USD/CAD Currency Pair

Here's a recap of a trade I took last night. It worked in my favor and I thought I would share.

Which Chart To Go With?

Just a reminder to be careful with the charts you use....they can make SUCH a difference...

Who Really Knows, But...

Here's a picture of the SPY, broken down to show 2 different time frames. The top part or "timeframe", is a 20-year monthly chart...and the one on the bottom is a 5-year, daily chart. So looking back 20 years we can see the fat blue line I drew was acting as support until it broke down and through it in October of 2008. If the SPY starts to trade back up to the blue line (which it has), the fat blue line should act as resistance and make it difficult to trade up & over...

The skinnier yellow line that's drawn has been acting as resistance since October of 2007. So, every time the SPY starts to trade around the yellow line, again, one would expect it to be difficult for it to move & trade above it...

Well both lines are intersecting and it 'puts' (no pun intended) things in your favor to take a trade to the downside. Again, your risk to reward is in your favor by going "short" (or trading to the down side). The reason why your risk is reduced is because if you're wrong, and the SPY continues to trade higher from here, your 'stop loss' (or where you should exit the trade) should be right above the yellow and blue lines and that would minimize your loss from being wrong.

I believe we go lower from here...but that's just my opinion.

Happy Trading!!

-Matt J


BTW, the SPY is roughly 1/10th the size of the S&P500 index. And for those of you who don't already know, the S&P500 index is the bellwether for the American economy........and for those of you who don't know what a'bellwether' is, look it up; Wikipedia it or something.

Resistance Line Still Holding

If you look at my post below, back in the early part of June, I said that we were probably heading lower. There was a downtrend line that price action did not want to get above...Now that we've gotten a few weeks of trading under our belt since then, the price still does not want to break above resistance (the red-line). And it actually has tested that line twice, which makes it more significant.

Below is a DAILY chart of the same 'underlying' (ticker 'SPY' (which again, is basically 1/10 of the S&P 500 index)).


My target for the move lower is to the 80'ish level or 800'ish level on the S&P 500; give or take a few points. I base that move on the embedded head & shoulders pattern that started to form since the beginning of May.

We're headed lower

I'm gonna go out on another limb and say that we're probably heading lower in the market(s). It kind of all depends on where this week finishes up.

Below is why I think that. We're looking at a 3 year weekly chart. So each bar represents 1 week of price action (This is ticker SPY...Which is 1/10 of the S&P 500 Index). Where I placed the white circles (going from left to right) is where we previously had 2 instances of support...then it broke support...and now we're on the bottom side of the red-line so it SHOULD act as resistance, forcing price lower.

Just a thought......I could be wrong because I often am.

Bearish Article

Another good article from Mr. E!! Thanks E!

http://online.barrons.com/article/SB124303129632948467.html?page=2

Car Dealerships

Not my article but worth the read. And there's always 2 sides to every story. 

Future historians might well look back on events of the last week and see a milestone of decline in the waning saga of American freedom.

The bridge between the free market and a command economy was likely crossed when, at government demand, thousands of car dealerships all across the country were put out of business. They were profitable, they were legal, they were useful, and the White House ordered them closed. A presidential panel, comprised of everyone except car-industry experts, demanded that Chrysler and GM cut off a third of their dealers' heads.

Hundreds of thousands will lose their jobs. Thousands of businesses will close. Millions of consumers will be affected.

Because the government said so.

If Chrysler and GM want their mandatory bailout money, they must do what the White House says, and the White House says there are too many car dealers. And so, people's lives will be destroyed, massive investments will be lost, family businesses will be annihilated, the life's work of countless honest American business men and women will be flushed down the toilet.

And barely a whimper of protest is being heard. The crown has spoken and the subjects bow and scrape.

The argument is that, in the shadow of bankruptcy, GM and Chrysler need to shed the deadweight of underperforming dealerships. The problem with that is that dealerships are not a financial liability for carmakers and that many of the dealerships that have gotten the ax are among the nation's most profitable.

One Jeep dealer in upstate New York, for example, sells just over half of all the Jeeps in its region. It not only outsells all of the other Jeep dealerships, it outsells all of the other Jeep dealerships combined.

And it has lost its franchise.

Another false assumption is that dealerships cost carmakers money. They do not. They make carmakers money. Even small, low-volume dealerships are a net financial gain for manufacturers. Dealers not only make companies money by selling their automobiles, they have to pay for signs and pamphlets and displays, all of which can only be bought – at exorbitant prices – from the manufacturers.

Further, it is insane for any business to assume that it makes more money by reducing retail outlets for its products. What did Wal-Mart do to make more money? It built more stores. What did McDonald's do to make more money? It built more stores. What did Starbucks to do make more money? It built more stores. What are GM and Chrysler doing to make more money? The exact opposite.

That might make sense in the anti-car fantasies of the ruling regime in Washington, but it makes no sense whatsoever on the balance sheet. It is pure big-government-knows-everything lunacy.

It is also a disservice to consumers.

The Obama dealership closings gut many rural areas, taking away both sales and service. Buying a car, or getting your car fixed, will now require a trip to some far-off city.

Some argue that with declining sales at GM and Chrysler, it is only natural that there should be fewer dealerships. That is true. Of late, some 400 or 500 American dealerships have gone out of business each year. But that has been a function of the marketplace, not of government dictate. Those who can't keep their heads above water have sold out or shut down.

Those who've kept in the black, who have been able to remain profitable, have stayed in business – until now. But now, profitable businesses, which seemed poised to continue to employ people and stay in operation for years to come, are on the way out.

In addition to the impact on owners and employees, the communities they serve are also devastated. In many areas, in states where sales tax is a major part of a community's revenues, the car dealership was the largest single source of local taxes. That loss is huge for municipal budgets. The same is true for the various charities, United Ways, sports teams and school activities that have long relied on the generosity of car dealers.

In one fell swoop, because the White House said so, that is all gone.

Ironically, the government has decided to decimate the only profitable part of the car industry. Not only are the car dealers not operating at a loss, they are the only part of the car industry that isn't being bailed out. So the government is propping up the part of the car business that doesn't work, and attacking the part that does.

It is morally and legally wrong. This is not the way a free country operates. It is absolutely not the American way. This is the first taste of a command economy, of central-government planning of industry and commerce.

It didn't work in the Soviet Union, it didn't work in Cuba, it didn't work in North Korea, and it won't work in the United States. If their goal is to take private transportation away from Americans – and it might be – this is a good idea.

Otherwise it's a horrible idea.

It is an attack on the free market, on the value of investment, on the ownership of property. It is essentially an act of theft. 

This is change we can believe in, and will come to regret.

Bearish Divergence

So I decided to post; which I haven't done in a long time...The chart below of the S&P500 is where we are as of today (4/28/09). Personally, I'm expecting a pull back. And to be honest I've been expecting one for several days. The reason being is because of the divergence between price action and MACD (the middle technical indicator below - it's a measure of momentum). Well, for a long while now, the price of the SPX has been going higher but momentum has been getting weaker and weaker and weaker. Look at the black lines I drew (price goes up, MACD going down)....Also, we're up against resistance at the 875 level and I don't see us busting through that level any time soon. Too much over head supply/congestion....and speaking of congestion, sorry if you can't read my chart because of all the other crap I've got drawn.



To show my observation/thought again....take a look at the 2 year/daily chart below (without all my crap drawn). It might be hard to see it but the same story has happened a few times in the past. Again, the chart below has price action moving up (gray arrow) with divergence on the MACD (black circle(s))...following this kind of divergence pattern, you can see how the price action followed (Maroon arrow - IT WENT DOWN!). Some of the divergences are harder to see than others but the same principle applies. So the questions that pops into my mind is, "Are we seeing this same pattern and should we expect a pullback?". My answer is yes...

All in all, just be careful if your trading to the upside. I feel like there's less risk playing it to the downside but nonetheless, I could be wrong...I frequently am.

-Matt J

So it's been a while

So I haven't posted in a while....my bad. A lot of things have come up since my last post...including the development of a new trading system. This will basically make trades for me while I'm off at work or doing whatever. A "Black Box" if you will...

I'll be back and I'll keep you posted as it develops.

In the meantime, the markets (in my opinion) are over extended and showing signs of divergence. I'm expecting for "it" to go lower from here...

With the FED and their announcement this past week, people (even other countries) are starting to worry about inflation. When these worries start to take presedence, then one can anticipate what kind of moves are to be expected amongst different avenues of investing (or where money can be put to work).

John Jagerson explained this pretty well and I'm just gonna try and repeat what I heard in simpler terms (assuming "simpler" is a word):

With the FED's announcement this week, they said that they were going to "increase their balance sheet". More money is gonna be pumped into the system. When the 'pumping of money' is announced then one can expect a few things to happen.

1. The USD (U.S. Dollar) will go down in value, this is a simple concept to understand ("When inflation sets in, the Dollar doesn't win").

2. Gold goes up in value. Gold and other commodities are an inflation hedge.

3. Bonds go down in value when you anticipate inflation.

4. Equities, typically move inversely to Bonds when inflation 'comes about'.

Again, that's a typical/simple understanding of the relationships. However, this happens in a NORMAL market environment, but for those of you who haven't noticed, we're not in a 'normal' market. Not even close.

That being said, look at the chart below. This shows the 4 points above. I used the EUR/USD currency pair to show what happened to the US Dollar (top-left); the SPX for the equities (top-right); GLD for gold (bottom-left); TLT for the Bonds (bottom-right)...This chart is an intraday chart and shows how the market reacted to the Fed's news that they were going to "increase their balance sheet"...

Notice anything different? Or notice any relationship difference than what I explained above? Everything freak'n shot higher!!! Bonds especially and their yields all made BIG moves. As John Jagerson said, 'when this relationship breaks, you CAN expect volatility'.

That's exactly what I'll be looking for.

Happy Trading!

-Matt J

Honest Abe: What a Genius

Blah Blah Blah

So I decided to watch the ES future markets while Obama gave his speech...Just look at the attached image and you'll get an idea of how it went and/or what I thought about it...BLAH!


By the way, we got a pretty good pop up in the markets today. It didn't close above this past Friday's open/high so that's what I'll be looking for...but today's action could just be a dead-cat bounce as well. Wait for confirmation before picking a side...

Line in the Sand

So yesterday I posted that I thought we were going higher in US markets but that I could be wrong...well I was wrong...or was I early? The thing to look for is a close above this past Friday's open or high (775/778 respectively)...But also pay attention to the 741 level on the SPX. That's the 'line in the sand' for me and represents a significant support level (from a technical perspective as well as a psychological perspective); chart below.

Hmm...

You know, I have no idea where we're gonna go. But what I do know is that if we crack these levels and go lower, we're in for another roller coaster drop off (in my opinion). Below is a chart of the S&P 500 and the light green highlighted area represents support.

Personally, I think we get a bounce from here:

1. The trading day on Friday (2/20/08) generated what's called a "bottoming tail hammer". It's a signal that a possible reversal is coming. Look for a close above Friday's opening price for further confirmation.

2. The MACD indicator barely shows some divergence. Meaning, the SPX (S&P 500) has gone lower on less momentum. 1/20/09 the MACD delta was at -9.15 and SPX closed at 805. 2/20/09 the MACD delta was at -6.34 and closed at 770.05.

3. The Stochastic indicator is WAY WAY WAY oversold indicating that a pull-up in the markets could be soon (I don't personally put a lot of weight on this indicator).

But here's what's important...I could be dead wrong! And I'm ok with that; the point is that I believe there's a low risk entry here to go 'long', because if I'm wrong, I'll lose very little.

Never FOCUS on how much you can make with a trade; FOCUS first on how much you could lose!

Happy Trading,

-Matt J

Fractal Dimensions

For those of you looking for something to fill in some time...

http://www.fractalfinance.com/ fracdimin.html

That's an interesting read.

Ichimoku Kinko Hyo

To further show my nerdiness; below is a chart of a successful trade if you were to follow the Ichimoku Kinko Hyo trading system...Jarred sent me this screen shot and it's a textbook example. His chart is below...This would have been ~120 pip gain...which again, on 10 full contracts; that would be $12K in about.....2 hours. Any takers?

2 Things

#1. We've slowly started to lift higher this week as I was saying last week that we should. We broke the down trend line from the past several trading sessions, so things are looking good. We still have a few economic indicators left to get through and that could really determine whether we stay up or go back down to last week's levels...Personally, I think net/net we'll stay up for the week.
#2. I've revisited a trading strategy and I'm going to focus a lot of my time on learning this system for currency trades. It's called "Ichimoku Kinko Hyo". The picture of the system is below and don't ask me how to read it or what it even stands for because I have no idea. The 'expectancy rate' is high for this so I'm hopeful it'll produce good results. I'll keep you posted and yes, I'm a nerd; an ambitious one at that!

The Coming Week

Take a look at the below charts...In my opinion, I'm looking for a bullish move (upward move) to be coming...I don't know when but based off of the charts below here's why I came to this conclusion (it might be elementary...but nonetheless here it is)....

Below, the S&P 500 chart...I should have listed the DJI but we've following this one so I'll stay with this for a little bit longer. This is/has been sitting on a longer term support with stochastics looking to turn to the upside...This, along with the rest of the markets, kind of consolidated for about 4 days...It has to pick a direction soon.

The EUR/JPY (pictured below) is a currency pair that follows the US Markets. If the US Markets go up, then this goes up...and vice-versa. That being said, from a technical perspective, the "hammer's" that have been forming for the last 3-4 trading sessions is an indication that a reversal could be in order...so if the EUR/JPY goes up; then we could anticipate that the US Markets will too (The EUR/JPY follows the $DJI better than the $SPX)...

Lastly, we have TLT (pictured below). Which is basically Bonds. And as you can see the bond market has been on fire! But, from another technical perspective, the "head and shoulder's" pattern formed up and the trading broke the 'neck-line' (the black line you see). As a general rule of thumb, if the neckline is broke then the movement of that security should fall the same amount as it rose from neckline (black-line) to the top of the head (122'ish). Assuming that is true, we could GUESS that TLT could move to 100'ish.

The thing about TLT and the bonds is that...Apparently, money is coming out of those 'avenue's' or means of investing. Usually, when stock markets get really crappy, institutions will put there money into Bonds (hence why TLT has had such a great run). Conversely, with TLT coming down and the prospect of it going down further, Money is flowing out of bonds and more than likely back into stocks...That being said, stocks haven't really moved all that much which is why I'm expecting a move higher from where we now sit...

But again, just an opinion and I'm often dead wrong.

Now What?

Looking at the SPX now (because that's what we've been tracking), just yesterday I talked about how I thought we were going lower but there was an indicator (Stochastic) that was telling us the markets are oversold and buying should be coming back in. Well today's action sent us higher and almost wiped away Tuesday's losses. From here, I'd feel better if we got above 850 on the S&P to confirm that this recent run lower is over and that a reversal to the upside will likely take place...

Remember there's never a gaurantee as to what's gonna happen; you just have to take a snapshot at that point in time, assess all of the variables and go from there...

Markets

Just an update and my opinion...'We're going lower in the markets'

I think we'll be testing the lows from November 20-21, 2008. We just creeped under the recent support of 815 on the S&P500 and we'll have to see where we open and where we finish for tomorrow...But I wouldn't be surprised to see us go lower...The good news (or counter argument) is that our Stochastics Indicator is telling us is that this recent run lower, that started on the Jan. 6th, 2009, looks to be out of breath and could stop and reverse back up...

EUR/USD

I want to put something into perspective for you; and make sure you read this whole thing to see what I'm talking about...But in looking for a currency pair to trade, I came across the EUR/USD (Chart Below). As it sits right now and where it sat on Wednesday it looks to be a good low risk entry for a long play(buy the EUR sell the USD - looking for it to go up from here).

Now, between Wednesday, Thursday and Friday it moved in the positive direction 300 pips. If you were good enough of a swing trader; 300 pips on 1 mini contract is $300.00 in your pocket...if you bought 1 full contract (10 mini's) that would have been $3,000.00 in your pocket...And finally my friends, if you had 10 full contracts; well that's a good ol $30,000 you would have banked all in 3 days. Can we say SWEETNESS!!!!!!!

That's the leverage of trading currencies and that's why I do it!