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Will EUR/USD Retake 1.4300 On Dour US Housing Data?
Existing Home Sales (SEP) (14:00 GMT; 10:00 EST)
Expected: 5.25M
Previous: 5.50M
Existing Home Sales (MoM) (SEP) (14:00 GMT; 10:00 EST)
Expected: -4.5%
Previous: -4.3%
How Will The Markets React?
Event risk on Wednesday will be contained to US housing data, and the release may only spark another round of risk aversion trends. The National Association of Realtor's measure of existing home sales during the month of September is anticipated to have fallen back 4.5 percent to a nearly six-year low of 5.25M. Such a weak figure will not come as much of a shock to the markets, as the dour status of the US housing sector is well known, especially when it comes to the subprime mortgage crisis that has sparked fears of a lingering global liquidity crunch. Nevertheless, news from the sector appears to only be getting worse, especially as mortgage lending standards tightened during the month of August, and home builders are paying heed. The pace of housing starts plunged 10 percent in September to an annual level of 1.19 million, compared to a 1.33 million rate in August. Meanwhile, housing permits - which are considered a sign of builders' confidence in the market - slumped 7 percent to an annual rate of 1.23 million, marking a 12 year low. Clearly, demand for homes has plummeted, and with existing home sales making up 87 percent of the market, Wednesday's release will serve as a broad barometer for the sector. As a result, a sharp decline in the index in line with or worse than expectations could rattle the equity, forex, and fixed income markets as the figures may spark additional speculation that credit markets and economy still face many road blocks before they can fully recover. Furthermore, with current conditions continuing to deteriorate, the Federal Reserve may be more apt to cut rates by 25 basis points on October 31st.
EUR/USD
The EUR/USD pair has made a solid comeback since plummeting from a record high of 1.4348 down to support at the 1.4140 level, as traders remain broadly bearish on the greenback. The release of NAR existing home sales on Wednesday may only exacerbate that sentiment, as the index is anticipated to have dropped to a nearly six-year low. With existing homes composing approximately 87 percent of the housing market, the figure serves as a broad barometer for the sector as a whole, which could contribute to additional US dollar weakness. While some resistance looms above at 1.4262 (the 61.8 percent retracement level of the decline from 1.4348 - 1.4125), EUR/USD could be primed to take on 1.4300 once again. On the other hand, if existing home sales proves to be somewhat better than expected, or if economic data out of the Euro-zone on the same morning is released at extremely disappointing levels, EUR/USD could pull back below the 1.4250 levels once again.
OUT USD/CAD .9642
OUT AUD/USD .8977
Central Bank Speak
Yield Spread Analysis 10/16 - 10/23
A bout of risk aversion market-wide ahead of the G7 meeting sent government bonds surging higher, taking a toll specifically on long-term yields. In fact, nearly every country's yield curve (that we follow) inverted further or at least moved to flatten. Some of the most dramatic action occurred in the US, as traders have increasingly been pricing in a 25 basis point rate cut by the Federal Reserve on October 31st. However, volatility could spike next week ahead of and after the actual rate announcement, as markets may not see the policy move that they are all expecting. Meanwhile, short-term debt in the UK has spiked higher since inflation figures proved to be softer-than-expected, which effectively reduced speculation that the Bank of England may take a hard-lined approach and possibly raise rates further. While we do not anticipate such a move on their part, we certainly do not foresee a rate cut by the central bank before year end either.
Given the fairly thin amount of economic data scheduled to be released this week, risk aversion trends will remain the primary driver of the fixed income markets.
US Fed: Will They Do The Unexpected And Leave Rates Unchanged?
Comments by FOMC members ahead of the highly-anticipated October 31st rate decision shows some emerging divisions, as dovish references to softer core inflation have been countered by more neutral notations of healthy output and employment levels. Despite the fact that Fed fund futures are currently pricing in a 88% chance of a rate cut at the end of the month, the markets could see a surprising decision to leave policy unchanged as the FOMC may take a wait-and-see approach until December:
Ben Bernanke, Federal Reserve Chairman (Voting Member)
"Uncertainty -- about the state of the economy, the economy's structure and the inferences that the public will draw from policy actions or economic developments -- is a pervasive feature of monetary policymaking." - October 19, 2007
Sandra Pianalto, Federal Reserve Bank of Cleveland President (Alternate Voting Member)
"Since the Federal Reserve cut interest rates in September, the housing sector has remained very weak, but output and employment in other sectors appear to be holding up." - October 19, 2007
Frederic Mishkin, Federal Reserve Board Governor (Voting Member)
"As long as the permanent change in relative energy prices does not lead to a change in the underlying trend rate of inflation - a crucial assumption - then headline inflation will come back down again … this is what we seem to have seen recently in the United States…What central bankers are truly concerned with ... is the underlying rate of inflation going forward, and core inflation can be a useful proxy for that rate … thus, focusing on core inflation can help prevent a central bank from responding too strongly to transitory movements in inflation." - October 20, 2007
Thomas Hoenig, Federal Reserve Bank of Kansas City President (Voting Member)
"The question that one asks is what are the implications for policy and the answer to that is obvious and is wait and see. Because it depends on how all these factors play out…I'm optimistic, but I am also realistic and I want to stay alert as we move through this tender time." - October 18, 2007
Randall Kroszner, Federal Reserve Governor (Voting Member)
"In the months ahead, the Federal Reserve will continue to monitor developments in the financial markets and act as needed to support the effective functioning of these markets and to foster sustainable economic growth and price stability." - October 23, 2007
G7: Status Quo Statement Signals No Imminent Policy Changes
China bore the brunt of the G7 commentary, as finance ministers and central bankers aggressively tried to persuade the country to allow their currency to appreciate more quickly:
Lorenzo Bini Smaghi, European Central Bank Executive Committee Member
"The yuan has gained 10 percent against the dollar in two years. The message of this G7 is that the yuan must now appreciate also against the euro." - October 22, 2007
Zhou Xiaochuan, People's Bank of China Governor
"China has no timetable for the full convertibility of the yuan." - October 18, 2007
Given the rapid depreciation and vast weakness of the greenback, it's no surprise that US Treasury Secretary Henry Paulson simply went with his "strong dollar policy" rhetoric:
Henry Paulson, US Treasury Secretary
"I was very clear and it didn't surprise anyone... that I believe a strong dollar is in our nation's interest, and believe that the currency value should be determined based upon underlying economic fundamentals in a competitive marketplace." - October 22, 2007
Rodrigo Rato, International Monetary Fund Managing Director
"Up to now, movements in exchange rates have been orderly and in line with fundamentals. But there are risks that an abrupt fall in the dollar could either be triggered by, or itself trigger, a loss of confidence in dollar assets. And there is a risk that exchange rate appreciation in countries with flexible exchange rates - including the Euro area - could hurt their growth prospects, and that in these circumstances protectionist pressures could worsen." - October 22, 2007
Weakness in the US dollar has played a large role in the Canadian dollar's ascent to multi-decade highs, but it appears that the Bank of Canada has no intent to intervene:
Jim Flaherty, Canadian Finance Minister
"We face challenges adjusting to the rise of the Canadian dollar, which has borne the brunt of the US dollar adjustment." - October 22, 2007
David Dodge, Bank of Canada Governor
"The recent rapid appreciation has been abnormally quick and doesn't seem to be related to the domestic factors which would normally have led to that sort of rapid appreciation. Our terms of trade have improved a little bit over the past three months but ... not a lot that would give that much impetus to things." - October 22, 2007
At the Close. Still too many questions left...
London goes home but I am still left with many questions unanswered after today's rally. Is it marking more USD losses ahead? An over-extended correction rally from yesterday's bull run? What is going on with AUD and Gold? Why CHF and JPY are moving so differently these days? Honestly, the only thing I can be 'proud' of is of having seen the EUR/JPY plunge 100 pips after calling the hit of extreme OB level.
The market forces are quite nervous right now, have no doubt about this. But I also see that the USD is not able to make real progress where it should, i.e., against JPY and CHF, the latter really posing a serious threat now as the unit is trading below the 50EMA intraday, having already tested once the 200SMA. If we add to taht the fact that Cable has a bullish cross intradya and that the EUR could do the same soon, then, oh, come on! where are Fibo lines acting as real market magnets?
Add to this messy party the AUD, rising to the 200SMA hourly having held the 0.89 level, which coincided with the test of the 50EMA in EUR/JPY after it ahd triggered a bullish MA's cross (15m), which has caused the cross to spike up by 40 pips (once again, taking triggers after the first retracement to the 50EMA worked fine).
Are JPY crosses / Pacific Dolalrs the ones dictating the course of action in the majors? I would not like to think so, but I'm afraid there's little we can do here as 'carry madness' takes center stage, helped by the artifical holding-up of the Stock Markets, which push 'carry cows' to reach their goal, i.e., sending JPY and CHF lower.
In the CHF case, I have to say that I was not expecting this move. After yesterday ahving completed a second day below 1.6685, I was expecting a better progress by the CHF, but I guess am too idealist for such a hostile environment, and that did not come true. The behaviour of EUR/CHF is telling us the whole story, and until it can see a good and sizeable down move, we will be trapped in the perma-USD bears hands.
Let's see what the market has to offer us tomorrow. Countdown to Barcelona's ITC continues, 2 days left!
Posted by Tony Juste on October 23, 2007 at 18:05
U.S. Dollar Resumes Weak Posture
CURRENCIES
The December U.S. dollar index is lower in early trading today. Bears have quickly regained downside technical momentum. Slow stochastics for the dollar index are bullish early today. The dollar index finds shorter-term technical resistance at the overnight high of 77.99 and then at Monday's high of 78.18. Shorter-term support is seen at 77.33 and then at contract low of 77.15. Today's key near-term Fibonacci support/resistance level: 78.90 Wyckoff's Intra Day Market Rating: 3.0
The December Euro is higher in early electronic trading. The Euro finds sell stop orders are likely located just below technical support at the overnight low of 1.4184 and then more stops just below support at 1.4139. Shorter-term technical resistance for the Euro is seen at 1.4300 and then at the contract high of 1.4363. Buy stops likely reside just above those levels. Slow stochastics for the Euro are bearish early today. Today's key near-term Fibonacci support/resistance level: 1.4197. Wyckoff's Intra Day Market Rating: 7.0
GOLD
Gold is trading higher in early dealings today. For December gold, shorter-term technical support is seen at $760.00 and then at the overnight low of $756.80. Sell stops likely reside just below those levels. Buy stops likely reside just above resistance at $770.00 and then just above resistance at Monday's high of $772.80. Today's key near-term Fibonacci support/resistance level: $766.50. Wyckoff's Intra-Day Market Rating: 7.0
CRUDE OIL
Crude oil prices are higher in early electronic dealings. In December crude, look for buy stops to reside just above resistance at $87.00 and then just above resistance at $87.50. Look for sell stops just below technical support at the overnight low of $85.55, and then more sell stops just below support at $85.00. Today's key near-term Fibonacci support/resistance level: $87.10. Wyckoff's Intra-Day Market Rating: 6.0
GRAINS
Prices were higher in overnight trading. Traders are again focusing on the important "outside markets" today, which are mostly bullish in early dealings. The U.S. dollar is weaker today and gold and crude oil prices are higher. My bias is still that the grains do not have a lot of upside price potential in the near term.
OUT GBP/CAD 1.98612
OUT EUR/CAD 1.3849
Out CAD/JPY 117.47
Forex Technical Update
Euro: Euro after making fresh new highs at 1.4348 levels against dollar yesterday turned sharply and dipped to 1.4124 levels. Euro is currently trading around 1.42 levels with hourly and daily charts in the overbought region; however the 4-hrly stochastic has reached the oversold territory limiting the downside movement. Rally would again be in force as long as Euro holds above 1.4140 levels (61.8% Retracement of the recent rise). However, breaking of this level can push Euro to the levels of 1.4025 (55 Days EMA in the daily chart). Shorts can be initiated around 1.4220-30 levels with a target of 50 pips. (eur/usd – 1.4197).
Pound: Cable reversed sharply to the extent of 2.0257 from 2.0538 levels in yesterday's trading session. The move of almost 280 pips yesterday was primarily due to massive unwinding of carry trades. With this move, a short term top seems to placed at 2.0538 levels. Currently, Cable is trading around 2.0350 levels. Cable is facing an important support around 2.0285 levels (55 Days EMA in the daily chart). Breaking of this level on the downside can bring a pull back to the levels of 2.02 (100 Days EMA in the daily chart). The 4-hourly stochastics is oversold; however the daily and the hourly stochastic is extremely overbought. Opportunities to initiate shorts around 2.0360-380 levels with a target of 70 pips can be considered. (gbp/usd - 2.0352).
Yen: Yen witnessed a move of almost 140 pips in the last trading session after making and intraday low at 113.24 levels (reaching our expected medium term target of 113.50). Yen is currently trading around 114.60 levels, facing an immediate resistance around 115.00 levels (38.2% Retracement of the recent fall). The overall outlook remains bullish for Yen below 116.10 levels (61.8% Retracement and 100 Days EMA in the 4-hrly chart at 116.04). On the contrary, the 4-hourly and hourly stochastic is heading towards the overbought region and upside to the extent of 115.00-30 levels can be witnessed. Medium term target - 112.00 (usd/jpy - 114.54).
Rupee: Rupee market continues to remain volatile. Rupee made an intraday low at 39.93 in yesterday's session. After closing at 39.91 yesterday, the spot Rupee opened slightly strong at 39.83 today and has made an intraday high at 39.67. Although the medium term target remains 39.00, spikes to the extent of 40.30-40 levels could be seen. Exporters should look for such opportunities to cover their exposures. Medium Term Target - Spikes around 40.50; targeting 39.00 (Yesterday's closing 39.91).
Swiss Franc: Swissy weakened almost 180 pips in a volatile session yesterday. Currently, the pair is trading around the 1.1780 levels after touching an intraday low at 1.16 levels yesterday. The 4-hrly stochastic is overbought in nature and the upside is restricted by the immediate resistance at 1.1835 levels (55 Days EMA in the daily chart). The overall outlook remains bullish for Swissy below the resistance zone. Medium term outlook remains 1.15. (usd/chf-1.1778)
Gold: Gold was pressured majorly in yesterday's session as it plunged almost $23 to the extent of $745. Currently, Gold is trading around $756. The hourly and daily charts remains overbought and retracement to the levels of $747 (100 Days EMA in the 4-hrly chart) could be expected. However, the overall outlook remains bullish on Gold. Avoid initiating positions at these levels. (Gold-$756.3)
Asia Session Recap
Following another immensely volatile New York session, Asia traders began the day awaiting the open of equity indexes. Expecting follow through from the late day rally on Wall Street, the high yielding crosses looked poised to continue their bounce off earlier lows. However, the move higher wasn't as quick as some had expected, nor was it without some bumps in the road.
Equities opened choppy and the carry pairs initially followed suit. After climbing from NY lows in the 160.40s, 170+ pips higher back over the 162.00 handle, the pair began the session consolidating. A weaker open sent EURJPY to test the figure around 162.00 where it dealt mostly sideways through the early morning. But bids would step in for the cross, pushing it 60+ pips through the 162.50 short term resistance level. NZDJPY saw similar action as well, tacking on an additional 50+ pips onto its NY gains to deal close to the 86.00 level.
The greenback slipped a touch today in Asia trading after its explosive rally earlier. EURUSD rose back to the 1.4200 area, where the pair faced fierce resistance. Sellers were successful, and EURUSD dealt below the handle for the session. NZDUSD also enjoyed a rally, catching a late trading bid that sent it 35 pips to the .7510s level.
Looking ahead, most currency traders are expecting continued uncertainty to plague the market. Dramatic moves in either direction have recently become the norm. Forex market observers will have their eyes once again on the high yielding carry pairs ahead in the upcoming London session. Will the crosses continue to rebound? Will dollar selling on spikes recede? We'll get a clearer picture in just a bit!
Upcoming Data Releases (London Session):
EC: 5amET Industrial New Orders (MoM) (Prior: -4% // Est.: .9%)
(YoY) (Prior: 10.9% // Est.: 6%) Relevance - Low
Resistance: 0.9784 0.9804 0.9824 0.9856
Support: 0.9750 0.9723 0.9705 0.9677
Current positions...
EUR/CAD SELL 1.38637
GBP/CAD SELL 1.98751
CAD/JPY BUY 117.25
Forex and Dow Jones Recommended Levels
EUR/USD
Today's support: - 1.4151 and 1.4118 (main), where correction is possible.Break would give 1.4086, where correction also may be. Then 1.4062. Break of the latter would result in 1.4037. If a strong impulse, we would see 1.4017. Continuation will give 1.3996.
Today's resistance: - 1.4212 and 1.4234(main). Break would give 1.4252, where a correction is possible. Then 1.4276. Break of the latter would result in 1.4294. If a strong impulse, we'd see 1.4313. Continuation will give 1.4331.
USD/JPY
Today's support: - 114.06 and 113.82(main). Break would bring 113.59, where correction is possible. Then 113.40. If a strong impulse, we would see 113.17. Continuation would give 112.83.
Today's resistance: - 114.64(main), where a correction may happen. Break would bring 114.77, where also a correction may be. Then 114.98. If a strong impulse, we would see 115.23. Continuation will give 115.45 and 115.66.
DOW JONES INDEX
Today's support: - 13 488.76(main), where a delay and correction may happen. Break of the latter will give 13 464.85, where correction also can be. Then 13 452.18. Be there a strong impulse, we would see 13 438.10. Continuation will bring 13 415.63.
Today's resistance: - 13 604.06 and 13 623.80(main), where a a delay and correction may happen.Break would bring 13 640.63, where a correction may happen.Then 13 668.82, where a delay and correction could also be. Be there a strong impulse, we'd see 13 691.30. Continuation would bring 13 729.22.
The 3 Duck's Trading System
Firstly I would like to say, I did not reinvent the wheel with this system, I have just added one or two ideas to a 60 period simple moving average (sma) to make it my own and named it "The 3 Duck's Trading System" for obvious reasons as you will find out later on. The system is fairly straight forward and easy to use. Like a lot of trading systems it will be more productive when prices are moving in one direction and not stuck in a tight trading range. Of course this system has losing trade and losing runs, but with proper money management and good discipline I'm sure this system will keep you out of bad trades and give you a great chance to make profits in the Fx market. One of the nice things about this system is it will quickly tell you if prices are in an up or down swing phase and stop you from guessing! It will also allow you to decide to be a bull or a bear and trade in the direction of that trend. There are 3 charts involved in this system: a 4hr chart, a 1hr chart and a 5min chart. There is 1 indicator, a 60 period simple moving average (60 sma) plotted on each chart. There you go, its that simple.
How it works:
Step 1 - First Duck
The first thing we need to do is look at our largest time-frame (4hr chart) and see if current prices are above or below the 60 sma. From this chart we can see that current price is below the 60 sma. This tells us that we maybe looking to sell.
Step 2 - Second Duck
The second thing we need to do is drop down to our 1hr chart. We need to see the current price below the 60 sma on this chart also, this gives us confirmation.
Important: If the current price was to be above the 60 sma on this chart we could not move on to step 3.
Step 3 - Third Duck
From step 1 and 2, current prices need to be below their 60 sma's on each chart. We are now on the 5 min chart and we are looking to sell when price crosses below the 60 sma. For extra confirmation we should let prices break the last low on the 5 min chart. This would mean that prices will be below their 60 sma on all 3 time-frames, therefore all 3 Ducks are lined up in the same direction.
Stop-Losses: This is where you can make this system your own. If you are a short term trader you may want to put your stop-loss above the highs on the 5 min or the 1 hr chart. If you are more of a positional trader you may wish to put your stop-loss above a high on the 4 hr chart. You could also use a fixed stop-loss, maybe 25-30 pips or more from entry. It all depends what type of a trader you are, so you decide! If you are a longer term trader or investor, this system can help you get a good entry point into the market. Another "trick" that may help you preserve capital, If you do sell and prices get back above the 5 min 60 sma by 10 pips (not a good sign) you may want to cut your losses short before your stop-loss. But if you are a longer term trader this may not be a big deal for you.
Targets: Same again, depends what type of a trader you are but target can be support or resistance levels.
Summary: The above example was carried out when the gbp/usd was trading lower so obviously we where selling - the system works just as well for buying opportunities, just look for prices to be above the 60 sma on all 3 time-frames, starting with step 1 again. I like this system a lot as it does not try to out-guess the markets movements and pick tops and bottoms. The system will quickly tell you to be a buyer or a seller. Its a good honest system that tries to follow prices. This system works better on currency pairs such as the Eur/Usd and Gbp/Usd, but there is nothing stopping you from plotting this system on any pair, but as we know some pairs act differently to others. The best time I found for trading this system is the European and US sessions. I lke to use this system as a guide in addition to my own market knowledge. Take care to watch what is going on around you - economic new releases, holidays etc.
Good Luck with the 3 Duck's Trading System.
What Do They Mean by Overbought and Oversold?
Many times in trading we here the terms overbought and oversold. We hear an analyst state that the EUR/USD is overbought and due for a correction or that the USD/CAD is oversold and due for a bounce. But how does one determine what is overbought and what is oversold and just what does that mean?
The terms are used to describe a market condition that is quantified by certain technical indicators. These indicators are called oscillators with two popular examples being the Stochastics and RSI. An oscillator is a commonly used momentum indicator that measures the current currency price compared to its historical price over a given time period. It looks to gauge the strength and momentum of a currency pair's move by measuring the degree by which a currency is overbought or oversold. The scale for the both indicators is 0 to 100. When Stochastics reaches a value of 80, the market is considered overbought and when Stochastics reaches a value of 20, the market is considered oversold. RSI uses the same scale of 0 to 100, but the value for overbought is 70, while the value for oversold is 30. The idea is when the market reaches either extreme, the chance for a reversal increases. However, a reversal is not imminent. Markets that are in a strong uptrend can remain overbought for long periods of time and markets that are in a strong downtrend can remain oversold for long periods of time. This is why these oscillators have limited value in trending markets. However, when the market is in a downtrend and the oscillator moves up to overbought, there is a much better chance of a reversal. On the flip side, when the market is in an uptrend and the oscillator moves down to oversold, there is also a good chance of a reversal. Here is an example using the daily chart of the EUR/USD with one year of activity.
Also plotted on the chart is a Slow Stochastics using values of 25,5,5. You can see that while the market is in an uptrend, the Stochastics will spend more time in an overbought condition and little time in the oversold condition. Also, when Stochastics moves down to an oversold condition, the market has a tendency to reverse. But the key here is that the market is in an uptrend. If the market was in a downtrend, the opposite would be true.
Stock, Commodity Markets Sharply Lower Early
Monday, October 22--Jim Wyckoff's Morning Web Log
OVERNIGHT/EARLY MORNING DEVELOPMENTS
The market features in overnight/early morning trading today are lower U.S. stock indexes and generally lower commodity futures markets.
* JIM'S MARKET THOUGHT OF THE DAY *
The start of the new trading week looks to be an ugly one for the bulls in most markets, except for U.S. Treasuries and the U.S. dollar bulls. Another big down day in the stock market today could really rattle investors, again. There is now more widespread talk of recession in the U.S. economy. Here's an important point for traders--especially commodity traders--to remember: Slowing economic growth means less demand for raw commodities, and that raises the specter of deflation. Deflation is the arch enemy of commodity market bulls.--Jim
U.S. STOCK INDEXES
The stock indexes are solidly lower in early morning electronic trading. Bears have fresh downside technical momentum on their side, after big losses and bearish weekly low closes on Friday.
December S&P 500: The shorter-term moving averages (4-, 9- and 18-day) are bearish early today. The 4-day moving average is below the 9-day and 18-day. The 9-day is below the 18-day moving average. Short-term oscillators (RSI, slow stochastics) are bearish early today. Today, shorter-term technical support comes in at 1,490.00. Sell stops likely reside just under that level. More sell stops likely reside under shorter-term technical support at 1,480.00. Upside resistance for active traders today is located at 1,500.00 and then at the overnight high of 1,506.80. Buy stops are likely located just above those levels. Wyckoff's Intra-day Market Rating: 2.0
Today's key near-term Fibonacci support/resistance level: 1,486.50.
PIVOT POINT LEVELS FOR DECEMBER S&P 500:
Pivot:------------ 1,520.15
1st Support:------ 1,490.80
2nd Support:------ 1,475.75
1st Resistance:--- 1,535.20
2nd Resistance:--- 1,564.50
Nasdaq Index: The shorter-term moving averages (4- 9-and 18-day) are neutral early today. The 4-day moving average is below the 9-day. The 9-day average is above the 18-day. Short-term oscillators (RSI, slow stochastics) are bearish early today. Shorter-term technical support is located at the overnight low of 2,128.50. Sell stops likely reside just below that level, and then more sell stops are likely located just below technical support at 2,120.00. On the upside, short-term resistance is seen at the overnight contract high of 2,149.00 and then at 2,160.00. Buy stops are likely located just above those levels. Wyckoff's Intra-Day Market Rating: 3.0
Today's key near-term Fibonacci support/resistance level: 2,126.00
PIVOT POINT LEVELS FOR DECEMBER NASDAQ:
Pivot:------------ 2,171.25
1st Support:------ 2,124.50
2nd Support:------ 2,099.25
1st Resistance:--- 2,196.50
2nd Resistance:--- 2,243.35
December Dow: Sell stops likely reside just below support at 13,450 and then more stops just below support at 13,400. Buy stops likely reside just above shorter-term technical resistance at 13,500 and then just above resistance at Friday's low of 13,550. Shorter-term moving averages are bearish early today, as the 4-day moving average is below the 9-day and 18-day. The 9-day moving average is below the 18-day moving average. Shorter-term oscillators (RSI, slow stochastics) are bearish early today. Wyckoff's Intra-Day Market Rating: 3.0
Today's key near-term Fibonacci support/resistance level: 13,283
PIVOT POINT LEVELS FOR DECEMBER DOW:
Pivot:------------ 13,673
1st Support:------ 13,437
2nd Support:------ 13,313
1st Resistance:--- 13,797
2nd Resistance:--- 14,033
U.S. TREASURY BONDS AND NOTES
U.S. T-Bonds and T-Notes futures prices are higher early today. Bulls have fresh upside near-term technical momentum, amid "flight-to-quality" into safer investments like the Treasuries.
December U.S. T-Bonds: Shorter-term moving averages (4- 9- 18-day) are bullish early today. The 4-day moving average is above the 9-day and 18-day. The 9-day is above the 18-day moving average. Oscillators (RSI, slow stochastics) are bullish early today. Shorter-term technical resistance lies at the overnight high of 113 25/32. Buy stops likely reside just above that level. More buy stops likely reside just above technical resistance at 114 even. Shorter-term technical support lies at the overnight low of 113 8/32. Sell stops likely reside just below that level. More sell stops are likely located below support at 113 even. Wyckoff's Intra-Day Market Rating: 8.5
Today's key near-term Fibonacci support/resistance level:112 20/32
PIVOT POINT LEVELS FOR DCEMBER T-BONDS:
Pivot:----------- 112 31/32
1st Support:----- 112 14/32
2nd Support:----- 111 20/32
1st Resistance:-- 113 25/32
2nd Resistance:-- 114 10/32
December U.S. T-Notes: Shorter-term oscillators (RSI, slow stochastics) are bullish early today. Buy stops likely reside just above shorter-term technical resistance at the overnight high of 110.28.8 and then just above resistance at the contract high of 110.31.0. Shorter-term moving averages are bullish early today. The 4-day moving average is above the 9-day and 18-day. The 9-day is above the 18-day moving average. Sell stop orders are likely located just below support at the overnight low of 101.18.0 and then more sell stops just below support at 110.08.0. Wyckoff's Intra Day Market Rating: 8.5
Today's key near-term Fibonacci support/resistance level: 109.29.0
PIVOT POINT LEVELS FOR DECEMBER T-NOTES:
Pivot:------------ 110.13.0
1st Support:------ 110.01.0
2nd Support:------ 109.16.0
1st Resistance:--- 110.30.0
2nd Resistance:--- 111.10.0
U.S. Dollar Makes Strong Rebound Overnight
CURRENCIES
The December U.S. dollar index is solidly higher in early trading today, after hitting a fresh contract low and all-time low overnight. A strong close on the upside today would give the bulls some fresh near-term technical momentum. Slow stochastics for the dollar index are bullish early today. The dollar index finds shorter-term technical resistance at the overnight high of 78.03 and then at Thursday's high of 78.27. Shorter-term support is seen at 77.58 and then at the overnight contract low of 77.15. Today's key near-term Fibonacci support/resistance level: 78.90 Wyckoff's Intra Day Market Rating: 5.0
The December Euro is solidly lower in early electronic trading, after hitting a fresh contract and all-time high overnight. The Euro finds sell stop orders are likely located just below technical support at the overnight low of 1.4149 and then more stops just below support at 1.4100. Shorter-term technical resistance for the Euro is seen at 1.4200 and then at 1.4250. Buy stops likely reside just above those levels. Slow stochastics for the Euro are bearish early today. Today's key near-term Fibonacci support/resistance level: 1.4073. Wyckoff's Intra Day Market Rating: 4.0
GOLD
Gold is trading solidly lower in early dealings today. For December gold, shorter-term technical support is seen at the overnight low of $749.00 and then at $745.00. Sell stops likely reside just below those levels. Buy stops likely reside just above resistance at $760.00 and then just above resistance at $765.00. Today's key near-term Fibonacci support/resistance level: $745.00. Wyckoff's Intra-Day Market Rating: 4.0
CRUDE OIL
Crude oil prices are sharply lower in early electronic dealings, on profit-taking. In December crude, look for buy stops to reside just above resistance at $86.00 and then just above resistance at the overnight high of $87.00. Look for sell stops just below technical support at the overnight low of $84.73, and then more sell stops just below support at $84.00. Today's key near-term Fibonacci support/resistance level: $84.36. Wyckoff's Intra-Day Market Rating: 5.0
GRAINS
Prices were solidly lower in overnight trading. Traders will again focus on the "outside markets" today, which are sharply lower in early dealings. The U.S. dollar is stronger today and gold and crude oil prices are sharply lower. My bias is still that the grains do not have a lot of upside price potential in the near term.
Forex Technical Update
Euro: Euro's rally continued to the extent of 1.4348 levels (made today) recording fresh new highs against dollar. Euro is currently trading around 1.43 levels; further upside is still in favour to the extent of 1.4350 levels. The overall outlook remains bullish for Euro as long as it holds above 1.4140 levels (61.8% Retracement of the recent rise). However, the 4-hrly and daily stochastic is overbought in nature and some correction can be anticipated. Look for opportunities to initiate longs around 1.4270-80 levels (38.2% Retracement) for 50 pips. Furthermore, shorts can be cautiously initiated around 1.4360-80 levels with a target of 50 pips. (eur/usd – 1.4307).
Pound: Cable surged upto the extent of 2.0523, breaking the consolidation on the upside; witnessing a move of almost 120 pips in Friday's trading session. Currently, Cable is trading around 2.0490 levels and further rally is still in favour as long as it holds above 2.0377 levels (21 Days EMA in the daily chart & 61.8% Retracement of the recent rise). The 4-hourly and daily stochastics is in the overbought region. Look for opportunities to initiate shorts around 2.0550-70 levels with a target of 60 pips. (gbp/usd - 2.0492).
Yen: Yen strengthened almost 400 pips in the last week edging to 113.92 levels (reaching our expected medium term target of 113.50). Yen is currently trading around 114.00 levels, facing an immediate resistance around 115.00 levels (38.2% Retracement of the recent fall). The overall outlook remains bullish for Yen below 116.10 levels (61.8% Retracement and 100 Days EMA in the 4-hrly chart), however, the 4-hourly and daily stochastic is extremely oversold and slight upside to the extent of 115.00 levels can be witnessed. Medium term target - 112.00 (usd/jpy - 114.04).
Rupee: Rupee market continues to remain volatile. After closing at 39.73 levels on Friday, the spot Rupee opened 12 Paisa weak at 39.85 today and made an intraday low at 39.93. Although the medium term target remains 39.00, spikes to the extent of 40.30-40 levels could be seen. Exporters should look for such opportunities to cover their exposures. Medium Term Target - Spikes around 40.50; targeting 39.00 (Friday's closing 39.73).
Swiss Franc: Swissy strengthened strongly to the extent of 1.1656 in the last trading session; experiencing a high volatility last week. Currently, the pair is trading around the 1.1640 levels after touching an intraday low at 1.16 levels (reaching our mentioned medium term target of 1.16) and is facing immediate resistance at 1.1710 levels (38.2% Retracement). Although, the 4-hrly and daily stochastic is oversold, the overall outlook remains bullish for Swissy below the 1.1820 levels (55 Days EMA in the daily chart). Medium term outlook remains 1.15. (usd/chf-1.1682)
Gold: Gold strengthened to make new highs against dollar as it edged to $770.8 in the last trading session. Currently, Gold is consolidating below the highs of $770 and has made an intraday low of $752.8. The daily and weekly charts are overbought further correction could be anticipated. However, the overall outlook remains bullish on Gold. Avoid initiating positions at these levels.(Gold-$760.5)
FX Overnight Briefing
Forex Fundamental Analysis Reports | Written by Jyske Bank | Oct 22 07 04:41 GMT |
FX Overnight Briefing
Financial News - US & Far East
US shares sharply lower
JPY gains as stocks fall
Oil fall from record high
G7: World economy sound, but China must move on yuan
Dollar hits record low
Tokyo stocks hit 4-week lows
Today's Main Events
USD FED's Kroszner speaks
American Timezone:
US shares sharply lower
U.S. stocks tumbled the most in two months after earnings reports from banks, manufacturers and industrial companies heightened concern about the health of the financial markets and the economy.
JPY gains as stocks fall
JPY rose the most in six weeks as a decline in global stocks prompted investors to sell higher yielding assets funded by loans in Japan.
Policy makers at the G7 meeting in Washington may press China and Japan to let their currencies strengthen.
Oil fall from record high
The oil price fell, after rising above USD 90 a barrel in New York for the first time, on signs that US supplies are sufficient to meet demand.
Far East Timezone:
World economy sound but China must move on yuan-G7
The world economy is sound, although financial markets may remain ragged for some time, and China must let its currency rise faster to rebalance global growth, finance officials from rich nations said on Friday.
China's currency is 'considerably undervalued' and that country would benefit by letting the yuan's value be set by market forces, the head of the International Monetary Fund said on Sunday.
Dollar sinks, hits record low versus euro after G7
The dollar sank on Monday, hitting a record low versus the euro and other currencies after traders took a tumble in U.S. stocks and the apparent indifference of Group of Seven finance officials to recent dollar weakness as a cue to dump the U.S. currency.
The euro climbed to USD 1.4347 on electronic trading platform EBS in early Asian trade, after G7 officials ended a weekend meeting without offering verbal support for the beleaguered U.S. currency, as expected.
The dollar fell to a six-week low of 113.40 yen, amid growing fears of tough economic times in the United States, a key export market for Japanese firms.
Tokyo stocks hit 4-week lows as Wall Street fell
Japan's Nikkei average fell 3 % on Monday, led down by exporters such as Toyota Motor Corp as the yen hit a six-week high against the faltering dollar amid U.S. economic fears that have hit Wall Street.
The Tokyo market slid from the open, taking the Nikkei and the broader TOPIX index to four-week lows with a broad range of shares sold, before the market gauges recouped some losses.
The Importance of Basic Trading Tools - Like the Venerable Trend Line
Technical Analysis Articles | Written by Jim Wyckoff |
The Importance of Basic Trading Tools - Like the Venerable Trend Line
In some of the educational stories I have written, I discussed my "primary" trading tools and my "secondary" trading tools. I also mentioned that the more tools one has in his or her "Trading Toolbox," the better the odds for trading success. In this educational feature, I want to focus on one of the most basic--yet most powerful--trading tools: the trend line.
As a refresher, I'll reiterate that my "primary" trading tools are basic chart patterns, such as triangles, double-tops and bottoms, head-and-shoulders formations, flags, pennants, etc.--and of course, trend lines. I also consider fundamental analysis a primary trading tool. My "secondary" trading tools are the computer-generated technical indicators, such as moving averages, Slow Stochastics, MACD, RSI, DMI, etc. Volume and open interest are also categorized as my secondary indicators.
I believe that futures and stock traders can still be successful without the aid of computers. Two of the most famous and successful traders never touched a computer--Jesse Livermore and Richard Wyckoff. When I first got into this fascinating business, I had no computer to give me an RSI or DMI or moving averages. I had a weekly chart service that was mailed (U.S. Postal Service, not email!). On the markets I was following, I plotted the daily high, low and close on the daily bar chart and drew trend lines with a ruler and pencil. For the longer-term monthly and weekly continuation charts for nearby futures, the chart service would send out updates about once a quarter.
I'm sure there are still some traders who use a chart service and trade successfully. Certainly, the evolution of computer trading and charting software the past 15 years has made technical analysis much easier. But the point I make here is that while computers have made the chore of technical analysis and charting easier, they have not made trading success any easier.
In the early 1990s the "neural networks" were the buzzwords in futures trading. Magazine articles espoused the wonders of using "artificial intelligence" to virtually do your all of your trading for you. That fad seems to have come and gone--thank goodness! Now, the "back-tobasics" approach to trading has regained popularity. (To many of us, this approach never lost popularity!)
Before discussing trend lines, I want to share with you one anecdote, regarding all those computer-generated, whiz-bang and bells-and-whistles technical trading indicators. Many of them remind me of the Sears Robo-Grip pliers I got for Christmas a couple years ago. These pliers were touted as a break-through wonder tool that does it all. However, in reality, when you've got a tough nut or bolt to loosen, you head for the toolbox and your trusty old box-end wrench or vise-grips. In trading, my box-end wrenches and vise-grips are the basic chart patterns that you can plot (by hand if you have to) on a chart.
Now on to the venerable trend line. Here is what respected technical analyst John J. Murphy says about trend lines in his excellent book, Technical Analysis of the Futures Markets: "The importance of trading in the direction of the major trend cannot be overstated. The danger in placing too much importance on oscillators, by themselves, is the temptation to use divergence as an excuse to initiate trades contrary to the general trend. This action generally proves a costly and painful exercise. The oscillator, as useful as it is, is just one tool among many others and must always be used as an aid, not a substitute, for basic trend analysis."
On drawing trend lines on the charts, the methodologies vary--and there are really no hard and fast rules. Like much of technical analysis, drawing trend lines is more art than science. When drawing an uptrend line, you draw a straight line up to the right along successive "reaction" lows. A downtrend line is drawn to the right along successive rally peaks. It's important to note that the more times the rally peaks or reaction lows touch the trend line, the more powerful the trend line becomes. The rule I use for the negating of trend lines is that prices must penetrate the trend line resistance or support level--and then see follow-through strength or weakness the next trading session. However, if prices make a big push above or below the trend line, then that trend line is negated without needing follow-through confirmation.
John Murphy's book, which I mentioned above, has much more detail on trendline analysis as well as other basic chart patterns.
Read it and weep!!
I read this article and I think it sums it all up.
How To Make A Million In 40 Trades!!
This article is a true story of how a friend of mine made a million dollars in 40 trades during a three month period. I should mention first that he did start with $100,000. I could have called this my Jerry Maguire moment. You know the movie with Tom Cruise where he decides to write a mission statement.
The reason being is that the subject of this little piece (I will call him Fred to
protect his identity as he is a real person) called me out of the blue last week and it brought back so many fond memories of my early days in trading.
Think of this - double a dollar 20 times and you have over one million dollars.
Before I start with this story I have to give you some background so that you can really appreciate the whole episode.
It all happened in the 90's. I don't even think the Euro Dollar had been introduced for trading at the time.
Anyway, it was fairly early in my trading career and a few years earlier I had taken a course on Forex trading in London. You know, one of those "I'm a guru and this is the Holy Grail courses".
I distinctly remember that the course cost me £8,500, which was a lot of money in those days, hell, its still a lot of money for a course today.
At the time, I remember coming out from the course thinking that I had cracked it. I was already planning on the car I was going to buy and what sort of massive house I was going to live in.
The course finished on a Friday and by Tuesday I was set up with a broker and ready to make my fortune.
By the following Tuesday I had blown $10,000. I couldn't believe it. I had diligently applied everything I had learned and still lost money. I was thoroughly depressed. At the time I knew very little about money management but I knew enough to know that I wasn't going to make any money trading the way I had been.
I spent the next six months reading everything I could about the Forex market. I became totally obsessed with the thing. I would sometimes work 18 hours straight, studying and testing different ideas.
During all of this I kept in touch with the guy that originally taught me the course (Lets call him Peter as he is still in business as far as I know). I realized months later that the course was useless but by this time I had got to know Peter and he was a very likeable guy, it was hard not to like him even though I knew more than he did six months after I took the course.
At the time, I lived in a beautiful village in the heart of Perthshire called Blairgowrie. Just as a side note here. If you ever go to Scotland, make a point of heading up to Perthshire. Everyone goes to Edinburgh or Glasgow but trust me, the farther North you go in Scotland the more beautiful it gets and the people are much friendlier too.
So, picture the scene. I had eventually got my act together. I was making money trading, not a lot but enough to cover my living expenses and it was in the heady days before I had children so there always seemed to be time for things.
I would get up at around 5 am, make myself a big cup of black coffee, put on some Beethoven or Enya and settle in for the morning. My favorite technique was to try to catch a move on the London opening and be finished by midday.
It's funny you know but even I can see how the action in the market has change over the years. The 5 minute charts just seemed easier to trade in those days.
This left me time for my second passion of going to the movies. Both my wife and I used to be devoted moviegoers. I mean, we would watch every single new release and even the arty foreign ones too. Nowadays, with kids, all I get to watch is Toy Story, The Lion King Or Shrek over and over again.
Back to the story. About a week before this story starts I was speaking with Peter and asked him if he knew where I could get a copy of a manuscript by WD Gann that I was after.
Anyway, about a week later Peter gives me a call and tells me that he has this guy called Fred who has just taken the course and is struggling a bit. He asks me if I would spend the day with him and just try to help him.
I knew of course that the reason he wanted me to help him was because he didn't want the guy to ask for a refund but whatever the reason was, I wasn't interested. I was in my own little groove and life was good. I was doing OK in the markets, getting to see all the movies I could watch, in short I was happy.
This is where he tempted me with something he knew I would be interested in. Somehow he had managed to get his hands on the manuscript I was after. He wanted to make a deal. He would FedEx it down to me the same day if I would spend some time with Fred. He got me with the one thing he knew I would bite at.
Arrangement were made that I would collect Fred from Edinburgh airport on Monday morning.
About two days before I was due to collect Fred, he calls me. "Hi Mark this is Fred, Peter said that we are going to meet on Monday and I just wanted to touch base with you. So how much money are you making?"
Wow, this guy was to the point. I wondered if I had made a good decision agreeing to spend the day with him.
Monday morning comes and into the arrival lounge steps Fred. Big tall guy, over six foot tall. His hair was just starting to turn grey and he was dressed in baggy jeans and a T-shirt. I placed him about 36-40 years old.
"I thought I might see some sheep running around the airport". What do you mean, I said. "You know, highlands of Scotland, William Wallace and all that stuff." We both started laughing. I knew I was going to like this guy but he had a wicked sense of humor.
We made some general chit chat on the way back to Blairgowrie and eventually we got in front of the screen where I started to explain how I trade.
Around this time I was really into Fibonacci.
This is where the real story starts.
Fred just sat there looking at me. He had his face resting on his hand with his elbow on the table, which made his face all scrunched up like a cabbage patch doll. I went on for about half a hour. Then suddenly, Fred pretended to let his elbow fall off the table. "Oh, sorry Mark, I was falling asleep. You could stun a pig with this stuff".
"What", I said, but I knew exactly what he meant.
"Well, I'm not interested in all this crap. Just show me the good stuff, you know, the thing that makes the money."
"This is the thing that makes the money Fred."
"I'm not going to do all this mathematical stuff, there's got to be an easier way to make money than doing all this stuff. Plus, at the rate you make money, I might be 60 before I make any decent money."
I had to laugh, Fred was an entirely different animal from me. He wanted to trade and make it big but he wasn't prepared to do the work.
We spent the rest of the day talking about trading and life in general. I laughed the whole day. This guy only knew how to do things one way and that was with both barrels blazing.
Fred eventually went home and things returned to normal. A few days later I get one of many calls that were to come from Fred.
"Hi buddy, I set up my account last week and it's live today."
Great I said. "Remember to take it easy."
"Its a bit late for that me old matey, I'm short the Swiss for a million."
I just listened dumb stuck. You could and still do get incredible leverage with Forex. In those days there were no such things as mini contracts. I had just started trading with two contracts and here was Fred on his first trade, jumping right in there with ten contracts.
How big is your stop I asked him.
"Stops are for wimps buddy. When I make a couple of grand I'll close the position."
"Listen Fred, that's dangerous."
"Don't worry me old matey. You can sit up there in the Highlands and watch the grass grow while I make the real money down here."
About three hours later he calls again. "Just made $5000 bucko. Put that in your pipe and smoke it." I laughed but I was worried about him.
A few days later Fred calls again. "You wont believe this. I was going to short the Pound so I went short 30 contracts and went out for a coffee. Anyway, when I get back you will never guess what happened. I screwed up. I pressed the buy button instead of the sell button and now I'm up $15,000."
I had also been trading the Pound and there had just been a nice move but I had made about $1000.
So what are you going to do now I said. Are you going to close the position? "Hell no. Push it until it hurts me old matey".
He eventually closed the position later in the week and was up about $45,000. Over the course of the next few weeks Fred made about six trades and was increasing his leverage as he went. He was now regularly trading 30 contracts plus. After about a month and a half his account was standing at $500,000.
Quick Explanation
The pip value varies depending on which currency pair you trade but lets say that a pip is worth $10 with one contract to make this easy. Fred was trading 30 contracts or about $300 a pip. If the pair moved 100 pips that would be $30,000. Contracts in Forex are also commonly known as "lots".
Back to our story. It didn't matter how much he made he wanted to use the maximum leverage he could and push his leverage to the limit. It was madness but no amount of reason was going to stop him.
He had also had a remarkable run. I don't remember the exact number but he had very few losing trades.
I was getting more worked up about his trading than he was. I eventually couldn't take it any more and told him I was flying down to see him. I was also curious to
see how he was doing this. What mad method was he using.
As it turned out, his method was remarkably simple. Look at this chart
Basically at around midday he would just draw a straight line across the top and bottom of any consolidation he could see on a 5 minute chart. If he had a couple of closes above the consolidation he went long. If he had a couple of closes below the consolidation he went short. There was either no stop or one so far away that it didn't matter much. He just closed the position when he felt he had made enough or judged the market to be turning on him. It was a sort of breakout technique.
Things came to a head when Fred went on holiday. He didn't particularly want to go on holiday but he had arranged this months before him started to trade.
He had arranged to take his family to Disney Land and off he went. Finally I thought, some peace and quite. But not quite.
He could only have been on the ground for a few hours when I got the call. "What's the Yen doing." Forget it I said. You need to take a break and spend some time with the family. Silence on the other end of the phone.
A few hours later he calls again. "Right me old matey, I've just bought a fax machine, fax me over a chart of the Yen." I couldn't believe what I was hearing. He wanted to trade without a dealing station and no access to charts.
"No way Fred."
"Listen up buddy, I am going to take it easy, I just want to be in the market. Send me a 5 minute of the Yen and I will keep it to ten contracts." Reluctantly I agreed but made it clear I thought he was off his head. I knew that regardless of what I said he would find a way to trade.
As it turned out, even on his two week holiday he made over $100,000. Obviously going over his 10 contract limit he promised me.
I could go on here about his trades but the incredible run finally ended one Sunday night after about three months and around 40 trades, Fred had managed to parlay his initial starting capital up to one million dollars.
Now if you trade currencies, you know that nothing much happens on a Sunday night. Asia opens but generally there are no big moves.
The phone rings about 1 am and wakes me from my sleep. "What the F%$* is happening to the Swiss." He didn't even wait for an answer, he just hung up. I lay in bed for about ten minutes thinking about what Fred had said and then curiosity got the better of me, I had to go see for myself.
I knew as soon as I saw the chart what was worrying Fred. For some reason the Swiss had gone up over 100 pips on a Sunday night. I had never seen such a big move on a Sunday and I couldn't find any news as to why this might be happening. Fred must be short the Swiss I reasoned.
I decided to call him. "Your short the Swiss right?" yes, he replied. "I just don't understand it. I thought I would place my positions ahead of Mondays opening and then this Sh*% happened. What do you think I should do?"
I didn't know. "Look, you really only have two options, close the position now or wait for the London open and see what happens. Whatever you decide put a stop in to be on the safe side."
I remember watching that 5 minute chart of the Swiss all night long and about eight am London time the Swiss began to rise again. It had moved another 80 odd pips up. I called Fred. "What did you do." Silence on the other end of the phone. "Fred, what did you do."
"I shorted it again. I thought that as it had already moved so much it must be ready for a pullback so I shorted it again. There is something else Mark but I am too embarrassed to tell you."
"What is it Fred?"
"I've been adding contracts and now its looking real shaky."
I never did find out exactly how bad his situation was that day but I could guess. Not only had he shorted the pair again he had added contracts.
After that trade, nothing seemed to go right for Fred. He had some wins but in a period of about a month he lost everything. Even his starting capital. He was the
first trader I knew who actually had a margin call. That's when the broker calls you to tell you that there is either not enough money in the account to cover the position or it is getting dangerously close to that level.
I still consider Fred a close personal friend and we have remained friends throughout all the years. It took some time but Fred to recover but he did eventual make quite a bit of money in the property game.
Here's the moral of the story. I have met some incredible traders over the years. I even know one trader who makes millions of dollars a year and before you ask, no, he doesn't share his method with me.
Of all the hundreds of traders I have met over the years I only know a handful that still trade and make money year after year. All those traders without exception have strict money management principles and a simple method or system.
Don't be in a rush to make it in trading. You need to learn this profession. You need to have money management principles in place that allows you to stay in the game even when you go through a bad patch and trust me they will come.
I asked Fred one day why he never stopped or drastically reduced the amount he was trading when he had a million dollars. This is what he said.
"I have a glandular problem, I have this huge greedy gland that just wont let me stop. When I got to a million I immediately thought, why not ten million me old matey."
Here's a scary thought. There was a time during all this when I would have believed he could have done it.
So fellow traders ???
Money Management.
Entry and Exit rules.
But most of all Fred broke the Cardinal rule.
NEVER ADD TO A LOSING POSITION !!!!
I guess the heading should read..
How to to make a million in 40 trades and lose it in 1.
Lets hope nobody here will learn the Hard way.
The Week Ahead October 22 - October 26
United States
Tuesday: Richmond Federal Reserve District Manufacturing Index at for October at 10:00 ET; September 14.
Wednesday: Mortgage Bankers Association (MBA) Mortgage Application Index for the week ending October 19th at 7:00 ET; prior week +0.7% to 656.3. Existing Home Sales for September at 10:00 ET; August 5.50 million.
Thursday: Jobless Claims for the week ending October 20th at 8:30 ET; prior week +28,000 to 337,000. Durable Goods Orders for September at 8:30 ET; August -4.9%, ex defense -5.4%, ex transport -1.8%. New Home Sales for September at 10:00 ET; August 795,000.
Friday: Final University of Michigan Consumer Sentiment for October at 10:00 ET; preliminary 82.0.
Eurozone
Tuesday: Industrial New Orders for August at 9:00 GMT; July -4.0% m/m, +10.9% y/y.
Wednesday: Current Account for August at 8:00 GMT; July seasonally adjusted +E36.6 billion, not seasonally adjusted +E3.3 billion. Flash (1st issue) Manufacturing PMI for October at 9:00 GMT; September 53.2. Flash (1st issue) Services PMI for October at 9:00 GMT; September 54.2.
Friday: Money Supply (M3) for September at 8:00 GMT; August +11.6% y/y, 3 month moving average +11.4% y/y. Loans to private sector for September at 8:00 GMT; August +11.2% y/y.
Germany
Thursday: IFO Survey for October at 8:00 GMT; September 'business sentiment' 104.2, 'current assessment' 109.9, 'business expectations' 98.7.
Friday: GfK Consumer Confidence for November at 6:00 GMT; October 6.8.
United Kingdom
Monday: CBI Industrial Trends Survey for October at 11:00 GMT; September 'monthly orders balance' 6. CBI Quarterly Industrial Trends Survey for Q4 at 11:00 GMT; Q3 'business optimism balance' -2. .
Tuesday: Nationwide House Prices for October at 7:00 GMT; September +0.7% m/m, +9.0 y/y.
Thursday: Chancellor of the Exchequer Alistair Darling testimony to the Treasury Committee at 11:00 ET.
Friday: Land Registry House Prices for September at 11:00 GMT; August +0.2% m/m, +9.4% y/y.
Japan
Friday: National Core CPI for September at 23:30 GMT (October 25); August -0.1%. Central Tokyo CPI for October at 23:30 GMT (October 25); September -0.1%.
China
Monday: Q3 GDP (release time undetermined); Q2 +11.5% y/y. CPI for September (release time undetermined); August +6.5% ytd, +3.5% y/y. Fixed Asset Investment for September (release time undetermined); August +26.7% y/y.
Economic Releases October 15- October 19
United States
Tuesday: Industrial Production gained 0.1% in September as predicted, but Augusts' number lost 0.2% on revision to flat. Auto manufacturing output fell 3.3% in the month largely due to the two day General Motors strike. Non auto manufacturing added 0.3%, a reasonable recovery after the flat result in August and the financial market upsets.
Capacity Utilization was 82.1% in September as expected, virtually unchanged from 82.2% in August.
The Treasury International Capital system (TICS) in August registered the first decline in net long term capital flow since 1995 at -$69.3 billion. About half of the deficit was due to foreigners selling US assets and half to the overseas investments of US residents. Foreign investors sold $34.9 billion of US Securities, $24.2 billion by official institutions and $10.6 billion by private investors. US residents bought $34.5 billion in foreign securities. It was the first net sale of securities by foreigners since 1998. Private investors and hedge funds sold US equities and central banks sold US Treasuries. Overseas investors had been forecast to purchase $60 billion of US debt instruments. Coming after July's far below average inflow of just $19.2 billion the exodus aroused concerns about the funding of the US trade deficit which requires about $60 billion a month of net purchases. The credit crisis in August forced many owners of US debt to sell all or part of their holdings. Net sales by private investors were predominantly in equities and corporate paper exactly what one might expect in a credit panic. But the demand of these same private investors for US Treasuries and government agency debt, the least risky class of securities, rose. The TICS number has always exhibited a great deal of month to month volatility. Two months do not make a trend and with US equities staging a strong recovery in September and October, a return to the US market for foreign capital can be expected.
The National Association of Home Builders (NAHB) Housing Market Index for October at 18, 2 down from September, was the lowest score for this series since inception in 1985.
Wednesday: consumer inflation in September rose 0.3% a 2.8% yearly rate; the core rate gained 0.2% or 2.1% yearly. Though both numbers were largely as predicted, the core rate has ceased falling in August and September. Prior months had dropped steadily from February's 2.7% rate.
Housing Starts fell 10.3% in September to 1.191 million units the smallest number since March 1993 and well off the 1.3 million expected. Building Permits shed 7.3% to 1.226 million also the lowest since 1993.
Thursday: weekly jobless claims for the week ending October 13th rose 28,000 to 337,000 against the expectation of 312,000. A labor Department official said that a 'portion' of the rise was due to 'seasonal adjustment volatility'. Weekly numbers by nature vary widely but these results did nothing to alleviate the gloom gathered about the Dollar. The Euro reached 1.4311, in the aftermath.
NAHB Housing Market Index fell to 18 in October, down two from September and a new low record for the series which began in 1985.
Eurozone
Tuesday: final September HICP was unrevised at +0.4% and +2.1%, the highest yearly reading since +2.3% in August 2006. It was the first time in 13 months that the harmonized index has been at or above the 2.0% ECB target. The rate in August was 1.7%.
Thursday: Construction Output improved +0.4% in August, a +2.8% yearly rate; for July the rates were revised down to -0.1% monthly and +1.4% yearly from 0.0% and 1.7%, June results were also dropped to +0.3% from +0.6%. A surge in German output was the largest component in the EMU statistic.
Germany
Tuesday: final HICP for September came in as expected +0.2% but the +2.7% yearly figure was the highest in six years. The last time this standardized EMU statistic was above 2.0% in Germany was July 2006. Final CPI for September rose 0.1% to 2.4%. Though this was slightly better than the forecasts of +0.2% and 2.5%, the annual rate was the highest in two years. It was last at 2.5% in September of 2005.
The ZEW Survey for October showed business attitudes largely unchanged from the prior month: 'expectations were -18.1 the same as in September and 'current condition' fell slightly to +70.2 from +74.4. Both numbers were as forecast.
Friday: PPI accelerated in September to +0.2% and +1.5%, double the monthly rate in August and half again the yearly rate. Though PPI was less than the forecasts of +0.4% and +1.8%, and was led by volatile energy prices, with oil touching $90 a barrel this week there is no comfort in these numbers for the ECB.
United Kingdom
Monday: Rightmove house prices from the online property site jumped 2.7% in October erasing the 2.6% decline in September. The yearly rate moved up to 10.4% from Septembers' +9.6%. The DCLG House Price Index dropped one percent in August to +11.4% from the July result of +12.4%. This statistic records an actual transaction price, an simply the asking prices. The apparent contradiction between the two widely used house price surveys is due to a new government reporting requirement. Known as the Home Information Pack this puts a reporting burden on sellers who may have been rushing to complete sales before the September 10th deadline.
Tuesday: CPI in September at +0.1% and +1.8% for the year was lower than the forecast of +0.2% and 1.9% and cleanly below the BOE 2.0% target measure. Core CPI was flat and up 1.5% annually, well under the 1.8% expected yearly rate. Sterling dipped 45 points on the release.
Wednesday: ILO unemployment rate stayed constant in August at 5.4% as expected. Average Earnings rose at a 3.7% three month moving average yearly rate. In July it gained 3.5%.
Thursday: Retail Sales volume surged 0.6% in September to 6.3% for the elapsed year. It was the highest annual rate in three years, and well ahead of the median forecasts, +0.1%, +5.6%.
Friday: preliminary GDP gained 0.8% in the third quarter and 3.3% yearly, slightly better than the +0.7% and +3.2% forecast .
China
Monday: The People's Bank of China raised the reserve requirement effective October 25th for the eighth time. The 50 bps point hike brought the reserve to 13.0% the highest ever and brings the increase this year to 400bps. The PBOC has already raised rate five times this year and the reserve requirements seven times.
The Week in Review October 15 - October 19
United States
The descent of the US housing market accelerated this week, postponing any serious hope for recovery well into 2008. All three major housing market indicators recorded worse than expected results, but the news had little direct effect on the Dollar. There has been so much bad news from this sector that almost anything short of a complete cessation of all sales is already factored into the market. The dollar took its biggest single hit on Thursday from Weekly Jobless Claims a volatile and relatively minor statistic. The reaction to this number evidenced the extreme fragility of the Dollar to anything that indicates weakness in the US economy particularly in job creation.
Projections for 3rd quarter corporate profits for American heavy equipment manufacturer Caterpillar, among others on Friday slammed the major US equities averages and returned what had been a mildly recovering Dollar to the defensive. The equities have been one of bright spots in a wary economic picture.
The sub prime and credit crunch which began two months ago took its toll of foreign investment in August with the net long term capital flows registering their first decline since 1995. This is the second month in a row that capital funding has been less than the amount needed to offset the US trade deficit.
The Fed Beige Book prepared for the Oct 30-31 meeting of the FOMC showed continued expansion in all districts, but it cited decelerating growth since August. Consumer spending rose but reports varied from district to district. Real estate continued to weaken. All in all this book reflects the trend we have been seeing in this anecdotal survey for many months, with slowly accumulating pressure on economic growth and heightened uncertainty among responders about the economic outlook. GDP in the 4th quarter appears that it will be considerably weaker than in the third.
Eurozone
Economic growth in the EMU is slowing but for an ECB very uneasy about inflation it is not enough to make them break inflation cover and reduce interest rates. If the economic picture continued unchanged then logic and their own statements would put them on hold until the end of the year. If however, the Fed cuts American rates at the end of the month and the Euro then reaches 1.4500 and higher, the game changes. It will be hard for the European central bank governors to deflect the outcry from politicians and the media. And, more importantly, their own economic projections will point to the same dangers currently so evident from Washington. The ECB governors may not quite realize it but their next rate decision will probably be determined on Halloween in Washington.
United Kingdom
Retails sales for September were six times the expected rate and will certainly give the Monetary Policy Committee (MPC) pause when it contemplates its next rate decision on November 8th. But recent inflation numbers may lean the MPC in the opposite direction. Headline CPI was 1.8% in September, better than expected. And, most impressively, core CPI was only +1.5% year on year, much lower than the +1.8% prediction and a large improvement from the +1.8% rate in August and the +2.0% in June. MPC had voted 8-1 for unchanged rates at beginning of the month. The majority on the committee is shy of cutting for two reasons: lower rates could ward off the economic slowdown predicted in their August report and that the MPC expects to keep a lid on inflation; secondly, they did not want to appear to be overly supportive of the financial markets in its recent troubles. Preliminary GDP for the third quarter, +0.8% and +3.3% annualized was the highest quarterly figure in three years and is perhaps another militating factor against a rate cut. If the main argument for reducing rates is the potential for economic slowdown from housing and lingering financial markets effects then the accuracy of that view is undermined by the recent retail sales that were the driving force behind 3rd quarter growth. Given the distribution of votes on the Monetary Policy Committee, the recent economic results and the relative calm in the credit markets rate cuts might not be granted for some time. Much will depend on the world reaction to the US equity fall on Friday.
China:
With the end of the 17th Communist Party Congress market expectations are for further Peoples Bank of China rate increases. Food inflation is a serious concern for the Beijing Government. The average Chinese family spends almost 40% of its budget on food and the potential for political unrest in the poorer provinces is never far from the government's mind. The end of the twice a decade Beijing political chautauqua frees policy makers from distraction and they will return their focus to the rampant growth and speculation that are their main concerns.
At the Party Congress President Hu Jintao said that the Chinese economy continues to strengthen and pledged to make economic growth more balanced instead of relying on investment and exports. For investment read Foreign Direct Investment, for exports read replace exports with domestic consumption. China's biggest development problem is the income disparity between the booming wealthy coastal cities and the rest of the country. The party's biggest problem is that poverty, corruption and economic envy in the hinterland is a potentially explosive political situation. If the government is to encourage domestic consumption and investment then it must find a way to spread growth and wealth to the interior of the country.
Market Directions Sunday, October 21, 2007
The equity sky suddenly grows stormy
The G7 meets and ...
ECB rate policy, made in Washington?
There is still a week and a half before the next FOMC decision on October 31st. Fed Chairman Ben Bernanke has said repeatedly that the decision will be determined by the state of the economy as reflected in the statistics. But the Fed now has a new worry, the equity market. If Thursday's poor jobless claims number had tilted the speculative see-saw toward a 0.25% cut then the Friday collapse in stocks will keep the lever pinned to the ground. Can the Fed not cut rates again?
Even though several important statistics will be released before the Fed decision, the futures market had, by late afternoon on Friday, fully priced in a 4.5% Fed Funds rate. The day before the same futures pricing had predicted only a 48% chance for a rate cut. None of the pending statistics, Durable Goods Orders, Consumer Sentiment, the Chicago Purchases Index, 3rd quarter GDP and three housing figures will allay the Fed's economic fears. When the Fed meets it will also be able to consider the pre release ISM, PCE inflation and Non Farm Payroll numbers for October. Even the best results for these numbers are now unlikely to prevent additional Fed rate cuts and none will provide support for the Usd.
No one statistic of the past several weeks has been strongly Dollar negative. Most have shown continuing moderate growth in GDP and consumer spending but the Dollar has continued to fall. The problem for traders is that the market sentiment is overwhelmingly against the USD. That sentiment cannot be altered by rationed good news or a moderately expanding economy. The governing market assumption, one might call it the 0.5% thesis, is that the strains on the US economy will keep the Fed on the defensive and the economy from trend growth for the next two quarters. Bad sentiment cannot be driven out by mediocre news; the Dollar cannot recover while the Fed is the only central bank reducing rates.
The logic for this FOMC meeting is the same as it was for the September 18th assembly last month. The danger posed to continued moderate economic growth outweighs the potential exacerbation of inflation. If the Fed had this one good reason to cut rates last month does it now have any good reasons not to cut? What could the Fed view as more important than economic growth? Moral hazard in the financial markets? The six month horizon for inflation? The falling Dollar? None of these possibilities can overcome the economic damage from a recession. In fact all of these concerns, while real, will be made measurably worse if the economy slips into recession. Inflation is tame. Growth worries can only have been made worse by Friday's equity slide and the credit market problems have not vanished. The question can be asked again. What good reason does the Fed have for not cutting rates? It is difficult to formulate an answer. In addition, it would be rare in modern Fed history for the bank to cut rates only once in a cycle. If the Fed cuts on the 31st logic predicts further cuts as well. If the Fed rate reduction horizon has just lengthened then the decline of the Dollar has also.
In the something for everyone department the G7 communiqué is one of the best. The foreign exchange paragraph of this communiqué is worth quoting in its entirety. “We reaffirm that exchange rates should reflect economic fundamentals. Excess volatility and disorderly movements in exchange rates are undesirable for economic growth. We continue to monitor exchange markets closely, and cooperate as appropriate. We welcome China's decision to increase the flexibility of its currency, but in view of its rising current account surplus and domestic inflation, we stress its need to allow an accelerated appreciation of its effective exchange rate”. Issued by the assembled finance ministers after Friday’s meeting in Washington its virtue is to please all without offending any. Anyone that is, as long as one is not from Beijing. “Excessive volatility” satisfies those Europeans who dislike a high Euro and Euro/Yen; China’s mention satisfies all manner of trade warriors; “monitor” and “cooperate” keeps the internationalists happy. Every finance minister and politician can find in the text the appropriate phrase for reference during their news conferences back home, whatever the inclinations of the national audience.
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