Sir Pipsalot's Thursday Market Update 08-12-2010

Sir Pipsalot

Former FPA Special Consultant
Hey folks,

I had discussed the potential of EUR/USD topping and heading markedly lower for the past couple of weeks, and earlier this week I highlighted that a decline below 1.3200 would be a good sign this was starting to occur. With subsequent breaks of support (mainly 1.3120), it became clear this was a stronger and stronger possibility, so I finally got short for a position trade during the European session Wednesday on the way down aroung 1.3070. For those of you that are Profit Mongers members, you should have the details of this trade in the room and in the email I sent when I entered the trade. At this point, I see 2 potentials for EUR/USD:

1) We're starting another MAJOR selloff that should see new lows on the Euro for a total selloff of 1500-4000 pips. This is my current view based on Elliot Wave analysis and global market trajectory.

2) I'm wrong and this is only going to be a retracement of the rally off the June lows. In that case the likely target is the 50-61.8% retracement area from 1.2440 - 1.2610.

Essentially in my view, it's definitely going down, it's just a question of how far... so if that's the case you should be able to make money in either scenario if you choose a more conservative trade which I have done so far. If you're not in short on the Euro but want to be, consider a sell on a rally to the 1.2980 - 1.3075 range on EUR/USD. We may not get that type of bounce, but if we do, it's a good spot to sell in my opinion.

USD/JPY hit 85.00 and bounced right up for about 30 pips, then later on traded through to lower support around 84.80 and bounced 60 pips off that, so playing the bounces in this area should have proven very profitable today even with the huge stock weakness.

Speak of the devil, the stock short trade finally paid off to those who were patient. To recap, I recommended and reiterated my support of a short in the 1120-1130 range on stocks for a short term target in the 1085-1095 range which was already hit today. I've kept the other half in for a 1055-1065 TP target. Given the impressive downside thrust, I may be encouraged to add to my short position with a longer term trade focus sometime soon as originally discussed in last Tuesday's signal:

In my opinion, stocks either are finishing or have finished off a wave 2 retracement high, and will head lower in what's called the "Pretcher Point," (if I'm remembering the term correctly) where you get a wave 3 of 3 downwards which can be ridiculously brutal. I see it as the perfect time to start seriously considering a long term short or see it as the last straw needed to trim back the last of my equities exposure. It's no guarantee, but if this is the case, we may see record stock market declines and fulfill my S&P 500 forecast of below 400 within mere months.

In news Wednesday, we saw UK Claimant Count Change come in a bit bad, but not quite hitting my sell trigger. GBP/USD did work lower, but in a touchy way that would have been difficult to make money on. I discussed my views on the BOE Inflation release in an edit to yesterday's signal and said: "BoE definitely came out dovish, but there was no new groundbreaking announcement. This led to a short term selloff, but I don't think this news alone is worth a long term EUR/GBP long." I still agree. GBP/USD should be weak due to the big risk aversion momentum out there, but not as weak as the EUR/USD. Lastly, AUD Employment came in close to expectations, but the Unemployment Rate disappointed by 0.2% and we saw 40-50 pips down.

There's no key news due out Thursday, except NZ Retail Sales, and quite honestly, I don't like trading that one due to its mediocre reliability, illiquid time of release, and limited ultimate price extention. In tomorrow's signal though, we'll preview German GDP and a big batch of US data due out Friday morning.

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