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Sir Pipsalot's Thursday Market Update 05-06-2010

Discussion in 'Commercial Trade Journals' started by Sir Pipsalot, May 6, 2010.

  1. Sir Pipsalot

    Sir Pipsalot Former FPA Special Consultant

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    Hey folks,

    The Euro has continued to stay under pressure. The trend is clearly resumed downwards and it has been my view for quite some time we'll see EUR/USD sell off to around 1.0000 long term. This leg down should take us to at least 1.1800 over the next several months, but there may be stretches of volatility and sharp pullbacks along the way as always. At some point in the near future, the Europeans will very likely find just the right thing to say to calm the markets a bit and cause a sharp wave of short covering on EUR/USD... if/when we get that, that will set us up for a clear and solid long term short entry.

    Tuesday EUR/USD held the 15 minute chart 10 EMA very well, and today it worked the hourly chart angle. Now it might be a bit out of steam and may attempt a modest retracement higher, but obviously it could keep extending lower without one... so if you'd like to trend follow, do so as I described yesterday but using the hourly chart 10/20 EMA's (15min chart may be too aggressive for how extended this week's move is). Also, there's some decent support here around 1.2800, so a long from here (1.2816 as I write) is quite risky (lower than 50% probability), but with about a 35 pip SL you could easily reach for 100-150+ pips to the upside on a strong bout of short covering, so it's worth mentioning.

    A good spot for getting short on a nice short covering bounce is 1.3070-80. Getting in short there with a 50-300 pip SL (depending on how much profit you're holding out for) should be the right balance of holding out for a nice bounce but still having a reasonable probability of getting up there. If/when we reach that area, I'll update you with the specifics of the trade I enter, but it will probably involve a very wide SL and very big TP's.

    Also, I had mentioned USD/JPY interaction at the 95.00 level to be very key for follow through, and with the strong selloff Wednesday off of a near touch of 95, the odds are we'll see plenty more pips down from here. A short on USD/JPY here (93.80 as I type) should work well with a 60-80 pip SL and 150-265 pip TP (91.15).

    Stocks remain somewhat weak but like the Euro, could be poised for a bit of a short-covering jaunt higher. If you haven't gotten in short yet on stocks because you've been waiting for a better price, try shorting around the S&P 500 around 1178 (1176 on futures) which is about a 10-15 point bounce from today's close. Again, I'm expecting an 80+ point drop from these levels, with the potential for the start of a much bigger bear phase.

    In news Wednesday, we saw US ADP pretty much as expected, while NZ Employment surprised very nicely to the upside giving a 65 pip rally so far which we captured a good chunk of in the Profit Mongers room. AU Retail sales came out low, but too close to expectations to trade as well. In news Thursday:

    0428 UK Services PMI (57 expected) - With a decent deviation here, we usually see a 50-60 pip move within 3-10 minutes.
    If it comes out at 58.0 or higher, GBP/USD should rally 50 pips.
    If it comes out at 56.0 or lower, GBP/USD should fall 50 pips.

    0745 ECB Interest Rate Decision (no change expected) - The ECB has no real likelihood of moving interest rates, but there's always the longshot chance they could initiate some form of quantitative easing to stem this debt crisis. I doubt they would do anything as it's not their place to do so, and it would be counterproductive at this point. Actually, I'd be surprised if they even comment much on the crisis at all; however, look out for it either at the 0745 release, or more likely during Trichet's speech which starts around 0830. Any introduced form of quantitative easing would cause further accelleration lower on the Euro. Assuming it's a pretty vanilla but reassuring event (most likely scenario, the Euro will likely see some short covering in response).

    1000 CAD Ivey PMI (59.3 expected) - This trade is nice, consistent, and normally slow moving when the triggers are hit. It's not the most important number in the world but it performs quite well.
    If it comes out at 63.3 or higher, USD/CAD should sell off 40 pips.
    If it comes out at 55.3 or lower, USD/CAD should rally 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 sirpipsalot@profitmongers.com

    To our success!
    Sir Pipsalot
     
  2. koco

    koco Private, 1st Class

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    WTF?

    WTF happened to the UK Services PMI? Why whipsaw with deviation 1.7?
     
  3. Boko Maru

    Boko Maru Sergeant

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    Don't know what happened, but if you lost on that (I did), I'm sure you're not the only one. Based on history, a 1.7 deviation should have been a great trade. Looks like the small initial spike down just ended up triggering a bunch of buy orders though.

    Just a thought: I remember about 3-4 months before the 2008 financial meltdown, many news reports started to fail. Meaning, price action "made no sense" relative to the numbers that came out. Often it was better to just trade against the normal triggers and go the opposite way. It was amazing how this type of price action on news reports preceded the meltdown just a few months later. Who knows, and I'd hate to think this is the start of the same thing, but the thought has crossed my mind honestly...
     
  4. koco

    koco Private, 1st Class

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    Getting the creeps...

    Boko: yep, that time I wasn't trading, but I heard about the random and "non-sense" price action during the news. This has also come on my mind whether it's not this case, in other words beginning of the new crisis :-( When looking at the Greece situation, this could be the second wave of crisis. What do you think? I hope it's not true...
     
  5. Boko Maru

    Boko Maru Sergeant

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    Well I can only speculate, but I'm not too surprised by the market action today. I've felt this whole economic "recovery" is akin to getting a trillion dollar credit card cash advance. Sure, everything is great for a while because you're flush with cash, but once it comes time to pay the bill, things start hitting the fan.

    Just my opinion, but I don't think much has really been solved in the economy since 2008, at least in the US. As I mentioned above, just throwing tons of money at everything is a temporary solution at best. Another analogy could be that it's like giving morphine to someone with a deathly painful injury; sooner or later the morphine is going to wear off. I'm not blaming any one person, political party, industry, etc., I think it's just the way it is irrespective of who's at fault.

    I'm no expert though; I guess all that matters for us is that we're able to take advantage of whatever trading opportunities exist regardless. Like with GY going down 1,000 pips today, being short sure would have been nice :)
     

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