Forex Trading Signal 8-27-2009

[Sir Pipsalot]

Hey folks,

We saw the Euro and GBP roll over Wednesday along with our slight bias towards bearishness, especially once the 1.6274 biasing level I mentioned broke on GBP/USD. The GBP specifically is quite technically weak right now and will be even more weak if it can manage to break lower through 1.5980. Until then, I would recommend taking a strategically bearish stance on both GU and EU looking to sell bounces. If the highs of the week are broken on either EU or GU, chances are there will be more follow through to the upside, so that gives a pretty clear stop loss region for big swing trades or position trades. The only reason I'm not quite ready to specifically recommend shorting just yet is the stock outlook. A final surge higher in stocks could bring the Euro and GBP back up higher in their consolidation ranges or even bust out of them, so I'd rather be cautious and wait for more of a bounce.

In stocks, we've seen relatively tight consolidation this week in what looks like a potential 4th wave triangle preceeding a final stock run up on the horizon. Once we start making new highs by at least 5 points on the S&P (1043 and up) I'll start looking for signs of a top in the technical pattern and look to initiate a position trade short. Big picture here, we're looking at a long term selloff all the way to 400 (ballpark) on the S&P 500, so get your helmets on. From a shorter term perspective though, a futures long around market now around 1023 with a pretty tight 1015 SL could see 15-20 points up pretty easily over the next couple of days with only 8 points of risk.

In Silver and Gold, there has been some continued mixed pressures as I mentioned yesterday causing continued sideways action. The long term is still bearish and I continue to recommend holding position trades short or enter on rallies if you're not short. $991 and $15.20 in Gold and Silver are the spots if exceeded where I'll have to strongly reconsider our view, but as long as they hold... game on.

In news Wednesday, we had triggers hit on both news items, but the price action was just awful and didn't really reach very profitable targets. It could be a function of this August vacation laze that many markets seem to be under as many traders and big names take their vacations late August through early September. In any case, I'll keep previewing the news as best I can, but trade cautiously for the next week or so just in case this malaise persists. In news Thursday:

0200 UK Nationwide House Prices m/m (expected at 0.5%) -- This one always sneaks up on us because they don't provide the release date until the day before. By the time most people see the signal, this will have already come out so I'll say that a 1% surprise either way usually would get 30 pips or so gradually over the course of 20 minutes, but with the news disappointing a lot this week on low volume, it's tougher to expect a solid move out of it this time.

0830 US GDP Annualized 2Q Preliminary (-1.4 to -1.5% expected) - Last month's advance number came in better than expected, but a very big revision down to 1Q GDP stole the show and caused a selloff. We're unlikely to get any further revisions to 1Q GDP this time around, so thankfully we can focus more on this number by itself.
If it comes out at -0.9% or higher, EUR/JPY should rally 40-50 pips.
If it comes out at -1.9% or lower, EUR/JPY shold sell off 40-50 pips.

(as always, the play on EUR/JPY is to capture the best of potential risk aversion or risk appetite that tends to overshadow the USD after a key US release)

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To our success,
Sir Pipsalot

 

[Sir Pipsalot]

Also, just to dig this up for everyone from a thread from a few days back:

The impending selloff to the 400 region on the S&P is based on a convergence of technical, fundamental, sentiment, and event risk factors. I talk about this stuff a lot in the Diamonds room, but to sum up the main point for each:

Technical - Elliott Wave has successfully predicted each of the major turns since I started following it closely over the last 2 years, and it says we're finishing off the final stages of primary wave 2 up which will have primary wave 3 to follow. By one of the most rigid rules in elliott wave, wave 3 down will be at least as large as Primary wave 1 down in percentage terms which means at least a 60-70% decline from the coming wave 2 highs over a 6 to 24 month type timeframe.

Fundamental - P/E ratios are ridiculously high pricing in major increases in earnings that are unlikely to be realized. Trailing 12 month P/E ratios are around 68 now. Typically valuation will overshoot too far on the upside during the boom, and overshoot too far to the downside on the bust, so we're likely to see these P/E's work down to the 10-20 range which implies the fair value of the S&P is closer to 250 than 1000 from an earnings perspective. And with a deflationary outlook, you have to assume book values will decline as well.

Sentiment - One of the key things most investors and traders don't understand is that extremes or peaks in optimism accompany extremes or peaks in price. Right now 89-90% of DSI respondants are bullish stocks which are extremes not seen since the 2007 highs. I even heard an analyst on Bloomberg radio today saying we may not even manage more than a 3% pullback in this bull market because people are buying dips so aggressively. Such myopic bullishness is what's extended this bear market rally so far, and what will ultimately cause it's doom. This situation confirms conditions are ripe for a major top reversal lower. When even the bearish analysts become bulls (*cough* Roubini), ironically, it's time to get short... and that's starting to happen.

Event risk - All of the event/news risk is to the downside. A moderate recovery is already priced in, so anything to the contrary will cause a potentially brutal downside adjustment. There are probably a dozen potential problems, any of which could create a tailspin similar to what we saw with Lehman last September, except we're in a much more fragile condition to respond to it, and the political will to continue bailing out and providing stimulus is almost out. Commercial real estate, another major bankruptcy, PPIP failure, a major geopolitical event (war), a Chinese stock bubble crash, FDIC failure (closer than you might think), deflation accellerating, etc.

Guys, when I make clear position trade calls, I do so based on a lot of research, effort and reasoning. I explain myself from time to time, but the next day someone new comes along and wants to hear why... and then the next day the same thing and it a bit taxing. Usually with the signals I try to keep focused on the conclusions since if I explained the reason for everything like I just did above, the signals would be waaaaaaaaaay too long and would start to sound like a broken record. Also, it would be so much work, I probably couldn't keep it going for very long. But it's also nice to get my full reasoning out there every now and then... I just typically reserve that kind of depth for the subscribers.

 

[jlnh]

Also, just to dig this up for everyone from a thread from a few days back:


Technical - Elliott Wave has successfully predicted each of the major turns since I started following it closely over the last 2 years, and it says we're finishing off the final stages of primary wave 2 up which will have primary wave 3 to follow. By one of the most rigid rules in elliott wave, wave 3 down will be at least as large as Primary wave 1 down in percentage terms which means at least a 60-70% decline from the coming wave 2 highs over a 6 to 24 month type timeframe.



Hear Hear!!

 

[CanAm]

Hi Tim - can delete this - was just trying to find a way to ask you about the 'room' - coudl you just let me know what time the room is active please to see if I can use it, oh yes, and what time that is EST/GMT etc. Cheers Seth

 

[NoseyPAG]

Surely the Quantitative Easing measures taken by the US and UK governments (including possible measures at market price support) will affect the fundamentals and Elliott wave behaviour and delay any downturn. Isn't that whats been supporting the rising market for the past few months whilst many commentators and investors (gamblers) have been predicting an imminent rapid decline in stock prices.

This wave 3 down has been imminent for months, how can you be sure that the time has come now and at around 1050 S&P? It was going to turn down sharply at 850, then 900, then 950 etc. but has just kept going after some minor consolidations.

Nosey

 

[Sir Pipsalot]

The time isn't necessarily now, but it's getting closer and closer. At some point you have to risk getting in early trying to pick a top, or accepting the idea of missing a good chunk of the decline waiting for it to confirm.

Elliot wave did not difinitively call for tops at 850, 900, 950; in fact, the target range for this bear market rally all along has been 1000-1100. Even back in March I started pointing this out in the videos and even a bit in the text signals:

https://www.forexpeacearmy.com/fore...ive/4320-forex-trading-signal-03-25-09-a.html

There was always the chance the turn lower might start sooner, but the odds have always been in line with a higher rally into the target range which we are now in. Now that we have a clear 3 wave bear market rally on the weekly charts, all we're waiting for is the shorter term subdivisions of that final wave C up to appear complete to make a more clear and directed short recommendation.

 

[NoseyPAG]

Thanks for the reply Sir Pips. I will follow this along with you in the coming weeks.

Nosey