Sir Pipsalot's Tuesday Market Update 05-18-2010

Sir Pipsalot

Former FPA Special Consultant
Hey folks,

As I said yesterday, it was a bit of a coin flip on the EUR/USD whether we kept sliding or found some support to make a modest recovery in that 1.2100 to 1.2330 support zone, and it looks like we did hold the lows at 1.2234, so my sell range on a bounce to the 1.2510-1.2565 remains unchanged for Tuesday. We just may see that level today on continued short covering. I wouldn't go nuts buying though as we could see another dip/double bottom before working higher again.

The downside momentum died out enough to make hourly chart momentum unappetizing, but once prices work through the 60sma on the 15min, you can follow momentum in either direction there (down on EUR/USD right now). I'll try to show a chart of this tomorrow.

Stocks whipsawed between up a little and down a lot throughout the day, but closed just above even near their highs. There are two near term potentials on stocks:
1) We have completed 5 waves down and may be starting a 3 wave retracement that will likely top out between 1136 and 1144, but could work as high as 1161. After this retracement, stocks should continue lower sharply.
2) We have not yet completed the 5 waves down, which means prices should draw down either to about 1025, or possibly lower to 985 before staging a multiday bounce.
Plan - Given this outlook, if you're short and can't stomach a rally to 1160 or so with a SL above Thursday's 1175 highs, then definitely take some more profits now. If you're neutral or looking to add to the short, I would sell some in the 1136 to 1160 range (1144 looks alright, or fade in small amounts every 5-8 points).

In news Monday, smaller reports such as the Empire Manufacturing Survey and the US TICS data both failed to move the market short term, despite garnering plenty of headlines. That's why I did not preview them as we're not in a trading environment where small reports will perform very well consistently. In news Tuesday:

0430 UK CPI y/y (3.5% expected) - This to me looks like another opportunity to trade against the news as we did last week. The last several months typically see a 30-35 pip inital move reverse the other way within minutes, turn back for one last stab at the extremes, then back towards prerelease again. If this pattern holds, it will be a lot easier to trade against the numbers than along with them.
If it comes out a bit high, look to get short GBP/USD about 30 pips above prerelease looking for 15-25 pips profit initially.
If it comes in a bit low, look to get short GBP/USD about 30 pips below prerelease with a 15-25 pip profit target.
If it comes out with a huge deviation (+/-0.4% or more), it might be best to trade along with the news by getting in on a 50% retracement.

The German ZEW and US Morning data doesn't seem to be powerful enough to get a big reaction, so I'm not going to trade them, but we'll take a look at them tomorrow in case they offer and forward-looking clues relevent to other news trades.

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