Tag Archives: Yen

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

Dollar Yen analysis

09 Jan

Dollar Yen analysis

Larry Pesavento continues his analysis of the Dollar Yen with a technical look of his trading stance
“Trade What You See, not What You Think” Larry Pesavento

Larry Pesavento is a 46 year veteran trader. He began his career trading full time in 1967 while in graduate school getting an MBA in Finance following a BS in Pharmacy. He managed the commodities department of Drexel Burnham Lambert in Southern California from 1976 to 1981. In 1982 he became a member of the Chicago Mercantile Exchange where was a local in the S&Ps currency pits. Following this he worked for a commodity corporation in Princeton New Jersey from 1985 to 1986 and in 1987 he wrote Astro Cycles The Traders Viewpoint and published a newsletter Astro Cycles until 1995.

He has one of the most extensive libraries on the subject of technical analysis and has trained over 1000 traders using the pattern recognition swing trading methodology described in his books. Over the past 25 years he has written 10 books on trading.

Dollar Yen – the bigger picture

04 Jan

Dollar Yen – the bigger picture

This is not a time sensitive chart, in that the analysis will have merit in the weeks to come.
I have made some comments on the chart itself, but it is worthwhile to make a summation of the technical picture.

1. Dollar Yen has been building a base for two years. I argue that a two year base is sufficient to call the bear market over in dollar yen.

2. A head and shoulder pattern in the “base” calls the first target around 94 area. This is also where the 38% retracement of the entire market lies.

3. There has been similar sharp rallies in the last 5 years, all around 1400 pips in a time frame around 11 to 20 weeks. So far Dollar Yen has rallied 1100 points in 16 weeks. The difference between this rally and the other previous rallies is that this comes from a base. The others were sharp bear market rallies, designed to shake the bears away.

4. Finally, the 1.618 extension at 88.40 I think will hold the bulls away for a few weeks. However, don’t forget the big picture. The world is building long positions in Dollar Yen. The trend followers are on board, and their stop loss is likely to be below 84.00

So here is the analysis of Dollar Yen Chart

Dollar Yen – the bigger picture

Over and out