The Bank Stress Tests...Do you Believe It?

I do not trust our government...

They want us to hear what they want us to know. So, if there is bad news still out there (and I think there is) we won't necessarily know about it.

Today, Adam came out with an interesting look at what we may not know about banks! Be very, very careful! Just don't get caught up in all this "it's over" hysteria just yet.

...the envelope please!

At least for now, Gold seems to have broken its mini trend. I talked about this a couple of days ago...Gold is dangerous (even if this trend break turns out to be false.)

You take less profits on the upside by owning puts...but you are significantly making money on the downside until the interest in Gold picks up (and it will.)

As I like to always say...you need Gold to protect your portfolio in case of an unforseen event...but you need Gold puts to protect your Gold until that happens. The problem is, you never know when it will.

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Took profits on the first of my EUR/USD trades I talked about earlier.

Dollar's beat up

We could actually be seeing the sell-on-the-news scenario in currencies today. Equities opened high but have leveled off. Also the Greenback looks a little beat up so I have gone long US/CAD and shorted EUR/US. These are two fresh trades based on Fibonacci and should perform well.

(OUT OF US/CAD TRADE with a nice profit...may double up on Eur/US)

Bad trade

My limit was hit and from there the Aud/Greenback went much higher. I took a loss in this thing (0.7594) because of the better then expected unemployment numbers that came out today. FX360 is still short this pair because they have a stop loss at .7722...sort of far from here. Even if the pair recovers, it is not prudent to hold it. (FX360 does longer term trades.) I mitigated the loss with a smaller profit afterwards on the US/CHF.

My mistake? I should have set the limit to short about 10 pips lower then where FX360 made their trade, and then I never would have been in it. See account update here.

How to avoid another mistake? Don't ever stay in a losing trade hoping it will get better...wait for the next one.

New trade possibility

Forex360 has some pretty good analysts (including the aforementioned Kathy Lien.) Frequently they send technical trades to your mailbox, and this one caught my eye. (They are already in the trade.) Here is the chart (clicking on it gives you a clearer view):



As you can see, I have a stop order to short the AUD/Greenback @0.7510. I think it is a good short term and good intermediate trade. I like the Bearish Gartley formation that is in progress, which is one of my favorite technical patterns to look for.

Another thing I like about the trade is that the Ozzie has basically crushed the Dollar since early March and looks seriously overbought.

Forex.com expects equities to go down, even if there is a better then expected unemployment report (<600,000.)...Sort of a sell on the news type thing, I guess, and they would look to short Gold. That confirms our trade a little because the AUD/Greenback is a commodity currency (Australia is a big Gold producer.)

Revisiting disparities

I wrote about the conflicting signals I was seeing in Forex and equities the other day.

Kathy Lien (Forex360) is my favorite Forex analyst. She just came out with this today and basically wrote what I wrote, just much better. I think it's important and here it is in pdf format.

Gold trendline

I decided to be a little schizophrenic and debate myself. In the post I did about Gold earlier, I felt, along with Adam, that Gold was going up from here...but what if my other self was right?!

Drew this hourly chart of Gold and I am pretty sure that this trendline will help determine if this new uptrend is for real or not. Fundamentally, other then the continual printing of money that we see (we had a crummy bond auction today,) I don't see anything that is inflationary.



First of all, the amounts of "printing" that countries are doing with their currencies are already established. Yes, New Zealand did surprise people the other day, but, for the most part, I thought quantitative easing was already built into the currency markets. Old news. Secondly, Bernanke came out today and reiterated what the Fed has been saying for a while now, they do not see inflation.

This is how you can incorporate fundamental with technical. What happens with this trendline (or any trendline, really) is a sort of poll of traders...what everybody else thinks.

P.S. This is why I have no problem keeping my puts until they expire...Gold's volatility is dangerous and if you are going to protect your portfolio with Gold, you better protect your Gold with puts.

Thanks, Jim!

Don't you love when Jim Cramer comes on and says how much he loves a company?

About 30 minutes ago he was on CNBC saying how much he loved Capital One, and how they were a 'great' bank. Last time I remember him assuring us about a financial company was Bear Stearns. Within a few weeks, they were out of business!

Canadian Dollar/Yen update

Remember the longer term (intermediate) trade I told you to recommend to a relative (who wouldn't watch the whipsawing every day?) Technical analysis works!

This is what the chart looked like at the beginning of April. Recognizing simple shapes like this can lead to a lot of profits if you are willing to deal with stop losses that are further out...so that you can allow for 'greed and fear' (clicking on the charts give you clearer views):

This is what the pair looks like today:

If you followed advice, you might want to consider cashing out half of your position. I will update where I think this is going soon, even though it looks like we could go higher. Every pair retraces...the markets still remain overbought...this pair usually moves with the markets...so you can decide.

Gold trade update

Yesterday, I bought and sold 1/2 a Lot of Gold for a profit and, of course, still hold the big part of it. In this case, Adam's short video talked about breaking 920 as bullish. So, what I did was sell the small position that I bought yesterday (using 920 as resistance,) and will re-enter if we close with strength above 920. New balance...

See Gold Fly???

Interesting video done by Adam suggesting Gold is ripe for pickin'. As many of this blog's readers know, I have been holding Gold as a hedge in case some unforseen event occurs. But, I have no problem selling some of it for a nice profit if it does make the move he makes a great case for.

REMEMBER, this account is doing stellar, and Adam has been a huge part of that success. So watch the video, and when you next check the account statement...remember that Adam is one of the few indicators I use to trade.

Update

Traded the Sterling/Swiss Franc last night for a nice profit in my short term account. There is a good chance that this continues...but that is for my intermediate account.

See trades and new account balance here.

ISM

The other day I discussed the ISM as being a possible driver of the Dollar (Euro). Today's number was much better then expected. Take a look at the numbers here. They show the flattening that the economy needs. The question is...will we have a dip in these numbers before they finally stick?

This is the more important of the ISM numbers because the companies surveyed here tend to employ more people, and employment will be the key to getting out of this ugly recession.

Kathy Lien of Fx36o thinks we are going to have much better then expected non-farm payroll numbers on Friday. She knows more about Forex then anybody. If she is right, the break in that Dollar trendline I showed you will have been an excellent indicator.

Quick Profit

Closed for a $50 profit. No volume...may be worth re-entering if we trade below 98.

Is this the end?

I just shorted 1 Lot of the Dollar/Yen.

This from MarketNews:

22:23 05/05
US STOCKS: Globex traded US index futures are trading sharply lower in Asian hours, weighed by wire reports that the stress tests could show banks needing more capital than currently anticipated. The S&P June contract was last down 11 points at 892.4, with the Nasdaq June contract down 16.25 points at 1411.0. The DJIA June contract was down 82 points at 8300.

Going to do some research...stay tuned.

Talking contradictions

Dollar is down slightly but is relatively flat.

I am still fascinated with this contradiction we have going. I talked about it yesterday...one one hand we have a stock market that is just defying the basic laws of publicly traded markets, so to speak!

There is no leadership on the NYSE. One sector is doing great, while another is doing horrible. We've gone from a 52 week low to a 52 week high in, like, no time. You have no volume in any of these up days.

BUT:

You have a Dollar that has broken significant support. Don't ever under estimate the power of a trend line. Here's what I wrote the last time the Greenback broke a big trendline.

You also have numbers that are coming out every day that seem to be suggesting the worst is over...hmm...we'll have to see about that.

The worst may be over but if there is bad news...The FED wants us to know what they want us to know...if you get my drift. I don't trust no one...(sic)

Technically, why I think the Dollar is bearish

Here is a chart of the Greenback:

Other then the break in the trendline, which is bearish in itself, the ADX shows significant bearishness. Clicking on the chart gives you a clearer view and you will see the ADX study on the bottom.

The red line is the negative DX line and the green is the positive DX (-DX and +DX.) When they are significantly apart, as they are here (red being on top,) it is bearish.

This is not an hourly chart so a wide difference in the two lines can take a while to converge again given the periodicity.

Small profit...improved account to best levels

Made a small ($50) profit on the US/Canadian Dollar pair. As most of you know, the Dollar was killed today...so this could be short covering or the start of a retracement. The way I got to 66% in this account was because of slow and steady, and taking profits even if you could make more.

Obviously, if momentum behind the pair was a little more obvious, I would have held for more..but the 5 minute chart was flat and the pair went up strictly because we are at major Fib levels. (I may enter again if I see more interest and more bids.)

If there is any stock or really anything you want to see the trend for, go here and it will tell you everything about it by sending it to your mailbox for free. It's pretty cool and also how I got started with this invaluable tool.

Keep watching the volume

According to my charts, the Dollar has broken significant support here. Usually, that means that the equity markets will continue upwards, but I'll tell you this; I have been trading for 25 years...and you don't want the markets to continue upwards, without a break. It is unhealthy.

Speaking of unhealthy...today's volume was not befitting a market up 214 points. This morning, I wrote what Art Cashen said about lack of volume in this move (before the market opened.)

So I have a serious contradiction here. Technically, the Dollar is going lower which means the markets should continue up (unless that relationship takes a pause.) BUT, we also have a low volume rise in a bear market. It's like a rubber band being stretched. We could go higher...but I would be taking half profits on your positions.

I am not trading until I can figure out a trend. Big numbers are coming out here, and in Europe all week. Stay tuned.

Update

Just updated May in the intermediate account. (Zip file.)

Here is the link to the short term account. Doing terrific.

Good Decision

Boy...aren't I glad I got out of those Euro shorts...versus both the Dollar and Yen. Both pairs are flying, and my short positions would have been down significantly right now.

Crazy Gold

This is why Gold should not be treated like anything EXCEPT a hedge. Serious volatility below. (clicking on the chart gives you a clearer view):

It is also why I own puts on Gold...I prefer to take less profit on the upside (Gold price minus put price) and more profit on the downside. So you are just paying for protection.

To see why this account is doing so amazing, please click below:

Look out!

From Art Cashen on CNBC just now:

"Rallies in bear markets die with low volume" and he's right. Volume has been going down as this market has risen (clicking on the chart gives you a clearer view):

This is really how negative divergences on MACD's are created. I will draw a chart and see.

Managing losing positions

One of the things I try to focus on all the time is 'money management.'

Today, I sold (covered) my entire Euro/US position into strength. I didn't like the fact that we closed above 875 on the S+P Friday and I took the opportunity to cover into 'weakness' because we could be going a lot higher in the pair...which would reflect a strong equity market...and just because I think it's ridiculously high, others don't!

My Euro/Greenback shorts needed more managing then I planned. I wanted to lighten some of my position, and I got the chance. From MarketNews.com:

09:05 05/04 EURO-DOLLAR:
Light flows in the recovery to $1.3255 area, a trader in NY
says, attributing the earlier dip in the pair to euro-sterling sales
through the ECB fixing as weighing on the euro in very thin conditions.

Trade Updates

I am out of the other half of my Euro/USD trade with a loss and, therefore, overall, I made a decent net profit because of the other shorts I covered last week and the one today. Just closed the other half positions of my Euro/Yen short, both profitably (the intermediate account too.)

This stock market is ridiculously overbought, and I don't trust it...and futures are up again! The Euro has the tendency to move with it, so I will stay out of the world's most liquid pair for now.

p.s. Sprint reported great earnings today, which is why I took profits a couple of weeks ago. It's at $5 now...and so what? Never second guess a great profit.

Sold half of all positions for a profit

I have sold half my Euro/Yen positions for a very nice profit...mainly because Japan and Europe are off today. Short term account made $358...Med term made $314. Still holding half positions in both accounts.

Also sold half my Euro/US position at a profit. Here is updated statement for the short term account. I'll post intermediate account later.

Trading 101

The best way to trade suceesfully in Forex is to close half your position at a first profit point or Fibonacci level (T1) when you are in a profitable trade.

It is difficult to do because casual traders (humans) are naturally greedy, but real traders are prudent and will take profits at those same prices. If the pair doesn't continue to the next profit target, you're out with a modest profit...next trade. If it does continue to T2, you are golden. Remember that capital preservation is of utmost importance, not necessarily profits.

As I am writing this entry, this seems to be happening with my Euro/Yen trade. I finished Friday very profitable on the pair and over the weekend, traders covered their shorts. They took profits thus driving the price up. But my T1 is not until 129.45, so I am still in it. (My stop loss is 132.45)