Tag Archives: Dow

26 Apr

Handling movements intra-day and looking ahead to FOMC and BOJ

Good morning,

The indices fell out of bed yesterday morning. The writing was on the wall after the first 10 minutes with a huge reversal in the DAX. It’s one of those things that you simply can’t predict in your morning analysis. You have to be ready for it.

The first chart is sort of a bible to me. I did some statistical analysis of all the closes in the Dow Jones index over the last 30 years. I wanted to know if there was a statistical bias towards a positive close in the Dow. There was, but not by as much as you would have expected. The chart below shows the distribution of positive and negative closes in percentage terms. There are 7400 observations, and 54% of those close in positive territory, while 46% close in negative territory.

What can you take away from this chart? You should accept that no matter how bullish or bearish you are on the market, you should at least accept that anything can happen and the chances of a positive close is only marginally higher than the odds of a negative close.

distribution of closes

Distribution of Dow Jones index closes in %

Today is Tuesday, and we can look forward to an FOMC report Wednesday night. Shortly after we have Bank of Japan with their outlook report. It could be an explosive 24 hours into the weekend. Therefore it is important to be prepared.

economic reports

Let us start with the Dollar Yen. I have annotated the charts in the caption below the chart:

charts 11

Dollar Yen Price Action before and after the 18 December announcement

charts 10

Dollar Yen Price Action before and after the 29 January announcement

charts 9

Dollar Yen Price Action before and after the 15 March announcement

What do I take away from these 3 charts – a very narrow picture of historical price action after a BOJ statement: There tends to be a good follow-on move past the announcement. While I will not be able to predict the direction ahead of the news, I will be able to gauge the news impact after the news and enter the market.

Before BOJ, a few hours before, we have FOMC in the US. I thought I would show you what has happened in the last few FOMC days.

charts 8

Dow Jones before and after the FOMC statement on 16 December 2015

charts 7

Dow Index Price Action before and after the 27 January announcement (huge reversal)

charts 6

Dow Index Price Action before and after the 16 March announcement

Do you see a really clear pattern? I don’t. I see one with a big follow-through move into the close, and I see one with a big reversal. That doesn’t mean I won’t trade it, but I will have to consider my strategy on the spot at the time.

Finally, let’s take a look at Euro Dollar, which tends to be brilliant to trade after news announcements:

charts 3

Euro Dollar Price Action before and after the 16 March announcement

charts 5

Euro Dollar Price Action before and after the 16 December announcement

I do this to prepare for what might happen on the day.

Final word: it seems to me that our job as traders is rapidly disappearing.

Bloomberg’s Richard Breslow, former FX trader and fund manager who now comments on markets, has been on a roll lately. One week ago, he officially lost it, going on an epic rant how central banks have devastated “markets” with their constant intervention (proven yet again with today’s report that the BOJ now is a Top 10 owner of 90% of Japanese stocks): “You don’t need to be a Taleb or Mandelbrot to calculate that we have been having once in a hundred year events on a regular basis for the last thirty years” he raged.

Today, his post-weekend anger has crystallized in another aptly titled note, “You Have to Go With the Central Bank Flow”, in which he writes that “for traders, just when they were promised an end was in sight, policy divergences would become tradable and correlations would weaken, the nightmares keep coming.”

The solution: “investors must live with the reality of having to make their living front-running the central banks or be distorted out of existence.”

Well, such is life under central planning: any original thought or fundamental analysis is crushed and the only thing that matters is anticipating what Janet Yellen will have for dinner next. Traders – and the general public – had a chance to restore normalcy when the entire system crashed, by averting bailouts and allowing a reset; now it’s too late.

Here is Richard Breslow on the verge of losing it again:

The whole story here: http://www.zerohedge.com/news/2016-04-25/why-traders-nightmares-just-keep-coming

Tom Hougaard

Tom Hougaard

25 Apr

Dow DAX and Yen

Monday 25 April 2016

I will start with the Dollar Yen. After the surprise attack by the central bank to weaken the yen last week, I thought it would be good to look at the chart. Naturally I am long dollar yen, after the chart pattern I posted last week (http://tomhougaard.dk/dollar-yen-alert-too-late-but-for-next-time/), but the chart doesn’t look at all so rosy. So there is conflict.

  1. I have a 61% fib resistance at the top (negative)
  2. I have a surge higher (positive)
  3. I have no obvious sell signals but overall the trend looks negative (negative)
  4. The market has made it back into the trading range. Anyone who has been short from this range will see profits evaporate now. The central bank has flexed its muscles (positive).
  5. The retracements have been more or less harmonious, but this can be interpreted both as positive and negative. The moves since last week has been orderly after the impulse up, and it has paid off to buy dips (positive), but the really big picture shows exactly the same pattern of big rallies before big declines in a big down-trend, so I have to accept that the bears are not dead (negative).

So what do you do? You take your bet. I will put most emphasis on the most recent developments, and I am therefore a buyer of Dollar Yen around this level of 111.10.

dollar yen 25 april 2016

Dollar Yen 240 min chart

The Dow is interesting. I have a SELL signal using a mechanical method on the daily chart. This coincides with my time cycle chart too. Nevertheless I am not rushing out to sell short the Dow in big quantities. I have to be patient because I haven’t seen any damaging weakness yet. Maybe it will come this week, but what is more interesting for me is to discuss what I will have to see to be PROVEN WRONG.

I will need to see the Dow close above the highs of last week, preferably at the end of the week (or any weekly close above last week’s highs). Until I see that I will remain negative, but I will naturally be flexible in my trading during the week.

dow 25 april 2016
Dow Jones index Daily Chart

 

You can’t have Dow and not discuss the DAX. The DAX index still looks good. The first chart is the hourly chart, and it shows how well DAX is holding 10350. On the second chart you see the big picture. The big picture is bullish.

How do I trade this? I need to accept that the Dax looks better than the Dow, and until I see weakness in either index, I will have to accept that I am bullish from the charts, but I am quite bearish from a time cycle and a fundamental perspective. As always I will trade WHAT I SEE, and NOT WHAT I THINK.

dax 25 april 2016 small time frame

DAX 1 hour chart – notice how it is holding on to gains from the rally. This is positive

dax 25 april 2016

The Daily chart is most certainly also positive, so you have a conflict between the DAX and the Dow.

Tom Hougaard
Tom Hougaard

15 Apr

Stellar week for the DAX

Good morning,

China’s GDP roughly came in line with expectations – IF YOU BELIEVE the numbers are in fact true.

Dow chart 150

Dip buyers are keeping DAX higher

It has been a stellar week for the DAX, adding plus 400 points. The dips have been very moderate, about 40 points. I suspect I will focus on buying DAX dips. Its Friday, so I am not expecting anyone to change the trend majorly on a big up-week.

The BIG PICTURE looks very interesting. I have a FIBONACCI TIME CALL for a high in stock indices. The chart below would suggest that I will be right or wrong very quickly. Its simply a matter of taking your pick, chose your side.

Are we continuing up or are we headed back down again? I have made my longer term call, but in between I will carry on trading during the day, AND KEEP THE TWO CAMPS (INTRA-DAY and LONG-TERM CALL) SEPERATE.

Dow chart 149

Dax Daily – its make or break time

The last chart is the FTSE. It is the kind of chart that makes me wonder if my BIG CALL is right. This looks like a great BREAKOUT TRADE to me. It has a pretty decent target on it too. We are talking another 450 points higher in the next few months. It is for this reason that I am not breaking out in a sweat over my big call. There will be plenty of time to jump on board, if we don’t see markets back off in the next week.

FTSE 100 BREAKOUT???

FTSE 100 BREAKOUT???

HAVE A GREAT WEEKEND

Tom Hougaard
Tom Hougaard

13 Apr

My thoughts to the current market

I was unable to post my thoughts earlier today. I had a 4am start.

I would like to give my thoughts to the current market and the forecast that I have made.

  1. I woke up early this morning to find the market significantly higher in Asia. As a result of it I started buying European indices and shorting Euro Dollar and Sterling Dollar. I am still in some of these trades. (Here is stupid story: I sold short FTSE because I thought it had gotten too expensive. I am losing on that trade, and I deserve to lose. There is no such thing as “cheap” or “expensive”, and I have no idea why I succumbed to this idea this morning. Maybe I was not concentrating.)
  2. I am still position short Dow Jones index where I am currently losing several hundred points. I am in with 10% of my proposed stake size, and I am watching the situation closely.
  3. In the meantime I am trading the markets intra-day.
    Tom Hougaard thoughts to the current market and the forecast. Analysis, Dow index, Forecast

I have seen nothing yet which negates the forecast. On the contrary this is what I have seen many times before. For example at the 2009 low I knew I was looking for a low, and the sentiment got more and more negative. It took the market 3-4 more days than I had expected before it turned. When it did turn, it turned with a vengeance.

I agree it would have been better to forecast a big move up. I will have to be open to possibility that the markets have turned a corner and will continue to move higher. There is only one thing more stupid about being wrong: to continue to argue you are right, when you are clearly wrong.

Tom Hougaard

Tom Hougaard

12 Apr

12 April 2016 – thoughts ahead of the day

In my weekend analysis I wrote that I was bearish stock indices. I based that opinion on a method I have developed over the years. I have used it to forecast many tops and lows over the last 15 years. The forecast is based on weekly charts, so I am not too concerned what happens intra-day. This method is used to trade the big moves.

So going into the trading day Monday (yesterday) I knew that this week could be the beginning of a very substantial move down. I immediately started shorting indices yesterday morning, and I thought I was going to get rewarded for my boldness. That was not to be. Someone somewhere said something. Who know what they said, but the effect was obvious. The market reversed on a dime, and the DAX was strong all day.

The Dow took its cue from the DAX and it too rallied most of the afternoon. It is during times like that you begin to question your forecast. It is also during times like that – that you have to remind yourself that the forecast is based on weekly charts, so it should not matter what happens from minute to minute intra-day.

This leads me to the point of this story: who is buying? Who is it that is buying? How many times over the last week of trading have I seen a very strong open in the Dow, and then it all just fizzles. The Dow probably should be stronger. The dollar is strong, albeit a little weaker over the last 10 days. Oil is recovering well. Yet whoever it is that is pushing the Dow up during the first hour hasn’t got the ability to keep it there.

Monday’s trading session was bad news for the optimists. There are no buyers above 17,700. Now we are 150 points lower again, and my forecast is looking better. I digress. Let us trade the market, and not the forecast. Anyone can forecast, even me, by flipping a coin, and calling heads bullish and tails bearish.

There is no traction in the Dow above 17,700.

There is no traction in the Dow above 17,700.

Instead let us understand what is going on underneath “the bonnet of the car”, so to speak. Stocks got what they want, didn’t they?

  1. Central banks are behind them – supporting them
  2. Oil is recovering well – another $10 and it has doubled since the low of $25
  3. There is so much worry about earnings, yet the Dow is sat just a few hundred points from an all-time high.

And yet we keep failing at the most critical times, like today. AND why is Gold so strong? WHY is YEN so popular (safe heaven).

11 April 2016 Dax index 30 min chart

The DAX index is displaying perfect harmonic moves, which suggest we are headed back down to the lows.

Conversely, we keep “failing” – or not failing, as it is – just as the markets look like they are about to free-fall. Something is still supporting the market. It is turning out to be quite the tug-of-war, and I think the earnings season will force a solution.

Here is my position: I have put on long-term short positions in stock indices. I have a sell signal, and I have executed the plan. In between I will trade in and out of the market day trading style, like a good student of the markets.

I will talk to you again tomorrow.

Tom Hougaard

Tom Hougaard