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GreenForexTrading.com
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Hi everyone,
In this e-mail I am going to give you my view on the markets for Thursday the 24th to Friday the 25th of February 2011.
The “Monster” Trade. Continue to LOAD UP... with the AUD/USD at 1.012 is now on confirmed BUY signals. Sentiment wise, this AUD/USD is set for further gains, and the 1.000 level looks to be bested for good. With a STOP now raised to under 0.995 and any further decline would invalidate the rationale for the trade (see below). Should the AUD/USD decline any further this trade will be closed for the time being as the AUD/USD is still expected to yield 1000 to 1500 PIPS over the next 2-3 months, maybe even sooner. Adding to existing positions is NOW recommended as scaled in BUYS (0.2 contracts at a time) on any weakness into key support zones NOW AT 1.008 and 1.010. NOTE: All position trade stops are HARD stops, NOT mental stops. Remember, hard stops for overnight positions, mental stops for day trades.
About Scaling In...Scaling in simply means breaking up the initial entry position into multiple parts and deploying them at selected intervals, instead of firing the entire trade magazine all at once. The only reason we might resort to scaling is if we have good reason to believe our expected support zone may have become obsolete. We usually take an initial position in our expected support zone with a fairly tight stop. Obviously if we get stopped, we were early to the trade. Early is just another word for “wrong.” If stopped, we reassess and adapt to the new market reality. If we were not early, and our position shows us that we are right, then we add to that position once the trade has managed to “prove” itself by advancing out of the support zone box, raising our trailing/trading stop in the process. The two or more portions make up a full position. When we speak of scaling, it means we have become willing to break up the trade entry into two or more parts, with the first part at the very top of the expected support box and the second part within it. Rarely will we ever take a new position outside our expected support box.
Why the “Monster Trade”? In the AUD/USD sideways action of recent weeks has served to further unwind the earlier overbought condition while forming a Head and Shoulder bottom continuation pattern on the 4-hour chart with the neckline coming in the 0.996 area. The interpretation of the pattern in the AUD/USD presented in the last update, which was that it is marking out an upwardly skewed bullish "running correction”, remains unchanged. All that has happened in the past few weeks is that it has reacted back across the up sloping channel to arrive at support near its rising 50-day moving average again and again retesting that area. As we can see on the chart this reaction has resulted in a further easing of the medium-term overbought condition as shown by the PPO indicators, which are now bias long with a near BUY signal on the daily and working on a BUY in the weekly as long as it stays above the zero line which looks to be happening. The noted convergence of the short-term downtrend channel earlier last month was an indication that the AUD/USD would soon break out of it to the upside to resume its advance and make new highs, which it has but still seems to be consolidating in this region. The AUD is seen here, http://www.stockcharts.com/charts/gallery.html?$XAD.
ALERT - The 77 area in the USDX is now in play.
If we take the time to remove the beautiful facade around today's economic reports delivered by the mainstream media and stock-promoting cable news outlets, you will find the steaming piles of what remains.
Durable goods: Gleefully reported as 2.7% jump in durable goods orders for January, but if dug through upper crust, the gain reflected a massive order for aircraft parts. If you exclude transportation - i.e. Boeing's order - capital goods orders actually dropped 3.6% vs. expectations of a .5% increase. Worse, excluding defense and aircraft orders, capital goods orders plunged 6.9%, the biggest decline in two years. The expectation was for a drop of 1%. How's that QE thing workin’ for ya? How are Wall Street forecasts lookin'? How's reality look vs. trying to polish a turd...pretty messy I suppose. Yet this is good news from the lamestream media which 90% of those who even bother to follow the news get their news. Sad.
Housing: New home sales for January reported today by the Census Bureau plunged 13% to an annual rate of 284k and 300k was the number expected by Wall Street's brightest. The January number collapsed 18% from January 2010. Even more horrifying, the total number of new homes sold in January was 19,000....the 19k number was the lowest monthly new home sales number since the Census Bureau started keeping records.
Please don't pay attention to the inventory estimates as the inventory of homes reported is grossly underestimated to keep the skeleton banking industry alive. To make matters worse last month new homebuilders reported an increase in housing starts - genius, lets just add more inventory, that will increase prices but it was news which the market loved...for a minute...then the turd started to smear and spread again as the USDX chops around key pivot of 77.2.
When you look at media reports, you can't just look at a headline number, which often shows a percentage gain from the previous month or some other manipulation, and take it for face value. You have to pull up the actual report released and dig through the dung and analyze it in the context of a much longer timeframe than just month to month. This is where true sentiment lies...stating loud and clear...”SELL THE DOLLAR!!!” QE to infinity and beyond!
AGAIN...ALERT - The 77 area in the USDX is now in play.
The pivot support and rising monthly trend-line support is expected to break but not without more chop back and forth. Follow-through weakness did occur on a small weekly bearish engulfment pattern from last week, and a little follow through now to 77.2 as things are getting interesting now. Hope for dollar bulls is fading fast if not terminal with each failed rally attempt. The corrective rally materialized and stalled below the broken 50% retracement at 78.5 and now the declining 50-day moving average in the 79 area. Should the monthly trend-line be broken (now at 77), which is expected as this is the third attack at this line (1st July 2008; 2nd Dec. 2009 and 3rd Oct.-Nov. 2010) we will employ the three times a bounce and then a failure rule. With each subsequent bounce becoming smaller, a fast move to 75 should be in the cards followed by a collapse to as low as 72, depending on where sentiment lies at that time. Witness a weekly PPO SELL signal in conflict with a daily PPO BUY that has rolled over into a new SELL. So look to go long U.S. Dollar denominated pairs on any weakness or anytime this week or next although expect chop for another week or two (although looking pretty sick now) as seen in the USD daily and weekly chart here http://www.stockcharts.com/charts/gallery.html?$USD.
The EUR is the inverse of the USDX and with the backdrop of a PPO that now has triggered a daily BUY signal against a weekly BUY signal extended from the 50-day moving average, and the bounce here looks to continue and now look for some bottom action on lesser time frames to enter and go long. The current upside short term target of 1.37 areas has been achieved but the EUR can still blow out stops to the 1.355 area before 1.41 can be seen on future dollar weakness as seen in the chart here, http://www.stockcharts.com/charts/gallery.html?$XEU. Place your trades accordingly. All charts courtesy of www.stockcharts.com.
Serious choppy swings and a reversal upon reversal bar on the daily and we have been avoiding this on of late but still watching as it becomes less stretched on the long side. A PPO daily SELL against the backdrop of a weekly BUY signal. All these cross-currents still make cable a cautious play, as seen here, http://www.stockcharts.com/charts/gallery.html?$XBP.
The JPY ... well YIKES...too extended to play here, unless it starts to fill the gap under 122 as seen on the chart given here http://www.stockcharts.com/charts/gallery.html?$XJY.
This session’s remaining tradable reports are:
1. Fri. Feb. 24, 2011 - (4:30am EST) UK Revised GDP; (5:30am) CHF KOF Economic Barometer and (8:30am) US Preliminary GDP.
The swing trade for today’s Asian-London-U.S. session is to BUY the EUR/USD @ 1.3784 with a STOP @ 1.3745 for a TARGET of 1.3862 for 100 PIPS. Again, beware of chop as this is a continuation of yesterday’s swing trade.
That's it for today. Remember that I trade in the Live Forex Trading Room between 1am-6am Eastern Time. I will be hosting my regular 3-4 hour session and assessing and exploiting PIP opportunities as they arise.
Enjoy trading and good luck everyone!
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