbitrage bots were off and the stop run didn't extend to major FX pairs but there could be some shock waves at tonights open.  You have been warned.

Weekly charts later.

Enjoy your weekend

Welcome to Pomo Friday

We apologise for the interruptions, your regularly scheduled bull market will resume later today ...
What a week this is.  The stock indexes have gone up, down, up, down and closed last night almost at last Friday's close in the S&P  ~ a doji day and a doji week so far for stocks.  Gold and silver have rolled over and broken trendline support and most of the FX vs USD pairs are also now making lower highs and lower lows.  In fact the only market still making higher highs and higher lows are stock indexes.
Greg Harmon has a really good post showing that the Gold market rolling over is leading this move and pulling the dollar and in turn pulling equities down with it.  What is interesting is that (aside from the ridiculous extreme bullish sentiment) what seems to have triggered the sell off in Gold is China tightening earlier this week and if thats the case it looks likely there is more tightening to come, so more gold selling and more dollar rally.  Stocks are being dragged down, not leading the charge so are not the best risk-off trade but shiny metals and bonds look like epic shorts.

This week there were/are Pomo days on Monday / Wednesday / Friday.  The market went up on those days and sold off on Tuesday and Thursday.  While this is not an exact science it is reasonable to exercise caution if you are trading the short side today in the NY session and perhaps take some profits and wait for the weekly candles to close.  What else goes up on Pomo days (apart from everything)?  Shiny metals like gold always go up on Pomo days ... which is good because I would like a pullback to sell again.
Even Goldman are telling clients to frontrun the Fed and buy Pomo days
And then there is the G20 this weekend where they have currencies on the agenda ...

New positions London open - I may close these before US open:

CRUDE short 81.30 stop 81.60 - 50%fib retrace - addition

AUDUSD short 0.9830 stop 0.9860 - addition
SILVER short 23.20 stop 23.40 PT 22.50

Closing everything for Pomo, even Goldman tells its clients to buy on Pomo days:
Crude closed all positions @81.00 (+1R) (+1.5R) (+1.6R)
AUDUSD closed all positions @ 0.98 (+1R) (+1R) (+0.9R)

USDCAD closed 1.0250 (+1R) 

Silver

Daily chart.  Breaks trendline support setting up a retest of $20.00 and the breakout from the big wedge.  I won't post a gold chart but Gold will be going the same way

Thursday 21 October

I am still looking for a risk-off correction today and buying USD but as always, timing is everything.

USDCAD - daily chart
USDCAD has pulled back to the 50% retracement of the big bounce off the lows and is now in its favourite support zone.  But the rally off the low stalled at the 50% retracement of the swing from the August high so its a big decision time.  I am looking to buy here with an upside target for this swing of 1.05 - 1.0550

S+P 4hr chart
Back at the top of the resistance zone favours shorts today.  A breakout above this zone means 1200 next.



New trades (10:20NY):
Crude short 82.20 stop 82.50 PT 80 initially
USDCAD long 1.020 stop 1.0150 PT 1.0350 / 1.05
AUDUSD short 0.9870 stop 0.9905 PT 92.30  - addition
CRUDE short closed 50% @3R 81.00 (+1.5R)
AUDUSD short closed 50% @3R 0.9765 (+1.5R)
I am waiting for an entry to short Silver again - watching daily trendline

Open positions:

Crude short 83.70 stop 84.10 - 1/4 position left
Crude short 82.20 stop 82.50 - 1.2 position left

AUDUSD short 0.9910 stop 0.9940 - 1/4 position left
AUDUSD short 0.9870 stop 0.9905 - 1/2 position
USDCAD long 1.020 stop 1.0150

Wednesday 20 October

I am cautious today,  I tend to give back profit after big days.  Such big down days tend to produce back and fill and inside bar days the next day and the twitter stream is already full of PMOO and buy buy buy and the correction is over.
I am going to wait and see how today goes before adding to any positions but I think more downside is possible.

Here is the crude chart.  Which pattern is the one?
Daily chart

4hr chart - might be a channel, not a triangle

SPX 4hr chart
Needs to hold below the channel to convince me there is more downside to come.

EURUSD 4hr chart
Sell rallies, I am sticking with my 1.35 / 1.33 / 1.3150 targets

Tuesday 19 October

The dollar has its heels dug in and I am cautious but think the dollar continues to rally today.

I am still holding my shorts from yesterday and looking to sell some sterling or CAD but I may have to wait.  The big news today is the Bank of Canada rate statement.  Up until recently the BoC had been indicating they would hike but the signalling of more QE in the US means that is very unlikely so I am expecting the BoC to punt and the CAD to weaken.

NZDUSD weekly
Looks like a possible double top, I like this short with a target of 0.72 initially but watching for support at 0.7380 area

GBPJPY  weekly
I want to see a break of  126.70 and then downside targets are 121.50 and 115



Open Trades:
Crude short 83.70 stop 84.10 target 81.00 / 77.20
Silver short 24.40 stop 24.60 target 23.30
AUDUSD short 0.9910 stop 0.9940  target 0.93
New trade:
GBPJPY short 129.10 stop 1.2950 target 127.70 / 1.21.50
Today:
Silver short closed 1/2 @3R 23.80 (+1.5R)
Silver short closed balance @target  23.30 (+2.75R)
Crude closed 1/2 @3R 82.50 (+1.5R)
Crude closed 1/4 @80.00 (+2.3R)
GBPJPY closed 1/2 @3R 127.90 (+1.5R)
GBPJPY closed balance @target 1.2770 (+1.75R)
AUDUSD closed 1/2 @3R 0.9820 (+1.5R)
AUDUSD closed 1/4 @6R 0.9730 (+1.5R)

Open positions:
Crude short 83.70 stop 84.10 - 1/4 position left

AUDUSD short 0.9910 stop 0.9940 - 1/4 position left

Today was a big day, biggest range day in 60 days in the dollar pairs.  Tomorrow is a POMO day, we will see if / how high we bounce.

Sunday charts

I am either going to be a hero for calling this or a complete loser but the US dollar looks set to bounce this week. With the expected announcement of the next round of QE on 03November this is a counter trend high risk trade so if you are short the dollar against everything the safe trade is to take some profit at these resistance levels and wait for the bounce to be over.  QE looks to be pretty much priced in so instead of a correction or dollar bounce we could instead see a couple of weeks of ugly chop.  There does look to be some good opportunities in non-dollar pairs.  

SPX

At resistance but the uptrend is so strong it is hard to see anything more than shallow pullbacks until QE2 is out of the way. The daily candles are bearish and indicate a possible reversal but needs to break below the rising channel and 1162 to confirm.  A break below 1162 sets up a retest of 1150 next and then further support at 1125-1130 area.  I am still in buy dips mode with an upside target of 1234 longer term.

FTSE 

Bearish bat fibonacci pattern and two equal swings off the August lows suggest we get a correction here.  And a break below 5630 confirms.  First support is around 5520 but the fibonacci pattern targets are 5415 / 5370 and 5250.  Longer term still says buy dips.

Dollar Index

Dollar has bounced smartly off the bottom of the wedge and at the very least we should get a dead cat bounce here back to 80.00. 

GOLD

Weekly chart bouncing at the 1.27fib extension.  There is not enough evidence to short here yet but I am watching it.  If I was long I would take some profits here and wait for the next pullback to add.

SILVER

Weekly chart.  I like this short.  It is a fibonacci bearish butterfly pattern, at the 1.27 fib extension of the 2008 hi/lows and the 1.41 fib extension of the 2008 low - 2009 high.  Price has been rejected at 24.90 just shy of the round number 25.  A break above 25 sends it to 26.20-27.20 next and the bearish pattern is still valid.  I am stalking an entry, a break  below 23 confirms we go to 1950 then18.70 next.

CRUDE
Triangle consolidation at the top of a rising channel.  Lower time frames show a break of the trendline from 23Sep.  Gold is underperforming metals like copper and gold and oversupply is becoming a drag.  I am looking for a break lower to test 80.00 and if that breaks back to the bottom of the channel

Will post currencies Monday morning.

Trades:
Crude short 83.70 stop 84.10 - top of the wedge
AUDUSD short 99.10 stop 99.40 (toe in the water)
SILVER short 24.40 stop 24.60
AUDUSD stopped out (-1R)
AUDUSD short (again) 99.30 stop 99.60

EURNZD

This pair is the most volatile FX pair, you have been warned.  However this double bottom is looking really solid and I think this trade has really good risk:reward back to 2.00
I didn't post this yesterday because the daily candle looked a bit bearish but todays big rally looks much better.

Here is the weekly chart:

Here is the 240min chart:
I am looking at a pullback to 1.8470 to buy at the moment but watching the price action and I will update on levels once this ripper pauses.

Breakouts

After three failed attempts to break 1.40 and what looked like a triple top the surprise tightening by Singapore tonight (widening of the trading band for the SGD ~ allowing it to appreciate vs the USD) has spurred a big jump in risk and EURUSD has made a run on the stops above 1.40. There must have been a bunch of stops because the move is a biggie blasting it out of the rising channel and the triangle consolidation and straight through the 0.618fib retracement. USDCAD also has pierced the parity level and the dollar is being sold across the board.
1.40 should be support now for EURUSD and the top of the triangle breakout.

So where are we at with the dollar?
 Well almost at the bottom of the big weekly wedge which looks to be about 76.00 - 76.50 so the price action here will be interesting and once we have tested this trendline and see if it breaks or is support then we can look at the dollar crosses.

Last weeks weekly doji in EURGBP at the 50fib retracement did not hold as a reversal and this has been busted to the upside too.  The next level of interest is just short of 0.89 where it meets the 61.8fib and the underside of the big weekly triangle that it broke from in April. One to watch.

I am also watching GBPCHF for a bottom, I think that GBPCHF long may have more potential.  The weekly chart shows if we hold here we have a potential double bottom, so I am watching the daily price action.  A break below this support and I am watching for a test of 1.50 and the fib extension at 1.4980 to buy for a bounce.

USDCAD has support at 0.9930 and then 0.9710

EURAUD looks to have broken above a trend line going back to Dec 2008 and daily chart confirms it.  I am stalking a long entry in this pair.

60 minutes documentary on High Frequency Trading

LINK

Holiday Monday

Will post weekly charts Monday because of the holiday in USA and Canada and back to trading on Tuesday.

25 Million Pounds

25 Million Pounds, 1996 documentary about rogue trader Nick Leeson and the collapse of Barings Bank.  
Won the Best Science and Nature Documentary in the 1998 San Francisco International Film Festival. Directed by Adam Curtis 

NFP

So we have some pretty good reversal candles at key levels in the dollar crosses and stock indexes.   But today is NFP and the talking heads are forecasting a positive number for the first time in a very long time.
The market anticipation of QE2 means we could be in for some Costanza trading though, as much of the additional QE has been priced in the last couple of weeks.  A better than expected jobs number *could* send stocks lower on the basis that more QE could be delayed and a bad print *could* send them higher.
Big reversal candles often produce an inside bar or harami the following day but it will still look good next week.
I won't post all the charts today, will do that on the weekend.

EURUSD
Doji at the big 1.40 level and fib timing from the low supports a change of direction here.
Support zones at 1.35, 1.3330 and 1.3130.

EURUSD

EURUSD weekly chart
Everyone is looking at the big 61.8fib retracement and the 200weekly SMA but the measured move objective for this is 1.4044 and it is setting up a weekly bearish gartley pattern.  I am not in a rush to short this, I want to see a good set up.

More charts USDCAD, EURGBP

EURGBP weekly chart
EURGBP is at a level where we could see a correction lower.   0.8730 is a big pivot and the 38.2fib from the 2008 highs to 2010 lows, the  50fib from the 2009 high to 2010 low and also the 61.8fib from the 2010 highs to lows. It is also the trendline from the 2009 highs.
I think this is a low risk short back to 84.80 at least

USDCAD has broken the bottom of the big daily wedge and looks set to retest the lows.  If crude can hold and close above 83 then it will help this short.
If the dollar gets a bounce then I like EURCAD or maybe AUDCAD better.

Charts

Let the currency wars begin!    At some point Mr Market is going to be done pricing in QE2 and the dollar will take a breather.  We might be at one of those points looking at the charts.


A look back to December 08 is helpful.  On 1st December 08 Bernanke said he may use less conventional policies, such as buying Treasury securities, to revive the economy and avoid a deflationary spiral.  December 15-16 FOMC meeting, they lowered rates to 0% and made it official that they would pursue a policy of treasury purchases or QE.  The dollar index bottomed out on December 18 and then rallied until QE2 was actually implemented in March 09.   Obviously the drop in stock indexes at that time was a factor but the point I am making is that the while the dollar did drop dramatically for a bit on the news it was soon got a foot hold and didn't drop again until it was actually implemented.  If the data still keeps coming in reasonably good, like todays ISM numbers then there doesn't seem to be an urgent need for QE2 and Mr Market might be disappointed at having to wait.

Dollar Index weekly chart 
The bottom of this wedge is starting to look inevitable, it is not pretty.  If we make two equal measured moves lower from the June high then the target level is 74.93 on the cash dollar index.  However we are back at the 61.8fib of the 08low and 09 high and also a level that was resistance in 07 and support during the first big drop following the announcement of QE1 in December 2008 so it would not be a surprise to see the dollar bounce here and retest 80.00 before continuing down.  The extreme negative sentiment for the dollar at the moment would support this.

S&P 
To be clear, I think we broke from a very big diamond pattern this summer and this market is going much higher, but it might not be in a straight line.  We are at the top of a new rising channel and 1158 is two equal measured moves off the lows this summer.  While 1150 is a very big pivot level for the S&P 1161 is also a important resistance level.  I think we correct lower here and back to the bottom of the channel but ... a close above 1161 this week changes my view and no correction until we take out the April highs.

I made this chart last week showing fibonacci timing from the summer lows which has worked well so far.  It shows Tuesday 5th October as the next market turn date, we will see if it plays out.

GOLD
Prices have broke through the top of a rising channel set from mid-September, with the bulls now poised to test the 176.4% Fibonacci extension of the 6/21-7/28 decline at $1348.02. Initial support lines up at $1332.21, the 161.8% Fib

No price action to suggest a correction yet but like the S&P yesterday Tuesday) was a fibonacci timing turn date.

AUDUSD 

At the top of the rising channel that has held it all summer and today's candle a bearish hanging man warns of a potential reversal.  The 1.27fib at 0.9760 is fib resistance for now but as Gold has shown, rising channels don't always resolve to the downside.  On the 4hr chart AUD looks to have broken down and I like this short here for a low risk countertrend swing.

CRUDE

Xiphos Trading has a good chart showing the weekly diamond pattern in Crude.  It does look like a breakout but trendlines with only two reference points are a bit dodgy.  However if we break close this week above August's swing high at 82.97 and the 78.6 fib retracement then it is a pretty clear breakout to the upside.












Ignore these two, I am just posting some inside bar examples for someone:

FOMC Day

Here we are at FOMC day again.  It seems to me the market is positioning for a rally today and to sell the dollar.  Sell the news perhaps?

If you ask anyone why stocks are going up they will say it is because the Fed is backstopping the market, QE forever, etc.  Stocks are grinding higher but bonds are bid too and gold and copper look toppy.  David Rosenberg calls it "deflationary growth".  The prospect of more QE has kept a lid on the dollar so far.

All this means if the Fed do not signal any new easier money policy we are at risk of a drop and the dollar will be bid.  Remember that the last market peak was the last FOMC meeting when the Fed announced QE lite and the market was hoping and positioned for much more.  The last quad witching option expiration in June was followed by a massive rally to start the following week followed by a couple of weeks of drop and I would not be surprised to see this pattern repeated.

The FTSE, despite its big breakout put in a weekly gravestone doji last week warning of a possible reversal.  The high of the doji has been exceeded but it is starting to look tired and a pullback to support might be coming. The rally off the lows of 25 August has been marked by very shallow pullbacks, making it hard for trend traders and those waiting for an entry to get in.  The market is at the 78.6 fib retracement of the drop from the April highs and I am looking for a pull back here to test the big SR level at 5450 but I think that a retracement to 5300-5330 more likely.

S&P 500

Diamond patterns work better than head and shoulders (which I don't like) and this one projects an upside target of 1248, we shall see if we get there.  For now we are at the 61.8fib retracement of the big drop from April and a *common* level for markets to pullback before continuing.  A break of the 1130 previous support level says a bigger correction is underway and 1090 is next.  However a measured move target (if this swing is equal to the swing 6Jul-9Aug) gives an upside target of 1158 so I would not be surprised to see a spike up first.

Dollar Index

See August post.  There is no doubt this chart looks ugly but the 80.30 level is big previous yearly support.  One of those lines in the sand for me that you buy above and sell below.  So far it is holding and until it breaks I am buying dollars.  A break of this trendline and this level and I think we go back to the bottom of the big weekly wedge just above $75.00 ... QE forever!

Crude 

Broke out of the ascending channel last week and back inside the rally is halted at the 61.8fib.  I am short looking for 72.

Gold.
Contained in a rising channel and I don't see a trade here unless you are already in.  A pullback to support at 1262-1265 and the channel bottom looks next for a long entry but I prefer to wait for a break of the channel to short.  As we are at new highs I am using fib extensions for resistance and my levels are 1280 and 1300

Some currencies to follow later ...

Position update:
I am short crude from the double top  at 78.00 (1/4 postion left) and added at 75.50 post FOMC.

I also bought USDCAD following FOMC - triple bottom off the 1.0220 level.  it isn't quite the bottom of the wedge so we could have one more push down this week but I thought it was a good R:R trade.