US Dollar Index and insomnia

Major moves in Forex markets occur in the wee hours of the morning (after midnight) of Pacific Time. The choppy action in the US Dollar Index since 11 AM PST (7-13-10) has been frustrating. Numerous profit opportunity have been missed already in search of 83.5 target which is elusive so far. The trade drags on; draining a lot of emotional and physical energy.

A lot of patience and stamina is needed. Similar to "The old man and the sea". I am most certain that if "The old man" was a trader, he would have been a great one. Perhaps amongst the very top ones!

I for one, need to wait for 83.5 to hit in the next 2 hours. That area is getting pretty close to the correction target. I am not sure if the green back starts to rally from there or it just chops around for a couple of more weeks and then levitate towards 88. Currently the broad market seems to jubilant over Intel's numbers and looks like an opening gap. Is the market getting ready for a last hurrah and then chop lower? It will be known in the coming weeks.

In any case, the greenback is more likely to find its bottom with the market top!

EUR/USD overnight story

The EUR/USD high of 1.2722 on 7-8-2010 was significant. On the 15 minute chart, it looks like the pair is coming down in 5 waves. Although it could change if 15 minute bar closes above 1.2616. That would negate the 5 down count.

Even if it is 5 down, whether the 5 down is impulsive or part of a 5-3-5 Zigzag still remains to be determined.

In either case, one of the trade with good risk/reward is to Short EUR/USD (currently at 1.2593) with target to cover at 1.2540. Stop loss being 1.2620.

On being crossed

The nth version of DOW 10,000 hats are in vogue again! S&P 500 has jumped 52 points on closing basis in the shortened trading week. The Bulls are jubilant and the Bears are once again dismayed that S&P 875 seems way too distant.

On closing basis, the bottom of SPY (ETF for S&P 500) was on 3-9-09 at 65.98. The Golden Cross (50 MA- simple moving average, daily crossed from below the 200 MA) happened on 6-18-09 after 101 calendar days and after 24 SPY points (about 240 S&P 500 points).
Presently, the top of 4-23-10 at 121.24 lead to the Death Cross (200 MA crossing below 50) after 75 days and 15 points.

The bullish cross signal came after 24 points of rise and SPY advanced 31 points afterwards to the very top. The bearish cross signal is here now after 15 points of decline. If this bearish signal does indeed play out, how far the decline will go? The first support is at 86 (20 points from cross) and then at 65. The real fun place to go bearish can be 109-110 where the failure to surpass the resistance of 200 DMA will discourage the Bulls.

The earning season is getting started. Fixed Income instruments are taking a breather after their advance. Greenback is correcting its uptrend. EURO is breathing again. Gulf Spill has replaced the plight of sovereign default risk from the headlines. It seems like happy days are here again. Was the recent decline just a bump in the road and the markets are ready to soar again? Did someone order DOW 15,000 hats?

Looking at the volume trend, one can see the accumulation area and then gradual decline in volume as the market trended up. One can also note the distribution near the top and the increase in volume on down turns. The technical picture is pretty clear; 86 on SPY is closer than it seems.

The conservative Option idea can be to start selling OTM (Out of The Money) Calls when SPY is 109-110. Even more conservative is start putting on Bearish Call Spreads and if the market starts to decline, leg-out of the Long Call and buy Puts.
Of course, the other idea is to buy Puts outright in weak tickers; but that does come with negative theta, while selling Calls or Bear Call Spreads will give positive theta (Time Decay).

Dismal corporate guidance can be a bearish trigger or vice versa. Wide-spread top line growth with encouraging guidance can boost the bulls. Watch out if the earnings are only boosted by shaving the bottom line. That will bring SPY 86 closer!

The Spyder on the Fan

Our friend SPY (S&P 500 etf) is a beautiful creature. I have been watching its relative strength via the RSI (Relative Strength Indicator) and so far it has held up. In July 09, it briefly dip below 40 but quickly came back up. In November 09, it did turn back from 64 instead of going to 70. The day of record close 11-25-09, it was 61.57. If it breaks below 40, it will mean that whatever Bullishness there was in the last 8 months has come to an end.

The Fibonacci fan on SPY looks like as shown in the chart above. If the current fan line at 50% is breached, there is support at 107.50 but major support is much further down at 103.12. In spite of the seasonal bullishness and the impending Santa Rally, the risk seems to be on the downside.

Feeling lucky?

The drop of LVS (Los Vegas Sands) from $148 to $1.42 in year and half was quite remarkable. The gain to $20.73 in next six months was even more noteworthy. The gain is in three waves though. It does look like an a-b-c correction. It appears that LVS is going to see lower prices.

Dow Jones: the leader

I am trying to read the footprints of the market by looking at some market indices.

Index comparison


Since the significant bottom of 3-9-09, Dow Jones Industrial Average (Dow 30) has been outperformed by S&P 500 (SPX), Nasdaq 100 (NDX), Nasdaq Composite (COMPQ) and Russell (RUT, the Russell 2000, small cap) indices respectively.

Since the bottom of 11-2-09, things have changed. Dow is outperforming all these indices and guess who is under performing? The Russell 2000 small cap index. What does that mean?

Lets look at the daily three month charts of Dow, S&P 500, Nasdaq and Russell 2000 (below).

In a typical Bull market, the leadership does change from time to time. At the very bottom of Bear markets, Blue chips (large caps) are favored as they are the traditional strong companies with strong books and cash reserves. As the Bull phase sets in, the downtrodden or high Beta (high volatility, speculative) stocks gets favored. Since they will go up the most in percentage terms, money is thrown into those. Thereafter the rally matures. Investors start to feel jittery and become skeptical of the rally and large gain in prices. The want to protect their profit. So they move back into the Blue Chips.

Looking at the charts of these indices for last three months, it is clear that now Dow 30 is out performing the other indices. Look at the higher highs in Dow and lower highs in others. Does that mean that this signals the Bull trend is mature?

Sure it does.

Look for the relative preforming of these indices in the coming weeks. Things may be gearing for a change. We shall see.

With that, I am all ready to dive into a fun filled Thanksgiving!

Enjoy!

Sugar in my Pecan Pie

Nymex Sugar Futures (continuos unadjusted)

Sugar is up 120% this year.

Why doesn't it gets as much press as Gold which is only up by 40% this year?

You mean to tell me that Sugar is not the "real" currency? You mean to tell me that you can have Halloween, Easter, Valentines Day, Thanksgiving, Christmas and birthdays WITHOUT sugar? Come on, it is the real currency of love :)

The futures chart is coiling into a symmetrical triangle. The challenge with symmetrical triangles is that they can break out in either direction.

Notice how the momentum is also curling but RSI did not dip below 40. The bullish trend seems to be intact as yet. The chart is telling me that it is probably going to break to the upside.

Point to remember that according to Elliott Wave Principal, triangles usually happen in the 4th waves and break out from a triangle is the terminal move. So, if we go higher, probably blow off higher because of all the Pecan Pie I am going to consume in the holidays, that will be a terminal move in the trend. Look out below after that.