USD/CAD chart pattern analysis

Kevin Burton 75The USD/CAD has an interesting chart pattern currently. It has drawn back to the lows of early May (as I write) and we have the 200dma looming down at around 1.0750 currently.

I believe there are two scenarios that could play out. One is that the pair finds support against the early May lows and if that were to happen, a bounce back to potentially the 50dma could follow.

Alternatively, we see the pair come lower to test that 200dma and then a similar bounce play out. The reason I see the potential for a bounce from either of these two levels is that there’s currently a nice MACD divergence in play. This could complete at either of the two levels I’ve noted so I will be keeping an eye on this over the coming week as it could bring trading opportunities once confirmations are in place.

The chart below shows the 200dma (yellow) and the 50dma (black) plus the MACD divergence currently playing out.

charlie

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Can the FTSE 100 hold on its gains?

Alpesh 75Can the FTSE 100 hold on its gains? Next week’s events will be the answer to that question

The FTSE 100 surprised me this week , I was prepared for further losses from the UK index as it seemed that the momentum had turned to the downside. The FTSE had reached the 6,900 points and there was really no appetite for further gains as the uptrend that led the index there seemed exhausted.

However, the London benchmark index managed to reverse its outlook, remained above the 6,800 points and over the course of the week reached near its previous highs. The crucial 6,775 points low I mentioned in my last analysis was never broken hence the bulls were back in force driving the index higher. The bank holiday on Monday allowed investors to approach this week’s events with a clear mind and even though there were no UK-related releases the FTSE was dragged higher by the shared sense of optimism across global stock markets.

The Durable Goods Orders from the US on Tuesday attracted investors’ attention as a sign of continued recovery across the Atlantic and the pickup in the US Services PMI report added fuel to the fire. The US markets picked up momentum again and reached for their recent highs and the FTSE joined the rally higher. Now the question in everyone’s mind is whether this new uptrend can be sustained and the previous highs overtaken .

In my mind everything hinges on the next week’s economic releases as there are many and they’re all extremely important. The European Manufacturing PMIs and German Inflation on Monday, the Euro-zone Inflation on Tuesday and the highly regarded European Services PMIs on Wednesday can turn the tables in an instant. I believe that we need to approach next week’s events with extreme caution, the FTSE is near its recent highs and the situation can change very quickly while the index trades so close to these important technical levels.

For the current uptrend to continue we need to see solid figures in the reports and no risks regarding the low inflation in the Euro area, so if a positive sentiment develops then I am looking for the FTSE to break above the 6,900 points and climb 30-50 points beyond that peak. On the other hand, if the reports indicate a slowdown in the critical sectors of the Euro-area economy or the fears of a stubbornly inflation reemerge then the 6,800 points will be in focus again and if the 6,760-80 support area gives then the next stop might at the 6,700 points.

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alpesh 30th May

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S&P 500 challenging upper reaches

Bo Yoder 75 wideMy S&P 500 trade (ETF Proxy – AMEX:SPY) is challenging the upper reaches of the red zone as I wait for resistance to manifest itself.  If the highs of this area (Near $192.50) are broken, I would take my losses and move on to the next trade.

  SPY 5-29

This week has been a “wait and see” market for me. FB is also challenging the red zone and just like the SPY, this will produce a stop loss if the highs are broken.  The power is still weakening to the downside in spite of this recent pop in price, so the odds are still with me, but the close of this week should determine the outcome of both the SPY and FB trades.

FB 5-29

Facebook (NASDAQ:FB) continues to chop its way through the red zone.  Nothing has changed in my forecast for this stock, I am just waiting for the bearish power of the red zone to take change and send price lower to my take profit zone near $52.50 per share.

ABT 5-29

The stock of Abbot Labs (NYSE:ABT) is also surfing the slow creep in the markets to “set up” as it enters the high odds reversal zone.  All three of these positions are like an airplane climbing without its engines…It will eventually stall and flip over into a dive.  All my power readings are showing that this is a false rally that is slowly creeping up without much true power backing it, so I am happy to “fade” the bulls and anticipate the reversal  that the 3D Apex Trading Methodology has forecast.

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Clustering and why trading can be difficult

david paul 150 wideIf you have read my last article then the concept of system expectancy should have you in good spirits. Assume you can call the markets more than 50% of the time. Then, if your reward to risk is positive a kind fellow will write you a cheque for the rest of your days.

In a recent seminar I played the coin game with a 2 to 1 payoff. If they risked a fiver I would give them back 10 pounds. We started off with a pot of 100 pounds.

The room was full of CFA rated analysts and highly qualified people with little trading floor experience. They had a positive expectancy system but I have to report that the roomful of analysts went totally broke within 15 minutes of playing the game.

In trading there are two decisions at least in each trade.
1. Is the asset going up or down (long or short)?
2. How much do I bet?

The coin answers the first. I ask “Heads or Tails”?

Then I ask how much do you want to bet? The answer is varied but normally about 20%. I spin the coin and play the game. Let’s look at the probabilities. The latter are not as sexy as market direction but they will keep you alive.

In the coin game heads/tails has a probability of occurring 1 out of 2 coin spins.

Unfortunately there is a ¼ probability of two heads or two tails in a row and similarly a probability of 1/32 of 5 tails or heads in a row.

If you bet 20% of your loot on one trade then in a cluster of 5 poor trades then the game is over. That’s what happens to most traders. A run of poor trades takes them out prior to a run of winners starting even with a high expectancy system. Even if they have some cash left the drawdown will leave them scared and incapable of making a sound decision. The system will be long discarded.

Let’s think of some simple but robust answers

1. Resolve to not risk any more than 2% of your account in any 1 trade. If you have 5 bad trades in a row in a miserable market then the drawdown will be acceptable. If you think 10% is too high then scale back until it’s acceptable. At the institutional level 10% would mean getting fired.

2. Try and get your hit rate up from the 50% level. For me the VectorVest method of combining fundamental analysis and technical analysis has increased my hit well above the 50% level. My method of value momentum investing that I teach at the seminars has a hit rate of approaching 80% and I am very proud of it. It looks at the fundamentals of the share, the technical position of the shares and the technical position of the overall market. When all three are positive I can call the future with a probability that’s uncommon in this line of work.

3. Spend some time internalizing the concepts that Mark Douglas teaches in “Trading in the Zone” It’s not the easiest of reads but well worth the effort.

4. Buy a Backgammon set. Probabilities are easy at an intellectual level but few of us understand them at a gut level. Playing backgammon will develop an understanding of probabilities and that’s essential for those of you that wish to become short term swing traders.

Remember the objective of trading is to have some money left to trade with tomorrow.

David Paul
May 27 2014

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Trading update

Bo Yoder 75 wideMy S&P 500 trade (ETF Proxy – AMEX:SPY) “ping-ponged” successfully from the entry one (Red Zone)  to the take profit zone (Blue Zone) this week for another quick and easy profit.

 

SPY 5-22

This trade is so typical of the “grind” type trades that seem to dominate my P&L column these days.  Not the long sweeping trend trades that so many seek in vain, but small, reliable and repeatable profits as the markets cycle between areas of liquidity.  A new cycle has begun that I believe will reach back up into the red zone to “sip” liquidity, then turn back lower to revisit the blue zone as I have drawn above.

 

If this indeed plays out as forecast, I’ll have had two chances to essentially take the same trade for double profits!  If you have maintained positions in this trade, this wiggle will build the foundation for a new move lower, as power is growing steadily to the downside.  When this next cycle high is formed, I would trail stops there and sit tight.

FB 5-22

 

Facebook (NASDAQ:FB) continues to chop its way through the red zone.  Nothing has changed in my forecast for this stock, I am just waiting for the bearish power of the red zone to take change and send price lower to my take profit zone near $52.50 per share.

ABT 5-22

 

 

The stock of Abbot Labs (NYSE:ABT) is the next short on my radar…Again, you can see my forecast as offered by the 3D Apex Trading Methodology outlined here in red and blue with the zones labeled to ensure there is no confusion.

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AUD shows some weakness

Kevin Burton 75We looked at the AUD/USD currency pair several weeks ago when it was pushing for new highs for the year above 0.9400. I warned of the weekly chart looking overstretched and to be observant for weakness to show up.

The fundamental backdrop to the Australian economy appears to be weakening and with that we should look for currency weakness too.

We have subsequently seen the AUD back off and overall it still looks like there’s some more downside potential.

Looking at the weekly chart below, we can see the weekly 50ma (black line) and 21ma (blue line) below and both these stand a good chance of being hit.

Although in the very short term, this pair has the potential for a bounce, I will only be looking at that as an opportunity to sell…

charlie 23rd MayCharlie Burton

Ezeetrader.com

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FTSE 100 turned to downside but strong Retail Sales kept it afloat

Alpesh 75The FTSE 100 has come off its recent 6,900 points highs and last week we discussed that the outlook has been turning to the downside and that the index was looking poised for losses. However, I also mentioned that the FTSE’s outlook and how far down it will go depended on the way 3 important news releases would print.

Indeed the inflation report, the Retail Sales figures and the GDP estimate were key for the FTSE’s medium term outlook and even though the inflation and GDP numbers were released in line with expectations the Retail Sales significantly surprised to the upside. This along with the less bearish comments included in the Bank of England’s minutes also released this week allowed the FTSE to remain around the 6,800 points area after dropping as low as the 6,775 points support.

Now for the week ahead, the outlook remains bearish even though the last couple of sessions casted a shadow over the current downtrend’s continuation. As I suggested last week, a step-by-step shorting approach looks the best bet and at this time the key support level is the 6,775 points low. If this level gets broken I believe we will be looking towards the 6,700 points over the next week.

Keep in mind that over the next week there are a few significant events scheduled that could have an effect over the FTSE’s outlook: the German Retail Sales and the US Durable Goods Orders on Tuesday are the first and the US GDP revision on Thursday comes next. Unless something important pops up I am prepared for further losses in the FTSE 100 over the coming sessions and I am looking towards the 6,700 points as the first target.

To receive my free daily newsletter or to subscribe to my premium NewsletterPro service please visit www.investingbetter.com .alpesh_23May

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The concept of Expectancy

david paul 150 wideOver the years I have horrified quantitatively orientated seminar audiences by using a coin to predict market direction. I always ask, “would any of you trade with a coin”. They all to a person laugh and dismiss me as a crazy old man.

I then ask, “let’s consider a special game”.

“If you can predict a head or a tail correctly I will pay you twice as much as you are prepared to bet.”

“Would you play that game?”

Mostly the room shakes their head and I confound them by telling them that it’s a great game to play and the basis of all financial trading.
Let’s look at the sums.

You should be right 50% of the time.
That means in 10 spins of the coin and betting 1 pound a spin the result is
5 times 2 ….when you guess correctly
5 times 1… when you guess incorrectly
Thus you make 50 pence per trade. If you can find someone to underwrite that game, you can just keep making money for ever. You have engineered a system with a POSITIVE EXPECTANCY. Trading is no different.

In simple terms, such a system makes more when it’s right than it loses when it’s wrong. There are two parts to the equation above.

  1. Hit rate ( that’s the 5 out of 10 for the coin)
  2. Risk to reward ( that’s the twice as much when you guess correctly as you bet)

A 50% hit rate system can make a lot of money when the risk to reward is large, and that’s typical of trend following systems. They will have typically a hit rate of less than 50%, but can have a risk to reward of maybe 5-6.
Please think about the two parts of making money in markets. Most just focus on hit rate and ignore risk to reward. The latter habit causes traders to snap at winners and then find they are unable to cut losses.

As your trading becomes more short term then it, in my opinion, becomes more like playing a game than an analytical exercise. Intraday and swing traders are frequently good backgammon players and enjoy a night on the tables.

Trading with VectorVest gives the trader the best of both worlds in that trades can be engineered that have both a high hit rate and also a high risk to reward.
This results in systems with an enormous positive expectancy.

David Paul
May 19th 2014

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If you are seeking direction, talk to a counsellor…

David Horton 75Feeling like you have lost your way, things not quite coming together? Are you grumpy, irritable and wondering what you are doing wrong?

The partner giving you grief? There are people out there to help, be assured.

They may have comfortable couches, talk a lot about your childhood and repressed feelings; the word guilt may be mentioned and the words ‘ and how does that make you feel’ will crop up endlessly.

And there will be a significant bill (cash by the session, of course – you wouldn’t want to feel further guilt without paying on the nose!).

Of course therapy comes at a price and, sadly, one session doesn’t touch the surface – ‘I think you should sign up for a full course, sir’, in order to be fully ‘healed’ and all that!’

Full course? Of course.

david cartoon 23 May

 

The real secret to seeking direction, though, is surely to look at a bigger chart!

Try these for a few that I have been watching over the last year or so.

david_eurgbp

 

We are approaching a key test of 0.8050 where there is an undoubted barrier (option-wise), but a break, which will come more from euro weakness than pound strength, will encourage the big 0.80 level to be challenged and then we look to the 0.7750. Meanwhile, it’s a clear sell on rallies.

david_gbpusd

Cable has established a top, as expected, on approach to 1.7000. A downside break in the cross (mentioned above) will encourage cable to remain bid but I am not expecting a major hike, as it should follow a weaker euro should this scenario play out. If this happens look for a clear close below 1.6650 to start some serious adjustments of medium term longs.

david_ausdusd

Clearly the aussie has near term resistance at 0.9400 and if, as I expect, the USD starts to gather a little momentum we can see the aussie under downward pressure towards 0.8750.

Just a little something to consider. Trading the insides of these examples is all good, however I like to keep in mind the bigger picture.

I bid you a good weekend and happy trading – and just remember, it’s always better to ask the organ grinder, not the monkey!

david_monkey pic

 

Author: David Horton is a partner in Market Tutors Ltd in the city (markettutors.com). He has had a significant career in financial markets; he is a trader and trainer with a passion for coaching and mentoring with a good dose of humour.

davidhorton@markettutors.com

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What’s next for the £?

Steve Ruffley 75With interest rates back on the agenda with the FED and the BoE maybe we are finally now in the markets moving away from the non-existent growth figures and are looking for the inflationary and therefore next interest rate move.

I still maintain that no matter what Carney says, we are in another housing bubble. If it takes Lloyds bank to highlight this and to change the borrowing criteria, alarm bells must be running, and there is clearly some BoE mismanagement going on.

I still anticipate the BoE to raise rates in the 1st half of 2015, maybe as early as the 1st quarter.

The pound in the short to medium term should rise based on the assumption and new money flowing into the UK.

1.73287 is a key pivot point form the start of the drop from the highs in Sept 2007. If we close above this we would see 1.82320 as a target, if we see a rally there may even be a case for the Pound to get back to 2.0000.

As a global investor you have to think, where is the best place to have your money, where is  safest? The EU, hardly, the US, possibly, Russia? Certainly not. The UK look a safe bet for global investors right now.

Steve Ruffley CEO www.iViewcharts.com

Steve chart 23rd May

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