Thursday, November 17, 2005
Issue Contents:
| 09:47 | Market Direction Don't forget profit stops on yesterday's outsized winners |
| 10:11 | Swing Trade Setups Featured charts for Thursday November 17 |
| 10:58 | Gold and Forex Where's Gold and the US Dollar headed |
Yesterday’s pick of oil and gold was rather well timed; we should be considering taking some profits round about now, unless price keeps pushing up directly. When we see outsized moves off of relative lows we know that some of the velocity came from short covering – they are natural buyers – but what we don’t know, yet, is if a bottom is in place or if the sellers are going to come back out again.
Just keep moving up trailing stops on part of your position, using the lows of swings on some time frame you are comfortable with – 5 minute or 20 minute chart or perhaps even the 78 minute chart depending on the name.
Key Levels
Price never did clear the chop yesterday, but did for a while appear willing to break the range low and initiate a down-trend. There is a potential head and shoulders pattern building here – the move up this morning will be forming the right-hand shoulder. Bearing that in mind today’s trading plan has to be more or less the same as yesterday’s:
- avoid the chop unless a particularly good setup presents itself, look to go long if price provides a retracement above 10730,
- be aware of long opportunities that may present themselves on a retest of 10700
- look to go short on any weak bounce once price is below 10700
- aggressively stalk the short side if price breaks below 10680 and starts to trend in smaller time frames (5M charts)
Don’t forget to follow up on names from yesterday which did not trigger and still have valid retracement patterns – AMTD, SWY and CSX for example. Add to that:
Long
NXTP – a rounded bottom and here is a pause to position above
NVDA – since its stuck in a range we’ll want to use tighter stops than normal if price triggers and brings us into a trade; the opportunity is for a retest of resistance above…
Short
SGP, was on our short list last week and moved smartly – since the chart remains weak this next opportunity is back on our radar scope.
Over the past two weeks both Gold and the US Dollar have headed higher. the former off an important test and support level near 458; the latter broke out of a significant consolidation.
Gold
US Dollar Index – Daily
Where’s the US dollar headed, and by proxy, gold? Normally the two do not move strongly in the same direction, which tells us to expect a reversal in the rally of either gold or the greenback. Which will it be? Lets look at some major currencies to see if there are any signs of foreign currency strength against the US dollar. In roughly descending order of US dollar strength (remember, when the symbol pair starts with USD, rising price equals USD strength, and the reverse is true when the symbol pair ends with USD):
USDJPY – a very strong trend here may be approaching an extreme, as ADX is edging near the point where we will expect at minimum a significant pull-back on profit taking, if not an outright reversal in the trend.
GBPUSD – flip the chart upside down and you can better appreciate the breakout the USD has made against the GBP.
EURUSD – likewise, a head and shoulders pattern is in play here, triggered a couple of weeks ago, and price is at the do-or die point where acceleration of the current trend, or a complete reversal, are likely to occur.
In the case of both the Pound and Euro, interest rate increases are the wild card – the ECB in particular has held rates steady for a very long time, due to weaker economic performance. Should economic activity or inflation appear to be on the rise, rate increases will again return as an influence in the direction of the Euro.
There is, however, right now a potential reversal scenario shaping up as the Euro consolidates following a breakout below the range immediately overhead:
EURUSD
USDCAD – after hitting multi-decade highs against the USD in early October, the Canadian dollar has weakened along with oil prices over the past six weeks, but as oil and gas recover, so might the CAD.
Conclusion:
US Dollar Index – Weekly
For the time being, retracements in the USD have to be looked at as buying opportunities, with the one exception noted above with respect to the Euro.
Economic data continues to suggest the Federal Reserve will continue to remove policy accomodation – rate raises – into next year, and until the prospect of rate increases becomes believable in Europe, the Euro is likely to continue trending down.
Keep your eyes on the chart – forex markets rely heavily on technical analysis – much more so than equity markets, so we may be looking to change from a positive bias on the US Dollar to negative in the coming few weeks if a pull back in the USD Index breaks back below the range highs marked, and the Euro follow through with a trend reversal as marked up on the chart. Gold too may be moving up in advance of an expected pull-back in the USD. Interesting times…