The cycle turn for the FTSE, the Dow and other indices should come Friday/Monday. This morning we saw a quick bounce, which was probably drowned out in margin call selling. Although the cycle turn is not due until Friday, the severity of the sell-off yesterday will probably have exhausted some of the selling for now.
The SP500 has decline 110 points(!), which happens to coincide with the first leg down in November. Sure it is a coincidence, but I can count 5 waves down to the low yesterday, so although this is probably only the first leg down, we should see a retracement right about now. I think 853 is the first sign a retracement move higher is on the cards. Ultimately a 50% retracement is 888.
The currencies are interesting. Today's analysis show that the AUD and NZD are the weakest currencies, and the Dollar and the YEN are the strongest. I may at some point have positions in these currencies.
USD/AUD 120 min - keep shorting
The USD AUD is breaking down. I am looking for a trend move down towards the old lows around 60.
The chart below is the NZD vs USD. As you can see this is already close to fulfilling its target of new lows.
Sterling Dollar - Head & Shoulder
Do you spot the top head & shoulder? I have not drawn it in, but if you were really cynical about technical analysis, you could argue that in this pattern you have a H&S at the top AND at the bottom of the chart.
As we stand, we are trading at $1.46. The US dollar is a leading currency against other majo currencies, but not the £. Here the currency is near the base set around 1.44-1.46.
The ramnifications for a break below 1.44 could be a Head and Shoulder target of $1.32 or lower. This is one to watch closely.
CHF vs NZD - an unusual pair
All-time high breakout.... watch for a reversal, as it could be a good counter-trend move setting up....
The old high was 1.6550. If we were to move higher from here and come back down again, I will be short below 1.6540.
This is on the watchlist.
That is all for today
Happy Trading
Tom Hougaard
Wednesday 14th January 2009 - 11:37am
I already got stopped out of my SP500 swing trade, because I was 10 points in profit. We hit 865 a short while ago. The morning started well technically, but a research note from Morgan Stanley on HSBC has put pressure on the downside. Another rumour floating around on the desks now is that HSBC will retort by stating that the research note is inaccurate.
Technically the FTSE 100 cash market looks weak still. There will be support at 4260, and again at 4200. I am slightly annoyed I got out of my short position last night as the market in the US gave me a swing buy signal. I will stay aside for now, and asses the situation around the open of the US.
On the second chart it is easy to see why 857 is such a crucial area of support. It may turn out that my swing position is still valid (but I am stopped out at evens). So expect another test of the lows from yesterday and watch 8400 in the Dow and 857 in the SP500.
That is all I have time for today
Happy Trading
Tom
Wednesday 14th January 2009 - 07:09am
A Swing Buy signal was given last night at 20:30GMT. The long entry is at 865. I use a 10-point stop initially. I am updating the charts now, and will post them later in the morning, around 9am. In the meantime, please take a read of the article sent to me:
Unfrozen Hedge Fund Redemption May Spark Stock Sell-Off In Feb
TOKYO (Nikkei)--Speculation is aswirl that global stock markets may come under renewed downward pressure from hedge funds forced to cash out of their equity holdings in February to meet a flurry of investor requests for redemptions.
Unlike ordinary investment trusts, most hedge funds have rules that allow them to place limits on withdrawals by investors, such as once a quarter or every six months. They have attracted money by underscoring that while the rules may force investors to sacrifice liquidity, the guildelines also serve to help the funds concentrate on fund management over longer periods to yield higher returns.
Moreover, additional provisions enable hedge funds to freeze redemptions in emergency situations. In fact, many hedge funds did just that to deal with a wave of redemption requests filed late last year. At the end of December last year, the quarterly deadline for redemptions, they managed to refuse to let investors take their money out, using the rules as an excuse. At the end of March 2009, the next deadline, however, funds will face stronger demands from investors for money withdrawals. Even worse, the recent situation surrounding the hedge fund industry has been somewhat complicated. Pension funds and other institutional investors tend to invest through funds of funds, rather than allocate money directly to individual hedge funds.
If a fund of funds receives a redemption request from its customer investing in one of the hedge funds comprising its portfolio that moved to freeze redemptions, it has no choice but to raise cash to meet such request by either unloading assets at other hedge fund designed to offer unconditional redemptions or borrowing money from banks. The reality, however, is that there are no banks for now that are willing to lend money to funds of funds.
According to Hidenao Miyajima, chief strategist at Barclays Capital Japan Ltd., hedge fund firms have frozen redemptions on a total of approximately 1,800 funds, including about 1,000 funds focusing on stocks of emerging nations and 600 specializing in long and short positions in global stocks. The total number represents roughly 25% of all hedge funds operated in the world.
...
--Translated from an article written by Nikkei senior staff writer Masataka Maeda
A swing buy signal has been given as of 8:30pm in the SP500 at 866. I am long.
Tuesday 13th January 2009 - 14:09pm
Sorry for the delay today. I have been busy with the DAX and the FTSE.
The talk on the street is that if the SP500 can't hold 850, we could see new lows again, retesting the November lows. Quite a number of folks are hoping for a "January effect" rally (usually in the small caps - I learned about this at Uni decades ago - apparently it is statistically significant that small caps outperform during the first month of the year), as well as a "Obama Honeymoon Rally". Will it be postponed? Or abandoned altogether? Obama is inheriting an economy on the verge of a recession. He is inexperienced but may rise to the occasion. It is no wonder that the market has reacted as it has after the Dow hit 9000.
At that point many stocks had rallied back above their 50-day MA, and we had gained some 20% since November lows. It happened a number of time from 2000 to 2002 that we had 20% rallies. So here we are. A move below 850 and 8400 in the Dow technically is a much stronger sell than the one I issued last week. You can call it a confirmation if you needed it. No wonder the March Dow puts around 6000 is selling with a healthy premium.
I will leave the charting alone today. I remain short Euro Yen, but I am flat Gold as per last night.
Happy Trading
Tom Hougaard
Tuesday 13th January 2009 - 11:39am
What I love about the Internet is the wealth of knowledge we have available at our hands. Of course not all of it is true, and I therefore wrote about the story below: "I cant verify it". I guess that was my luck, because apparently it is not true!!!!!!!!!!!!!
check for yourself and thank you to Chris for sending me the link and enlightening me even further:
Here is a nice story to wake you up, while I am preparing the charts.
Now I can't verify the story, but it reads very well:
The story is called: What goes around comes around
His name was Fleming, and he was a poor Scottish farmer. One day, while trying to make a living for his family, he heard a cry for help coming from a nearby bog. He dropped his tools
and ran to the bog.
There, mired to his waist in black muck, was a terr ified boy, screaming and struggling to free himself. Farmer Fleming saved the lad from what could have been a slow and terrifying death.
The next day, a fancy carriage pulled up to the Scotsman's sparse surroundings. An elegantly dressed nobleman stepped out and introduced himself as the father of the boy Farmer Fleming had saved.
'I want to repay you,' said the nobleman. 'You saved my son's life.'
'No, I can't accept payment for what I did,' the Scottish farmer replied waving off the offer. At that moment, the farmer's own son came to the door of the family hovel.
'Is that your son?' the nobleman asked.
'Yes,' the farmer replied proudly.
'I'll make you a deal. Let me provide him with the level of education my own son will enjoy If the lad is anything like his father, he'll no doubt grow to be a man we both will be proud of.' And that he did.
Farmer Fleming's son attended the very best schools and in time, graduated from St. Mary's Hospital Medical School in London, and went on to become known throughout the world as the noted Sir Alexander Fleming, the discoverer of Penicillin.
Years afterward, the same nobleman's son who was saved from the bog was stricken with pneumonia.
What saved his life this time? Penicillin.
The name of the nobleman? Lord Randolph Churchill.. His son's name?
Sir Winston Churchill.
Someone once said: What goes around comes around.
Work like you don't need the money.
Love like you've never been hurt.
Dance like nobody's watching.
Sing like nobody's listening.
Live like it's Heaven on Earth.
It's National Friendship Week. Send this to everyone you consider A FRIEND.
Pass this on, and brighten some one's day.
UPDATE MONDAY EVENING 18:41pm
In case you followed by GOLD trade, I am buying it back at $821.50 from the short of $845.
Monday 12th January 2009 - 10:10am
The analysis will be posted in bits and pieces today. I am still short and adding to my EURO YEN position, that I initiated last week(see analysis 8th Jan).
Gold is looking weak and vulnerable to a bigger correction.
EURO trade from Friday did not work out. I am a bit pissed off about that, because I had the EURO as the weakest of all the pairs in my analysis. Hey, you win some, you lose some, and some get rained out, but it is nevertheless annoying when your analysis points to weakness, and you get swayed by a pattern. You live and learn. We have hit support again at 1.3324 this morning and immediately bounced. Wathc this one. It could still be a valid buy signal.
The Dax futures are looking weak. If I am bearish FTSE as per Friday's analysis, then I am obviously also bearish DAX, as the two are highly correlated. I am staying short both, even if we do have a temporary rally. Keep nimble. Dax is actually oversold now.
That is all for today
Back tomorrow
Tom
Friday 9th January 2009 - 12:10pm
Ahead of Non-Farm Payroll.
I dont know what will happen at NFP, obviously, but I am sure the numbers will be awful. The FTSE chart looks like a short position could be initiated either now and/or if we were to get to 4571.
Right now the DAX is doing nothing, so players are clearly very undecided. Stay nimble, as they say.
The live trading room is having a break, due to some technical and admin issues. I will let you know when it is up and running.
Tom
Friday 9th January 2009 - 08:10am
Good morning,
Today's update will be in two parts. Here is the first part:
Is the Euro Dollar trending up or down. Take a look at the charts below. The last top at 1.4750 is a 61.8% retracement of the big top/down move.
The most recent low right now at 1.3250 is a 61.8% retracement of the current swing. So what do you chose? One clue is the relationship of the Euro with other key currencies. If you compore the EUR against for example the $, the CHF, or the Yen, the EUR is underperforming. So it would be natural to conclude that we should stay short the EUR. However, pattern recognition with ratios can often reveal turns before it becomes obvious to the rest of the world.
Take a look at the second chart below.
This is a chart from my friend David Paul, a brilliant trader and analyst from South Africa, who quite rightly pointed out to me today, that we have retraced 61.8% (as I pointed out above), BUT BUT BUT, we also have made a 1.618% extension of the first reaction low off the big move up. This can be classified as a GARTLEY pattern, where the first move up represents the impulse wave move, and the two reactions with their perfect FIB ratios represent the ABCD part of the pattern.
I think David's chart is awesome in its perspective. His view is that the market basis off this pattern should make its way towards 1.47 and higher. This should give you some food for thought. If you want to learn the pattern recognition, you should consider attending the Larry Pesavento seminar at the end of the month. It is a 2-day workshop for the bargain price of £399.(Click on the banner at the top of the page for more information).
END OF PART ONE
Tom
Thursday 8th January 2009 - 09:10am
Good morning,
We got the Bank of England rate decision at noon today. No sooner had I posted my FX charts yesterday before we saw a sharp rally in Sterling against key currencies.
I will start off with the SP500 chart.
The SP500 traded below 920. That was the old tops. That is a short-term bearish sign, and the market reacted on it. The momentum reading went above 70 for the first time in a very long time, and was deemed "overbought" in some camps.
On the way up from the November low we retraced 50% several times. The trend is still bullish, and I still favour more upside. The choice I have is to buy now or hope that we hit 887 for a better entry. I still fancy some more downside, or back and fill, before the upside resumes.
Key levels SP500:
897: 50% Level
887: 61.8%
850: absoute line in the sand for the bullish story.
EURO YEN
GBP EUR
The Euro is breaking down against Japanese Yen. The 60-min is showing the breakdown, and the 240-min chart is confirming the longer-term bearishness of the pair.
Critical Support is at 124. Below we could see 115 again. I am staying short.
I am position short the Euro Sterling, and have been for many months. I am watching this pair very closely. If you compare the current rally with the rally you saw in the $ Yen(2nd chart), you can see how after the ferocious drop, the pair retraced all the way back up to the breakdown area, only to resume the trend lower. If the Euro £ is taking this path, we could see 1.20 again, before we get down to parity or lower.
Dollar Yen
If the Dollar Yen is going higher, it is make or break time. The chart below should be self-explanatory
I will start off by going through some currencies that I think look interesting. I already have positions in several of them.
You can enlarge charts by clicking on them.
CAD vs. JPY
A good base has set up a move back to 85. My strategy will be to buy dips. Pattern suggest a trending move is underway.
I dont want to see the pair move down towards 75 again.
CAD vs. USD
The Canadian Dollar is one of the strongest currencies at the moment. Although the US dollar is also strong against other currencies, it is struggling against the Canadian Dollar.
I favour more downside and will continue to sell short down towards 1.14.
Any move above 1.20 would put my position in danger.
JPY vs. USD
The Yen is losing strength and is the weakest of all the main currencies.
I simply picked this one as an example. You could also have a look at AUD JPY.
Although I dont expect the move to happen overnight, I will continue to hold towards 100.
ANALYSIS
