Sir Pipsalot's Friday Market Update 05-21-2010

Sir Pipsalot

Former FPA Special Consultant
Hey folks,

Trend on the EUR/USD for the medium term has likely shifted long for a variety of technical and sentiment based reasons. Positioning short around 1.2500 no longer seems as opportune given the changed environment. I recommend buying in the 1.2290-1.2340 range with a 50-100 pip SL and 100, 200, 400 pip TP's. We've seen a possible paradigm shift where stocks are selling off, yet the Euro has rallied hard. This is a powerful sign that the oversold condition on the EUR/USD has finally taken root and short covering should continue to support the EUR/USD as it consolidates and retraces further.

Long term, the EUR/USD should still see substantial losses to come, but we may be able to get back in short 500-1000 pips higher from here as we work through a retracement over the next few weeks.

USD/JPY's short term fate is tied to stocks, which could go either way hard on Friday/Monday. Either way though, the medium term trend will still be clearly down and our 600 pip TP on the USD/JPY short around 87.30 still looks good.

Stocks had a huge down day bolstering our bearish views. A technical break of both the 1100 psychological level and the 200 day moving average pushed tons of selling into the market and led to some nice profit for a lot of us I'm sure. Remember though, we still need to break the 1030-40 range in order to concretely confirm that a new bear market phase has begun, so if you're short from any of the numous shorts I've called since 1174, know I'm looking to close most of my short exposure on the S&P 500 in the 1040-50 range. If/when we break that support region, I'll be reentering short but with a more ambitious, longer term outlook. I'm still going to keep some short exposure, just in case, but only a fraction of what I'm holding now.

Short term though, the waveform supports a variety of possibilities, including a sharp rally on Friday/Monday, or continued ambitious selloff. It's really hard to say which direction we'll see Friday honestly. What is much more certain though is that if we do get a rally, it's likely to be sharp, scary, but short lived. This means it could be an excellent opportunity to get in short if you're not already in, or add short if you're looking for an additional entry. I would short ESM0 (S&P 500 futures) a bit above 1100 with a 30-45 point SL and initial TP at 1045, with further targets TBD, but ambitious.

In news Thursday, we saw UK Retail Sales some out too close to expected for a trade. Note though, I misspoke when I said the WITH gasoline numbers were the traditional report... actually the EXCLUDING gasoline numbers are; however, the WITH gasoline numbers are seeing twice the economists providing estimates, so it very well could be the more important report now. In news Friday:

0700 CAD Core CPI y/y (1.8% expected) - This report has done well lately at hitting 40 pip targets, so hopefully that trend will continue. Just look out for a conflict with the headline number (1.7% expected).
If it comes out at 2.0% or higher, USD/CAD should drop 40 pips.
If it comes out at 1.6% or lower, USD/CAD should rally 40 pips.

0830 CAD Retail Sales headline m/m (0.1% expected) - Notice for Retail Sales, the focus is usually on the headline and not the core. Unfortunately we have not seen a decent deviation on this very often in recent months, so it's hard to say how it will behave. My best educated guess is we will see a 30-40 pip move that holds up for 20 minutes.
If it comes out at 0.6% or higher, USD/CAD should drop 30-40 pips.
If it comes out at -0.4% or lower, USD/CAD shoul rally 30-40 pips.

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

To our success!
Sir Pipsalot

P.S. Sorry for the late signal tonight. I'm really pissed, I typed this all out and probably a bit more and lost it all before I clicked submit due to a browser crash... *sigh*
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