"Contraction in the US economy is slowing..."

This seems to be the theme du jour. So, will the markets go up and crush the Dollar? What exactly does a flattening economy mean to currency traders right now?...Here are some notes and charts I have compiled:

• If stocks go down this week...will it be because of bad economic numbers (such as a terrible ISM Non-Manufacturing report on Tuesday...which would be Dollar bullish) OR will it be because stocks are just way overbought?
  


• The ECB will have a rate decision on Thursday. The Dollar and stocks usually go in opposite directions to each other so, if Euro traders don't like what Trichet says in a couple of days, that could be Dollar bullish too. Remember, he instituted a gag order to all ECB officials.
  


• Thursday is also the day for the "stress test" results on the banks. Whether these tests really mean anything or not, you can still consider it an event risk.


• This chart of the Euro/Yen. I shorted 4 lots of this because of the 4 hour chart below, and because of the tight stop loss I could place if I was wrong. The USD/JPY, EUR/JPY and other yen crosses are highly correlated with the stock markets. When they go up, market probably is...and when down, market probably isn't. (Clicking on the chart gives you a clearer view):
  
  

  

There are are a few more notes...so stay tuned.

Going Down?

Here is an interesting follow up by Jamie Saettele to his own article yesterday about the Euro/Greenback and the intermediate demise of the stock markets.

I posted his article about the scary outlook for equities yesterday...and in this new one, he confirms it, with my favorite technical indicator of all...Japanese Candlesticks and the Bullish and Bearish Engulfing Patterns. (Say that five times really fast and I'll be impressed!)

New update

Ended up placing the Eur/Yen short in both Fx accounts...both limit orders were set off, and technically speaking...because of where I set the limit, these will work. On the 4 Hour chart, we closed Friday below 131.54, which meant we broke below Fibonacci support (they are already profitable.)

So, April is over, and here are the quick account updates. Remember, we are holding Gold as portfolio protection...and we are holding June Gold puts as protection to the Gold!

My main Forex account, which contains my inflation-protecting gold, is up about 66% since the beginning of January.

My intermediate Forex account, which is up 16% since January (Zip file.)

My options and equity account, which are titled in my children's names, so I can only recreate the trades. Here are the account particulars:

--My Sprint trade (which I closed at around 13%)
--My Zion Bank trade. (26%)
--The Puts I bought (and sold) to protect my gold, the first time around. ($11,000 profit)

Fibonacci lines...another priceless indicator

I just finished placing a limit order to short 2 lots EUR/JPY @ 131.79. This pair had a nice move up recently, and now I feel we should see a significant retracement, due to the Doji star. Earlier I shorted this, but got out with a loss because I thought the trade was going to break the top of the Doji...which is significant Fibonacci resistance.

So now, I have chosen a safe price that I think should work.

Possible Straddle opportunity

I am going to consider doing a Straddle of some sort here (Eur/US.) One one hand, we have a very important ISM number coming out later, which could be Euro positive if it is better then expected, and on the other hand, we have a VERY overbought equities market, which could mean more strength in the Greenback.

So, as is want to happen a lot, my short term short has temporarily become more intermediate. Europe is on holiday Monday, so any big moves may not occur until Tuesday. The Straddle would depend on a big move either way, and does not work in a flat market (unless you are the one writing it.)

Trade Epitaph

Below is the chart of the Euro/USD. Both my second and third shorts were covered at a profit. The main trading account is still up 66 1/2% since January. I still hold the original short described in the last post...but that will recover, because equities should correct...

The scary article from yesterday discusses the Euro/US, and predicts major new lows in it (after a big rise from here first)...one has only to look at the 1.25 level as huge.

By the way, notice how the pair bounced off 61.8 retracement (from its April 30 high) a couple of times: (Clicking on the chart gives you a clearer view.)

Terrifying (if you think this market will not retest it's lows.)

I am still a firm believer that you cannot make a new low (on a daily chart) and not re-test it. I have been saying for weeks that equities are going down again...and so has Adam and his psychic abilities! Remember the S+P's new low was 666 back when everybody was saying the end of the world was upon us, a few weeks ago.

If you can give me any example from any equity or commodity...in any year...from any bear market...where a new low was not re-tested, I will stand corrected. Please prove me wrong in the comment section below this entry.

Meanwhile, Jamie Saettele, Senior Currency Strategist at Daily FX wrote this terrifying piece about equities today...that agrees with Adam above...and also confirms what I have been saying for a while too. It also suggests that I might need to avoid shorting the Euro for a while! Read the entire article to get the full gist of what he is suggesting...ouch!

One of my most successful trading methods

One of the reasons I do smaller positions is because, even if you think you know the trend, you are not always going to be right as to where it starts...but you can still take advantage:Here's how today's trading worked (and is still going):

I shorted my first Euro/US position at 1.3206 (obviously a little too soon.) My second position was placed at the 1.3247 R1 resistance level (which was also breached:

...but my third short was placed at the the 1.3257 R2 resistance level and I covered it at a decent profit for just a five minute trade.

So neither of the first shorts stuck...which is fine, because I am trading small positions...and I was able to take money off the table with a small profit on one of the trades, while waiting to cover the others at a profit.

Euro negative divergence

I shorted a small Euro position earlier because of the overall strength being shown in the Dollar. There are a few possible explanations for its strength in the face of this extremely strong equity market, which we can talk about later.

Technically, we have a slight negative divergence in the MACD for the 4 Hourly on the Euro/USD...this, of course, is bearish, at least in the short term.

The accounts are doing STELLAR!

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 66 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. Here is the only activity:

--My Sprint trade (which I just closed at around 13%)
--My Zion Bank trade. (26%)
--The Puts I bought (and sold) to protect my gold. ($11,000 profit)

Folks, I'll say this until I am blue in the face...trade triangles work! They may be a little schizophrenic at times...but they work! Just read all the posts since this blog was created in January. According to Wikipedia, this account's performance is beating 98% of individual investors out there.

Remember, I am not a big bank. I am not Barclay's or the Bank of Japan...I am an individual investor who has profited quite admirably due to five or six trading techniques...but just as important as any of them are my Trade Triangles...so try anything that interests you...a stock, a currency pair, whatever, but you can do it free and have it sent directly to your mailbox.

New take on BofAmerica

The other day, I talked about how Ken Lewis was basically forced to take ownership of Merrill Lynch by the Treasury.

Here is an additional take of this craziness by Larry Levin. I think we are living through a once-in-a-lifetime recession (depression?) and I am constantly amazed at what we are learning about the behind-the-scenes activities.

Update

I am still having a hard time determining overall direction of Gold. That is why I bought all those Gold puts a while ago. The Dollar looks like its going to get stronger and that might weigh on Gold and, as I have been saying for a while, I don't like equities at this level. We really need to unwind some of these overbought oscillators.

Remember that I bought the puts strictly as protection, not to make money. Holding Gold is important in case of a major (unexpected) event that could affect your portfolio.

Update

My blog readers that have been with me since the beginning have seen both my accounts profit a combined 70% since December and January. During this time the Euro/Greeenback pair has been extremely tradable.

This week, I think the Euro/Greenback pair is also going to be tradable and a significant money maker. Why? Because there is way too much talk about how equities are going to continue up (without any sort of correction)...we'll see...

However, I am not feeling it...and nor do one of huge assets I use for my trading... Market Club.

To have a free real time MarketClub analysis of the EUR/Greenback pair I am talking about sent to your inbox, (or any other forex pair you are interested in) click here.

Nice way to start the week

Just got out of a profitable Sterling/Yen trade...this was a short term trade within the larger uptrend I talked about at the beginning of the month.

Account update here.