Sir Pipsalot's Tuesday Market Update 05-11-2010

[Sir Pipsalot]

Hey folks,

Yesterday I said the rally probably wouldn't hold and the best idea on the EUR/USD was to short it around 1.3100 and it looks like I called the top perfectly. Right now it's pretty clear that the Euro is screwed either way. If the Euro bailout comes under scrutiny or markets lose faith it will work, the Euro will obviously suffer. But even if the markets maintain faith in the program and risk appetite holds on awhile, it's still a very large dilution of the Euro and the Euro should still be weak. It seems long term right now, a Euro short is still a no-brainer and should be for several weeks to several months.

Unfortunately though, if you didn't get short at a good price like I recommended yesterday, it's just not the best time to get short on the Euro with any decent leverage. After 400 pips down off that peak (near 78% retrace), there's a clear chance we'll get a short covering bounce or period of consolidation. If you're used to managing long term trades with little to no leverage and very wide SL's, I'd say just get short here in the 1.2700's. However, in order to get short responsibly with a bit more leverage (like a typical swing trade), we'll need to hope for that bounce and try to enter short near the top of it. A short around 1.2880 seems to be a good place to get in with a 100-250 pip SL depending on how much room you can afford to give it.

Stocks worked into the lower end of my sell zone (1154 to 1174) with a rally to 1160 yesterday, so if you got short, I think it was a decent trade. We might get another bounce back into that region, so it's still valid. See yesterday's signal there. Right now, we're aroun 1143 on futures and I'm pretty pessimistic on stocks medium to long term.

In news Monday, UK Interest Rates offered no real substance to trade off of, while UK Industrial Production just released a bit ago flat out failed with a big positive deviation, a 30 pip or so rally followed by a 60+ pip tumble. We've seen this happening quite a bit over the last week. I think because we're in such a major turning point in risk sentiment, a lot of news trades will continue to "fail" just as they did in late 2008 and early 2009. The good thing is, if we change our strategies a bit, we can still make money off of them, and in some cases it's easier.

On several news reports later in the week (German GDP, UK Claimant Count Change, NZ Retail Sales and US Retail Sales), I will discuss strategies and options for trading against the news spike and making money that way as spike reversals will likely become more of a norm as long as risk aversion maintains a decent grip on things. If risk appetite reaffirms substantially, we'll likely see typical news action regain a foothold.

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

PS - Sorry for the late signal tonight. I was catching up on sleep. Tomorrow's signal should be before midnight EST.

 

[koco]

Risk Aversion

Hey Sir Pipsalot,

well, did the "risk aversion" nightmare come true after all? We were talking about it last week together with Boko Maru, you certainly remember it.

So, are you sure that the news PA is caused by this?

Services PMI failed last week, but it still could have been caused by the UK elections that time.

Today's UK Industrial Production went around 35 pips (as Crazycat predicted).
However, as well as him I wasn't still sure about the impact of this news report, because it started performing well just 2 last months (not including this one), so it still can be a confusing indicator. However, the deviation was really huge (so I also awaited a bigger move).

Well, are you still convinced that we are facing the risk aversion, because of the Greece bailout or can it be just a coincidence I wrote about above?

For example Canadian Employment Change and US Payrolls performed as expected.

So, what do you think?

 

[Sir Pipsalot]

Hey Sir Pipsalot,

well, did the "risk aversion" nightmare come true after all? We were talking about it last week together with Boko Maru, you certainly remember it.

So, are you sure that the news PA is caused by this?

Services PMI failed last week, but it still could have been caused by the UK elections that time.

Today's UK Industrial Production went around 35 pips (as Crazycat predicted).
However, as well as him I wasn't still sure about the impact of this news report, because it started performing well just 2 last months (not including this one), so it still can be a confusing indicator. However, the deviation was really huge (so I also awaited a bigger move).

Well, are you still convinced that we are facing the risk aversion, because of the Greece bailout or can it be just a coincidence I wrote about above?

For example Canadian Employment Change and US Payrolls performed as expected.

So, what do you think?

Well koco,

I do think we're holding onto that broader theme of risk aversion right now, and it's likely to snowball into a more dramatic high gear. It won't affect every news report, but it should affect most. NFP is notorious for lots of whipsaw price action anyways, but CAD Employment should be one of the few trades it's worth staying legit on.

 

[koco]

And what about Australia?

Thank you. I hoped so that these reports will stay as they are. What do you think about australian reports? I find them pretty reliable and you mentioned that the economics is pretty stable, do you think that the possible crisis will not affect them?

 

[Sir Pipsalot]

Thank you. I hoped so that these reports will stay as they are. What do you think about australian reports? I find them pretty reliable and you mentioned that the economics is pretty stable, do you think that the possible crisis will not affect them?

It should be more immune to the phenomenon than most at this point.

Oh and by the way, it looks like I was right on both German GDP and UK CCC. Both came out better than expected, but sold off instead after a couple of mintues. It's time to start trading against the news on reports like these for sure.