Friday wrap...

MARKET NEWS

 

As with last week and much of the month so far, the biggest mover across the board has been the Japanese Yen. This week was no different as long awaited positive economic data hit the markets along with positive comments from both political parties. The biggest surprise was Japan's October Industrial Output which rose 1.8% (down 4.1% in Sept vs expectations of a further 2% fall for October). Strong comments from political ministers and the Bank of Japan regarding beating deflation also helped depreciate the Yen. In turn, the Nikkei rallied and is potentially due a breakout considering how underweight the index has performed in relation to global stock indices. Most currencies rallied against the Greenback as positive news from Greece buoyed risk assets. The release of another round of aid for Greece, sent the Euro higher. EURJPY benefited the most as traders position strength against weakness. Elsewhere in Europe, UK GDP came in as expected at 1.0%. However, news of the newly appointed Bank of England Governor Mark Carney (ex-Governor of Bank of Canada) sent the British Pound higher. Even in late week trading risk assets benefited as the White House released details on a compromise on US taxes, helping their fiscal cliff situation.

 

TOP 5 TRADES OF THE PAST WEEK

 

1. EURJPY Bullish Engulfing Bar Long 28.11.2012 Support is found at the 4hour 50ema and 38.2% Fibonacci retracement at Y105.50. The price action reversal bar confirmed the move and resulted in +2%

 

2. USDCAD High Test/Hanging Man Candle Short 26.11.2012 Resistance is found on the 60m chart at 0.9953, including a horizontal support cum resistance level, 50ema and 61.8% Fib retracement which resulted in +2%

 

3. USDCAD Double Top Short 28.11.2012 60m chart Resistance is found at 0.9953. RSI divergence and the High Test/Hanging Man Candle confirmed the move lower which resulted in +2%

 

4. AUDCAD High Test/Hanging Man Candle Short 30.11.2012 60m chart Resistance is found 1.0360, the 50% Fib Retracement and the 50ema. Whilst this trade is still running it is currently up +1%

 

5. AUDCHF Double Top Short 28.11.2012 4hr chart Resistance is found at 0.9750, along with the 50% Fib Retracement level. RSI divergence confirmed the move lower as well as price action reversal bar. This resulted in +2%

 

EFFECT OF THE NEWS LOOKING FORWARD

 

Next week represents the last month before the start of 2013 so we may some repositioning of portfolios coming into year end. Key news announcements are the RBA Rate Announcement on Tuesday where a 25bps cut is expected, however, they disappointed the market on the last statement so watch price action after the release. We also have key news announcements regarding central bank policy from the UK, US, EU and New Zealand. The last Non-Farm payroll news announcement on Friday may set the tone to any fiscal cliff situation left come year end.

Friday wrap...

MARKET NEWS

All eyes were on the Bank of Japan's Monetary Policy Statement released on Tuesday. With their decade long problem of an appreciating Yen hurting any type of growth prospects, the upcoming elections have created high levels of volatility. Opposition party leader Abe of the Liberal Democrat Party has repeatedly announced his party would intervene in the markets to a level surpass that off their last intervention three years ago. This coupled with their target of inflation of 2%, was welcomed by traders as they sold the Yen across the board. Elsewhere, markets were fairly subdued due to the US Thanksgiving Holiday on Thursday. Canadian Retail Sales came in worse than expected (0.1% actual vs 0.5% expected), however any moves were capped due to the US holiday and ceasefire in Gaza. The USDCAD's has high inverse correlation to Crude Oil and as such is affected by such events. Whilst the Euro has slowly edged higher on the back of a deal being done to release the next tranche of aid for Greece, gains were capped for the British Pound. This is due to poor Public Sector Net Borrowing figures (6.5B actual vs 4.1B expected) and comments from Bank of England's Weale stating: 'significant risk of economic contraction in Q4'. Euro saw an early rally on Friday morning, from better than expected German IFO Business Climate figures (101.4 actual vs 99.5 expected).

TOP 5 TRADES OF THE PAST WEEK

1. USDCAD High Test/Shooting Star Candle Short 19.11.2012 Resistance is found at 1.0040, the 50% retracement level from May's high to September lows. RSI divergence confirmed the bearish move. This trade is still running, currently up +0.5%

2. NZDUSD Ring Low Long 19.11.2012 Support is found at the 200dma, 61.8% fibonacci retracement and re-test of multi-month trend line from February highs. This trade is still running, currently up +0.75%

3. EURJPY Inside Bar/Harami Candle 21.11.2012 60m chart Support is found at the 50ema, daily pivot level and 61.8% fibonacci retracement. Continuation divergence confirmed the move higher resulting in +2%

4. S&P500 Bullish Engulfing Bar Long 19.11.2012 Support is found at 1350 with 61.8% fibonacci retracement from June's low to September's high and 1.618% fibonacci extension from September's low to high. This trade is still running, currently up +1.5%

5. McDonalds Corp Low Test/Hammer Candle 19.11.2012 Support is found at previous low 83.81 which coincides with 1.272 fibonacci extension from August low's to October high's. Price action and divergence confirmed the bullish move, which is currently up +1%

EFFECT OF THE NEWS LOOKING FORWARD

The macro themes mentioned last week are still in play but next week has a specific focus. Watch out for the UK GDP number on Tuesday, SNB Chairman Jordan's speech on Wednesday, US GDP on Thursday and Canadian GDP on Friday. Whilst any macro trends are unlikely to change from these announcements watch out for intra-day volatility. As always, follow price action as a leading indicator.

AUDCAD looks interesting...

Whilst we have to be careful of thin trading coming into the extended US holiday, AUDCAD seems to be an interesting chart. As we can see price has put in a lower high after coming off a three touch resistance line from February highs. More interestingly we can see that each high has been relatively overbought as the MACD has triple topped whilst we have had three lower highs. We also have Stochastic and RSI divergence at Novembers recent high. How do we trade this? Well, we can trade off the lower high put in yesterday or wait for a trend to establish on lower timeframes and wait for pullbacks to intra-day levels of resistance. We have a 60% chance of a December rate cut in Australia, the move may have been initiated from the macro players last week.

Here's the chart:

What have you been trading?

Hi traders! Well it's been one of those months again, every time I'm away the market seems to present itself with the best trading opportunities of the month. Hopefully, you've been catching the moves in the Japanese Yen. Too often I see traders only trading currencies or markets they are used to or have an emotional attachment to. Some of you may say, 'well how do you know the JPY was going to depreciate like that?'. The answer is CORRELATION. Look at every currency against the JPY, the market on a whole is doing exactly the same thing! That type of correlation only presents itself when there is strong momentum and in this instance, where everyone is buying anything against the JPY.

So why is this the case? The Japanese government are spending Y1trillion ($13.5bln) in another round of fresh stimulus to revive the economy. The opposition party LDP have been suggesting they would pursue monetary easing on a scale exceeding that when LDP were in power three years ago. Their leader Abe has also been calling for a 2% inflation target.

Whilst I haven't posted for a while as I've been travelling, there hasn't been anything that has hit my levels. Intra-day trading speaks for itself, follow a strong trending market and wait for a pullback! However, my watchlist for the past month is still the same as I look for long on commodities and stock indices in the run up to the end of the year.

Good luck!

What Warren Buffett and a World Poker Champion have in common....

Hey traders! That exclamation mark is probably the only excitement you've had if you've been trading recently. The market's have been fairly quiet post US election as reality settles in on issues surround the US fiscal cliff, Eurozone worries and a new Chinese government.

However, this quiet period is just part of the process where the market gets rid of the weak and keeps the strong. For the weak minded traders with lack of patience and discipline will keep trading, lose and naturally give up. The strong minded traders are waiting on the sidelines with their research and analysis, making them ready to attack when the right picture starts to unfold.

We all know the most efficient and effective pathway to success is to emulate the great traders out there. On Monday I was fortunate enough to have a live Q&A session with Jack Schwager and Larry Williams. People always ask me, at your level why go to these events. I simply say because life never stops, always aim to be better, to learn more and be the best you can be. In my previous posts you all know the importance I place on surrounding yourself around the right people with the right mindset. Some people messaged me saying they don't have access to people like that. I simply reply saying you have access to millions of books, videos where you can gain inspiration and motivation.

As this is a time to be patient and follow rules, I though I would share with you some rules from the great Warren Buffett and also two times World Poker Champion Puggy Pearson. One is a professional investor/money manager and one is a professional gambler. Let's have a look at their top three rules, from their books and interviews:

Warren Buffet

• Rule 1: Never lose money. Rule 2: Never forget rule No.1 - minimise your losses by understanding how your strategy works and why you are trading it
• The market is designed to transfer money from the Active to the Patient - consistent returns come from those who wait for the best opportunity to present itself before making a commitment. Would you buy a house with the same analysis you've done as this trade you are about to put on? They're both investments of your hard earned capital!
• The most important quality for an investor/trader is temperament, not intellect - independent thinking and confidence in what you believe in and are doing are far more important than knowing everything there is to know

Puggy Pearson

• Knowing the 60/40 end of a proposition - understanding the odds of any bet. As a trader we should aim to find the best opportunities with the odds in our favour. How many reasons do we have to buy or sell here?
• Money Management - minimise losses on each opportunity and understand reward to risk 
• Know yourself - do everything you can to remain disciplined and not blow yourself out of the game before you've even started

What's interesting is that the same traits are required when dealing with investing money to make money and they all come down to psychology and the mindset. 

I'll be honest and say that I was not the most disciplined person this month and subsequently took a few losing trades. Why? From my analysis I do every week - over confidence. After one great trade, greed can kick in. This is why it is so important to be on top of your game everyday and remain focused and humble. 

As always, if anything DECENT pops up I will post it!

Happy trading and Happy New Year to some of you (it's the Indian New Year!).

Ozzie disappoints; US election provides uncertainty

The Reserve Bank of Australia surprisingly held rates at 3.25% rather than cutting a half a basis point as expected. However, the technical setup was strong and the reward to risk was in our favour, providing around a 4:1 to the lower support level. Remember it's not whether you are right or wrong, it's how much money you make when you win and how much you lose when you're wrong. After all the most important and free concept we have in trading is reward to risk.

Eg: Reward to Risk of 3:1.... if I lose 7 times but win only 3 times I am still net up 2! This is so important in our trading and just highlights the previous message.

Also, congratulations to Barack Obama, hopefully the Democrats and Republicans can join forces and sort out the US fiscal cliff which is high on the agenda. I can't see any immediate setups and am waiting for post elections, central bank announcements to fade before I do anything.

I have been informed my posts are being sent out a day late, so my apologies to all. If you join me on Facebook you can receive live updates and new posts. However, I will sort this out as soon as possible.

Happy trading!

It's all about the Ozzie.... (Australian Dollar that is!)

Hey traders! Firstly, a thank you to all those who sent me personal emails regarding potential trade setups; I'm glad they've helped. October was a good month (the EURCAD short posted last week (http://qitrading.blogspot.com/2012/11/current-opportunities.html is still running) but is just one out of a year. The most important trait of a successful trader is to keep level headed, win or lose; keep it emotionless!

Whilst I don't have anything major on my watchlist (of course I will let you know when I do!), the Australian Dollar has caught my interest both technically and fundamentally. 

A report last week showed that the Reserve Bank of Australia allowed its FX reserves to grow significantly without balancing the inflows by not converting foreign currency back into Australian dollars - a move likely aimed at weakening the Australian Dollar. Subsequently, the AUD has been held in a range. With the Swiss National Bank also announcing that the percentage of Euros held with them have dropped to 48% from 60%, many are suggesting that the SNB may be done selling Euros. This will be a positive for EURUSD but negative for alternative assets such as AUD. Combined with the issues facing the RBA we could see a strong rally in this currency. With a potential RBA rate cut on the cards on Tuesday this could add fuel to the fire. However, I never solely trade of just fundamentals, the technical picture has to say the same thing. We also have to bear in mind the Eurozone problems, a possible recession in China and the US fiscal cliff coming up. 

However, looking at the technicals it seems as though we have some decent trade setups. I'm currently looking at:

EURAUD Long - Support is found at the 38.2% retracement from August lows to October highs. Several oscillators such as RSI and Stochastic are pointing to a heavily oversold position in relation to previous lows. The low test bar/hammer candlestick could provide the confirmation of this. The target will be just below the 1.30 handle

AUDJPY Short - Price has been held in a 6 month range and is currently testing the upper limit. The RSI divergence potentially shows a reversal is likely and the high test bar/shooting start candlestick may provide the confirmation of a move lower

Whilst I am currently in Norway for most of the week, I'll endeavour to post more after the US election results to see what if historic seasonal trends will be in our favour. 

Happy trading!

Current Opportunities

Here are a few trades I'm looking at (previous posts on long commodities and global stock indices are still valid).

EURCAD - Short, Double Top High Test/Shooting Star, RSI/MACD divergence

Here are some more macro themes I am looking at for the longer term if they play out. 

AUDUSD - A report last week showed that the Reserve Bank of Australia has allowed its FX reserves to grow significantly without balancing the inflows by buying Australian dollars, in a move likely aimed at weakening the Australian Dollar. Subsequently, the AUD has been held in a range and we can trade off these levels. Look for a bounce off as the central banks aim to hold the currency within a range or a potential break through if market speculators win the battle.

EURAUD - With the Swiss National Bank announcing that the percentage of Euros in held with them have dropped to 48% from 60%, many are suggesting that the SNB may be done selling Euros. This will be a positive for EURUSD but negative for alternative assets such as AUD. Combined with the issues facing the RBA we could see a strong rally in this currency.

 

 Happy trading!