DX Looking EXTREMELY strong

If you've checked out my statements from time to time, you'll notice that I am not trading with a 100% accuracy rate. Although I try, it never seems to work out that way!

Now, my accounts are up a combined 70+% because I use six equally weighted indicators in my trading...however, my Trade Triangles always help me with the trend of my trades. Many parts of the blog have Adam predicting the markets quite successfully.

HOWEVER, just like I am not even close to trading at 100% success, Adam is also wrong occasionally...and I think his prediction that the Sterling was going to break the 1.50 mark against the Greenback might not happen. Even though it was my intermediate account, I decided to take a loss on my Sterling/Greenback trade because of three reasons:

• Because of the GBP/USD chart that Action Forex published today. Notice the significant MACD and RSI divergences. I am very envious of how they spot these so fast. This is great technical charting:
  
  
  


• The Dollar is looking awfully strong here. When you look at Friday's daily bar of the DX spot, it is pretty bullish. It closed near it's high @85.89 and never went much lower then its open.



• I have been saying for a couple of weeks now, that this move in equities has been too fast and too much. There's not really much consolidation. I also pointed out a couple of things yesterday that support this.
  


• Ironically, Adam has also been saying for weeks that the equity markets are coming down. So if that ends up being the case, I can't see Cable getting to these new levels.
  

Two terrific definitions

Thanks to a client in my real 'job,' who also trades, I have tried to learn something new every day about fundamental analysis. Being a technician at heart, I am surprised how simple understanding of what is being reported on the basic Forex news sites has helped my trading.

So below are two excellent and easy to understand pieces I found on what quantitative easing is and what an exchange rate really means:

Quantitative Easing

The government stimulates economic growth without incurring more debt, and indeed has the option of reducing the carrying cost of its debt as an added bonus? Sounds too good to be true. And it is, beyond the short term. Central banks can print money but the taxpayer can't buy a free lunch with it. The fiscal payback comes when the CB eventually goes to sell the accumulated financial assets (in particular, government bonds). They will wait until the economy has recovered. By this time the prices of these assets will almost certainly have fallen - i.e. their yields risen - to more normal levels, and the CB will make a loss. Depending on the scale of QE that has been undertaken, this could make an enormous hole in the government books further down the track.

However, the main macroeconomic risk around quantitative easing is unleashing a serious inflation problem. Central banks have a tendency to be quicker off the mark cutting rates than hiking them (a fact that must take its share of the blame for the current mess the world economy finds itself in). Similarly, with quantitative easing, the temptation will be to wait too long, to be sure the recovery and asset markets are robust, before unwinding the stimulus by dumping the assets back into the markets. Indeed, a commitment to keep QE in place well into the recovery is a necessity to make it effective. Hence, while QE is not in and of itself inflationary, the risks are biased towards a policy mistake in the future that is. If the money trees start selfseeding, policymakers may find themselves requiring a pretty serious bushfire to restore faith in the value of their sheaves of green.

An exchange rate (e.g. Sterling/Greenback aka 'Cable')

In the first quarter of 2009, the U.S. dollar appreciated materially which can negatively impact U.S. companies that are selling products aboard by reducing the value of their international sales. To explain this further, imagine that McDonald’s sell a Big Mac in the U.K. for 2 British pounds at a GBP/USD exchange rate of 1.80. For U.S. based McDonald’s, that would mean revenue of $3.60 per Big Mac. Suppose that the British pound weakens 20 percent, bringing the GBP/USD exchange rate down to 1.44. The 2 British pounds that they charge for each Big Mac now equals revenue of only $2.88 instead of $3.60. Compound this by millions of Big Macs sold abroad and you understand how a strong dollar can hurt a company like McDonald’s. This leaves the companies faced with the difficult of decision of raising prices to keep margins intact or maintain their competitiveness by reducing prices and taking a hit to profitability.

Like beating a dead horse...

Please tell me that I am not the only one who thinks equities are way overbought.

Am I going to be like one of those statistics that people refer to in nine months (when the Dow is at 17,342.28) as one of 'those' bears that made it obvious to contrarians that it was time to buy and "Thank God I did!"...I doubt it.

I tell you one thing...on CNBC today, Duncan Niederauer (head of the NYSE) said that none of the big funds or banks were taking big positions in equities. Now, I'm not sure if he meant that this has been the case during this whole 30% run up, or just recently. But I'm guessing that either way, if the big money thought that this rally were to continue, they would be buying now.

Euro/US trade update

I am going to hold my Euro/Us over the weekend. Even though the account is doing really stellar, I have had some losses that were unnecessary (so this will cushion the blow!) I have it in both my accounts and will NOT take profits in either yet, because I have liked the way it has traded all day.

Also this from MarketNews:

Afternoon trading saw some slippage in the pair after a modest bounce off lows saw the euro stall around $1.3050. Overnight, euro-dollar had skidded lower after notching high prints near $1.3200, the convincing break below $1.3090 area of April 9 lows at $1.3090 leading some traders to expect extended losses ahead.

Indeed, CitiFX Technicals, a unit of banking giant Citigroup, Friday issued a euro-dollar sell recommendation, suggesting a euro-dollar short be set around $1.3045 with the pair expected to tack lower, to $1.2750/60 "and possibly more".

Being Decisive

This from Oilngold.com:

After the US reported that CPI contracted +0.1% mom in March, the first negative reading since 1955, Switzerland's PPI also showed further moderation of -0.5% mom and -2.8% yoy during the month while New Zealand has just reported that its 1Q09 CPI eased to 3% yoy from 3.4% in the previous quarter . In the presence of global economic slowdown and sharp deterioration of domestic and overseas demand, it seems that deflation will rule for an extended period of time despite the massive money-injecting plans announced by policymakers worldwide.

I probably should have bought the Gold puts when I saw these numbers for the first time. They have been out for a while now, yet Gold really just started last night. (Being decisive is always a challenge...even after 25 years of trading.)

Just bought 10 puts of Gold

Just bought 10 June 860 puts of Gold @20.60 using the profits from some of my equity profits. All the profits from the last puts, including the original purchase funds, were put back into the account. (10 x 10 x $20.60)



Just like last time, if Gold goes back up...this will just take some of my profits away. The way it's trading...I doubt this will happen right away. (Last time we bought puts, we added almost $11,000 in cash to the Equity account.

EUR/US revisited

I had Limit Orders (from two weeks ago @1.3080) go off in both my short and intermediate accounts for EUR/USD...short 4 lots. This is a big breach folks. The trading that I did in the pair yesterday was above this level...and it was 'manual.' These trades were based on pre-established Fib support. This shows that previous price action works just fine as an indicator.

From MarketNews:

LONDON, April 17 (MNI) - Euro-dollar was still trading heavy through the European morning, extending four-week lows down to $1.3055 after Asian dealing had pushed the pair to $1.3065 following perceived dovish talk from ECB's Trichet in Tokyo.

Telling it like it is

CNBC is great...but they don't always ask the questions that need to be asked when they have the opportunity. However, appearing on CNBC a lot, is Larry Levin. He is a must read if you really want to know what the government is NOT TELLING US.

I subscribe to his daily newsletter (and I suggest everybody that follows my blog does as well.) Today's is so enlightening (pdf)...and makes me worry about this market at these levels.

Misc

I still maintain that this market has moved up too much and too fast. Everybody on CNBC is so upbeat...sanity has finally arrived!

I am not a perma-bear which is what one of my readers just called me...I'm just realistic. That being said, I also liked the Sterling breakout (above 1.5) we had against the Greenback, (holding in intermediate account.)

Waiting to see if I should buy more puts on Gold. Might as well make money while I hold this dud...did I say that? Actually, I detailed quite a while ago that I was going to hold Gold because of the likelihood of some event risk that is going to surprise the hell out of everybody.

The mistake I made was that I bought this in the wrong account...it should be in my intermediate account. (this is my short term account.) As you can see by the trades I constantly post, most of my trades are successful. This will end up having the same result. Just temporarily...it looks like a giant zit on an otherwise good-looking face!

-----------

Shorted EUR/USD a few times with decent success since yesterday's trades.

Gold

Gold is sinking rapidly as we speak. If we break the lows from a few weeks ago, I will re-purchase the puts I bought and sold.

Co-incidence

THIS JUST ISSUED (for those who are interested in the CAD/YEN trade we just talked about.) It's almost like it waited for us to discuss it! Click on the link and try it free...guys (and gals), the proof is in the pudding. Just look at my results.

MarketClub Smart Scan Alert for CADJPY Daily Trade Triangles Canadian Dollar/Japanese Yen (FOREX_CADJPY) is trading at 82.350 +1.533 (+1.90%) and has triggered a new HIGH for a Green Daily Trade Triangle.

CADJPY Streaming Chart
http://www.ino.com/info/191/CD3603/&dp=0&l=0&campaignid=8
CADJPY Chart Analysis Details
http://www.ino.com/info/191/CD3603/&dp=0&l=0&campaignid=8

Canadian Dollar/Japanese Yen (FOREX_CADJPY)
Last 82.350 Net Change +1.533 (+1.90%) Score +90
Open 80.817
Day High 82.890
Day Low 80.600
Prev Close 80.817

To set or adjust your MarketClub Smart Scan Alerts, please visit:
http://www.ino.com/info/191/CD3603/&dp=0&l=0&campaignid=8

To pause this or all of your alerts, please visit:
http://www.ino.com/info/191/CD3603/&dp=0&l=0&campaignid=8

Picture of the "intermediate" trade

Here is a live shot of the Cable trade I made. 2 Lots. (Clicking on the chart gives you a clearer view):

Sterling/Greeny trade

Remember the CAD/Yen trade I told everyone to recommend to someone who didn't have to always watch the market? Well...it's doing fine. HOWEVER, the key to this is the money coming out of the Yen into the Canadian Dollar. We took losses in my US/Yen trade because I think the markets will be coming down...so the strength in this is somewhat of a divergence.

I just bought 2 lots of Cable...because the breakout of 1.50 is pretty significant, and has a similar bullish pattern to the above. You should see a reverse head and shoulders (clicking on the chart gives you a clearer view):

Three things to note.

• The neckline of the formation is around 1.50. So, if that is the case, we would subtract the low of around 1.35 and the difference between that and the neckline break is what you could look for on the upside.



• The general bottoming look. Trading doesn't always have to be complicated. Just like the oil chart from last week...the bottoming here is pretty obvious.



• We have daily and weekly trade triangles issued.

Daily FX, simple but ingenious

There is so much information to digest, that since December (when I started trading Forex) I have always found it a challenge to know what to focus on. Also...sometimes it's hard to guage the extent of the recession...numbers are being thrown at us every day. So, I ran into this page, and it solves a number of things...see if you agree.

Gold post

Barrick gold was just issued an up triangle by M. Club.



We have the Greeny and gold that can be considered safe havens, among others. So, as I mentioned before...The other day, I wanted to see strength above the 38% retracement level of the gold spot for me to believe the 870 oz. area is the low for now.

LOOK OUT BELOW...part 3?

I got out of my US/Yen positions because I am afraid of equities. Adam did a video on the bearish looking S+P a couple of weeks ago...AND NOW, I present to you his updated BEARISH view of the S+P. Take note of the possible negative divergence that he mentions at the end.

Account update..a lot of profit

If you have been following the blog since January, you know we have three accounts.

• My main Forex account, which contains my inflation-protecting gold, is up about 61 1/2% since the beginning of January.
  


• My intermediate Forex account, which is up 19% since January. (Zip file)
  


• My options and equity account, which is in my children's names, so I can only recreate the trades.
  --My Sprint trade (which I just closed)
  --My Zion Bank trade.
  --The Puts I bought (and sold) to protect my gold.

I use six different indicators in my trading...but nothing is traded without knowing what the longer term trends are...even if you trade against them i.e. short term...you still have to know what the trend is.

So, my Trade Triangle indicator has been invaluable to the success of these accounts.

Lets start the rollercoaster

I sold all my US/Yen positions into strength...and at a loss. As my children say all the time...this market looks "evil," and I have the same bad feeling about equities that I have been writing about for the last week...(this is options expirations week, remember.)

I have to self-analyse and say, well, if you have been predicting a down equity market for so long, why did you (in effect) short the Yen in the first place? Welcome to the life of a short term trader! Therefore, even if we go back to 103+ on this pair, it's not worth the drawdown in the short term. If I still think this will happen, I will go long later on.

My accounts are still doing stellar. Stay tuned for official update.

Doesn't look good for equities tomorrow if...

...the US/Yen keeps getting crushed like this.

We seem to be breaking new support every hour on this pair, and I am the proud owner of 3 lots! Beige Book tomorrow at 2 p.m. (EST) might determine if people are willing to buy the Yen crosses, as risk will be back in vogue, if traders determine anything positive.

GBP/USD update

I set a limit order to buy more (@1.48890) of this pair after I closed my first long trade for a profit @1.49049.



See the most recent trades here.

Cable Update

Here is the CABLE chart playing out almost as I predicted it would:



I went long a little early (green dotted line @1.48971.)

Adam has a Crystal Ball!

Adam Hewison (creator of my trusty trade triangles,) and one of the huge reasons this account is doing so well, is pretty good at predicting the market. Check out this mini video of how he uses a basic 15 minute chart (of the S+P 500) to predict movement, sans any kind of triangle...Then we can look at the chart below. Watch this first.

Now, here is the chart of what actually happened. Notice the trendline I drew at the 829-30 (clicking on the chart gives you a clearer view):

Ironically enough, Adam used the same technique with in his US/Yen video the other day...and I agree with him, and that is why I am holding my position in it.

New Cable Trade

I am getting ready to buy some Cable...I'll start with 1 lot and then see what happens. We will be using the same technique that I took advantage of with the Euro/Sterling, and didn't take advantage of with the US/Yen...the 34 EMA pullback in an uptrend. (Which did hit the 98ish level we discussed the other day)

The last part of the sentence is the most important..."in an uptrend." Here is the 30 minute chart. (Clicking on the chart gives you a clearer view):



When I say uptrend, the charts show that we are in one...but we were issued a new UP triangle on Cable as well.

Looks like the Dollar/Yen has bottomed at the 98 level we talked about the other day...(for now!) Intel just came out with some good earnings and a few interesting comments. Could this drive equities?...I don't know. But it would definitely help my US/Yen trade because the Yen, for some reason, is still considered a safe haven in a down market.

Notes of the morning

I sold my EUR/GBP in the intermediate account for a $2367 profit. Still down in US/Yen.

Remember what I was saying the other day about Wells Fargo? Here's part of what Larry Levin had to say today:

As of today, Wells Fargo has yet to take a significant charge from its purchase of Wachovia Bank, which helped its capital position in the first quarter. WFC initially had said the charge would be around $10.0-BILLION, but as of now it has only taken $77.0-million. In short, Wells Fargo counted earnings from the Wachovia acquisition but almost none of the losses. How convenient!

Oh, by the way...

Remember I beat myself up for buying the Dollar/Yen when it looked like we were going to bounce off the 34 EMA on the 15 minute chart? Worst of all we had a Gravestone Doji where I went long!

This pair will be back, however take a look what happened to the Eur/Sterling today. I had three very successful trades in this pair (see statement) because of the very same thing. I shorted the pair and shorted again (into strength) once the 34 was hit...because the trend is down.

The red line in the chart is the 34 EMA. I talked earlier about this trick that I was taught by a really good trader.

Trades and things.

Out of all Euro/GBP trades (except in the intermediate/longer term account) with a nice profit on all of them.

US/Yen, as I mentioned the other day, is down now (which I predicted would happen)...but the overall trend is up. Remember Adam's video? He really is not wrong about a lot, and these accounts are doing great in a decent part due to his trade triangles.

Gold is showing some strength and some 4H bars closed above the 38% retracement level we talked about the other day.

On it's own, this $100,000 account is up 65 1/2% since Jan 8. My other ($50,000) account is up 19% (Excel).

Which comes first?

We are holding US/Yen and looking for 103-104. It will be interesting to see which cracks first (assuming the Forex relationships stay the same.) The Yen is one of the safe havens for people if they want out of equities...and so is the Greenback. Equity futures are slightly down...but Europe is on holiday today.

So does the US/Yen slip to the 98 level I discussed, before resuming its uptrend? Let's watch equities and see. I have been discussing what I think will happen in previous posts.

Trade Updates

Sold the first part of the EUR/GBP trade for an excellent profit...still holding the second part. Obviously still holding in the intermediate account.

Gold has recovered a little (daily stochastics) but I am not seeing much enthusiasm yet. Here is my updated statement...holding gold (most of you know why.)

New Trades

I just shorted 2 lots of the EUR/GBP in my intermediate account @0.8987 and, earlier, in the short term account, 1 lot @0.8997. Two (technical) reasons: we have the serious break in the trendline I talked about on Friday AND we have a -70 down triangle on the pair in the very reliable MClub.

They have this cool new feature where you can get an audio update of your position when you click at the top, near the MACD and other indicators. Sort of gives you your options...great for new traders, especially. (Clicking on the chart gives you a clearer view):

p.s. There are numerous fundamental reasons for this trade which we have already discussed.