Sir Pipsalot's (Extended) Tuesday Market Update 06-22-2010

Hey folks,

The EUR/USD did indeed top out in the 1.2450 area I had been calling for the past week or so with the double top pattern I mentioned as a possibility to look out for in yesterday's signal. On this pullback, we should see at least 1.2250 (38.2% retracement), but are more likely to pull down to the 1.2100-1.2150 region before attempting a solid bounce. Of course if you're short, it's a good idea to take some profits now around 1.2300.

I'm seeing this EUR/USD rally topping as the end of wave A of an A-B-C retracement where wave B will work lower for at least the next couple of days, and likely target that 61.8% retracement or perhaps quite a bit lower. B waves can take a lot of forms though, so I prefer to identify them early and take profit early as well (I think 1.2100-1.2150 is an appropriate final TP). On wave C though, it's best to be patient and wait for solid confirmation it's started because wave B can have a tendency to sucker you in with false bottoms. Because of this, it may be a few days or even 1-2 weeks before I have another clear-cut concrete medium to long term call on EUR/USD. There are always decent short term plays though, so I'll try to shift focus into those opportunities until the next several hundred pip clear trade opens up again.

Stocks also fulfilled my forecast nearly perfectly by rallying into the 1125-1135 sell region topping out today at 1129.50 on futures (corresponds to about 1133.50 on the S&P index), and then selling off as low as 1103 before bouncing a bit into the close. It certainly looks like a potential top is in place, but there's still a very real chance we'll make another higher high before turning lower, which is why I'm using a somewhat generous stoploss on this one. It's rare to see the Euro and Stocks top out in the same day since usually the Euro will lead stocks by a couple of days; however, the rejection out of our sell range is quite encouraging so far. For profit targets on the short, I think any of the major fibs could work out... but the one I like best is the 61.8% at 1072 for a first target on the short, especially if you used a wider 50 pip SL like I did.

Longer term, it looks like we've got a huge potential head and shoulders forming on the daily chart should we top out somewhere nearby today's highs. If that's the case, simple H&S breakout projections would put a break of the May/June lows around 1035-1040 selling off to 890. In my opinion, that's just for starters too... As I've mentioned for months now, based on lots of my own analysis and research, and that of trusted collegues and analysts, I believe a confirmed break of 1035 is the last piece of confirmation I need to aggressively target an S&P selloff to 400 or below over the next year or two. This is why 1072 is a first target and I'm leaving the 2nd half open for a bit of wiggle room to buy me time to engineer a long term trade to take advantage of this properly.

We had no economic indicators worth trading Monday, but Tuesday offers a couple potential sources of short term action:

0700 CAD Core CPI m/m (0.3% expected) - This has been one of those trades, that given a decent surprise, we've seen a reliable move. It's hard to expect a 0.3% deviation on a monthly CPI figure, but we've seen that trigger hit 3 times in the past year, and each time it's good for 40+ pips initially, some form of pullback or consolidation for 45mins - 1hr, then another surge to extend that move even further.
--If it comes out at 0.6% or higher, USD/CAD should sell off 40+ pips quickly in the first few minutes. If you miss out on the initial price action, try selling it between 0745 and 0800 EST if it's pulled back up some or consolidated in a range.
--If it comes out at 0.3% or lower, USD/CAD should rally 40+ pips quickly in the first few minutes. If you miss out on the initial price action, try getting long between 0745 and 0800 EST if it's retraced downwards decently or at least consolidated in a clear range where you can set an effective SL.

1000 US Exisiting Home Sales (6.12M expected) - I've noticed this report getting a little more action lately, and while I don't think it's the best for a spike trade, I do think some clear scalps can some out of the aftermath as this trade can set the tone for both USD/JPY and US Equities for 1-2 hours after the release.
--If it comes out at 6.30M or higher, USD/JPY should etch out a minor uptrend lasting 1-2 hours, so try getting long after the report on a dip within 10-20 pips of the prerelease price.
--If it comes out at 5.95M or lower, USD/JPY should etch out a minor downtrend lasting 1-2 hours, so try getting short after the report on a bounce to within 10-20 pips of the prerelease price.

That's all for today's update. If you'd like to learn more about trading or trade along with myself and my collegues, come join us at Profit Mongers. Our subscription is very reasonable at $179 per month, and right now you can sign up for a 2 week trial to get started for only $29. This offer is for new customers only. If you have any questions, you can also email me at sirpipsalot@profitmongers.com

To our success!
Sir Pipsalot