Is it really Friday?

First, a word cloud based on the text of the FOMC minutes from Wednesday. I hope you had a chance to read the lighthearted take on the minutes I posted a couple of posts ago. This word cloud tells me that their most frequently used words are federal, committee, economic, and markets. Why am I not surprised?

I’m still in the AUD/USD (currently at 78 pips) and USD/CHF (currently at 38 pips) trades from yesterday. The USD/JPY trade stopped out at 20 pips profit. GBP/JPY stopped out at a 40 pip loss and I’m currently short in this pair with my stop at breakeven. Since the AUD/USD and USD/CHF both have stops at a profit point and the GBP/JPY is at breakeven they are “free” trades. Traders love those things because once the stop is at or above breakeven you can't lose money or are profitable. But I’m in these trades thinking bigger things could happen. Whether they will or not is the question.

Today began looking like one of those days when the USD could continue to strengthen. Why? Equity futures are bidding down. Plus there’s lots of buzz and chatter out there about how the equity markets have seen their highs and a turning point is here. Of course some of those buzzing have been saying this for at least six weeks or so, some longer. Much in the area of market prediction is downright silly. That said, I do believe the market provides clues and markers for those alert to them. Seeing them requires awareness, something I’ll write about this weekend.

Ten days ago I did an Elliott wave count on the EUR/USD. I’ve updated it in the daily chart below. The trouble with Elliott Wave is that when you’re in a correction it’s difficult to reach agreement on what it is until after the fact. This makes it less than tradable in most cases. But I do believe it reflects a market psychology. I still believe we’re in wave C of a correction on the daily chart. Once the Euro reached past 1.4720 I put a sell order in at 1.4849. My thinking was that it would reach towards its September ’08 high of 1.4868. It climbed only to 1.4845 so it didn’t quite reach the order. Frankly, I’m a bit surprised. A sell order I put in place this morning at 1.4712 was just triggered. I’ll move my stop to breakeven (if possible—it can reverse quickly but it’s a tight stop so I won’t pay too stiff a price) as soon as it looks as though it’s going to continue down. I won’t be troubled if I’m taken out since there may be one last push up. In any case, the pair is looking a bit top heavy.

Besides that I went long the pound this morning at 1.5987. I don’t have time to include the chart right now but I have a tight stop on it.

None of the above are trade recommendations. Remember that trading involves substantial risk. My hope is that by posting this analysis on some of the trades I take, people can start to learn an approach for themselves. The biggest part of trading is handling emotions and this is something I'll be dealing with in future posts.

© Dianne Fecteau, 2009. No part of this material may be reproduced in any form, or referred to in any other publication, without the express written permission of the author.

Thursday (9/24) trades

AUD/USD

I was stopped out of my Ozzie long yesterday. This morning, after studying the charts, I decided to short it. I know; I know. It sounds as though I’m waffling on this pair—mostly long but now short? What’s up with that?

Well here’s the thing. While the pair is in an overall uptrend, it’s waffling too. It had that lovely consolidation range (.8543 - .8676) from early September until last week when it broke out, pulled back, and broke out again. One premature or false breakout I’ll accept. Two and I begin to get suspicious. It’s back inside its range (a peek a moment ago showed .8627).

I decided to short because:

1) Two upper candle shadows reached .8788 and then fell back (This later became a double top because it broke below the lowest low between the two tops (in this case .8703) but I didn’t know that when I placed my short trade at .8738.) I was more concerned with the upper shadows that meant higher prices were being rejected.
2) The strong black candle that happened before the last little uptrend. This showed me selling pressure was coming in at that level so when price returned to that level I thought it might happen again.
3) The pair was stumbling at the same price it had stumbled at on the first breakout
4) There’s still negative divergence on the chart between price and RSI

Since then of course, there has been confirmation of the double top. A calculation of what the price objective could be based on that would be .8616. It reached that point so I lightened my short by a third to take some profit and moved my stop to a small profit stop. When it reached 100 pips profit I took another third off the table. If it definitively breaks the trend line from mid-September (it’s already broken the one from the beginning of the month), I suspect it will at least return to the bottom of its range. Maybe more. Last week I wrote that I believe the .8500 levels are significant and that the pair could have big moves in either direction it took itself to. I still believe that. Here’s the 3-hour chart (the little downward triangle is my short entry):

USD/CHF

When people pile on against the USD they really pile on. It’s been in a whale of a downtrend. I wrote last week that there had to be a dead cat bounce in there somewhere. This morning I took a long position which is currently up 75 pips but I’m not picking out any Prada’s with my profits just yet. The equity market needs to start dropping for me to feel comfortable this is going to run. Will it? Some people think so. Reasons I took the trade were:

1) The lower shadows showed the market was rejecting those lower prices
2) Positive divergence between price and RSI on the 3-hour chart
3) It took four candles to get to the low of the prior long white candle on the 3-hour chart
4) I was at a support point so I could go long with little risk

In addition, some other calculations I do suggest it might be bottoming. Bottoming is usually a process, though, and not an event. So this pair could stammer and stagger a while. Here’s the three hour chart:

OTHER TRADES

I went long USD/JPY this morning. I’m not going to go into all the reasons right now except that it’s obvious it was at support and I could enter with a small stop. I’ve moved my stop to a small profit. I also went long the GBP/JPY because it was at an obvious support. That trade has been slightly up or slightly down all day. I’m watching it. Remember it’s in an overall downtrend and it’s always safer to sell rallies. But we’ll see. As I’ve written before, one mustn’t get married to a point of view. That means I can reverse if I find evidence to do so.

None of the above is a trade recommendation of course. Remember that trading involves substantial risk.

© Dianne Fecteau, 2009. No part of this material may be reproduced in any form, or referred to in any other publication, without the express written permission of the author.