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This is a discussion on Mr Spread Better's blog within the Trading Journals forums, part of the Reception category; Morning folks, I was more active at 7 oíclock this morning than Mrs FT can ever remember. Before breakfast Iíd ...

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Old Dec 8, 2008, 4:25pm   #17
 
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Equities Break To The Upside

Mr Spread Better started this thread Morning folks,

I was more active at 7 oíclock this morning than Mrs FT can ever remember. Before breakfast Iíd placed long bets on FTSE, the Euro and Sterling; but Iíd have done better to close the forex trades before tucking into my Weetabix. My equity tradeís in the red, but I think that could be more to do with poor timing rather than getting the direction wrong.

Fridayís blog (Equities Nearing A Breakout Point) highlighted that the main equity markets were nearing decision time; they were due to break out of a tightening range pretty soon.

Reaction to the US payrolls data saw equity markets sell an outrageous dummy, with both the Dow and S&P 500 crashing to the downside of the pennant. I pointed this out in the comments box, saying that Iíd wait for a confirming close before getting carried away. Once again the market provided a great example of why we wait for the confirming closes before committing to a big move; equity markets put in a wicked reversal, finishing at the highs.

Click the image to open in full size.

This morning the Dax, FTSE and 2 US indexes have broken above the pennant formation. To be consistent I want to see a daily close above this pattern before getting too carried away, but I did tuck away a £2 long bet on FTSE when it retreated from 4330 to 4252. Yep, I know that was too early now thanks, but Iím prepared to be patient.

Even before I looked at the FTSE, I was long of Euros and Sterling this morning. Iíve been watching both currencies for a reversal against the Dollar, but the signs hadnít been quite there. The EURUSD chart looked the most promising and that was my first trade, going long of a fiver at $1.2825. Check out the chart:

Click the image to open in full size.

Thereís been a gentle upward drift in the lows, with the rate testing the 21-day moving average. This morning the price broke both the moving average and the downtrend line. Yep, I need a daily close before calling the turn, but with markets happy to back equities it seemed a reasonable bet to short the Dollar.

Buoyed by the success of this trade, I stuck in a £2 long on GBPUSD at $1.49. This one flew out the door and was soon above $1.50. I brought my stop loss on both trades to guarantee a small profit and went for my breakfast. I returned to find that the world hadnít quite changed yet; equities hadnít held their gains, dragging the Dollar crosses lower. My GBPUSD trade was stopped out at $1.4928 for a £56 profit and I took the top off my EURUSD trade, selling £1 at $1.2877 and £1 at $1.2833. My remaining £3 is protected at $1.2845.

With lots of Christmas and family stuff over the next two days Iím sticking with the long EURUSD and FTSE positions today and will have a good look at how markets close tonight before deciding whether itís time to add to these positions. The one trade I looked at but didnít have the bottle to put on was a Harlequins win in France. If onlyÖÖ

Definitely worth a read over a coffee is the latest piece on Irish Banks by Zebu.

Happy Trading.
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Old Dec 11, 2008, 11:30am   #18
 
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US Shares Stumble At Fifty-Day Resistance

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Hi folks,

Last night reinforced my view that I should take profits in UK time, rather than leave my positions to the US lottery. My winning positions were stopped out when the evening session decided to test the downside, leaving me flat and contemplating my next trade. Interestingly, several markets have struggled to take on the mighty 50-day moving average; however, one that has, and came out with flying colours, is the FTSE index.

Yesterday afternoon I watched my FTSE long (opened at 4252) push above 4400, and felt a warm glow inside. Looking back (the easy bit), it would have been good to lock in some half-decent gains and wait for the next opportunity. However, I decided to take the long view and felt that my stop at 4320 was conservative enough. WRONG! The trade died last night for a gain of £136, followed by the market bouncing again.

Iím looking at using twin strategies on the FTSE over the next few days:
1) My short-term trading strategy whenever my indicators flash up. This is usually in no more than £2 and run with a tight stop and no blinking until I close the trade. I opened one of these trades just now, buying £2 at 4370, setting my stop at 4340.

2) For any longer-term trade I want a decent pullback, ideally to the 50-day mav, though I might be tempted in if 4300 was tested and held the line.

My long position in EURGBP went the same way last night, though at least there Iíd taken some profits on the way up. My entry level was at £0.8690 and I took profits at £0.8719 and £0.8753 before being stopped out at £0.8730. Total profit on the trade was £181.

Looking at the US Dollar, the neckline on the Head & Shoulders pattern I mentioned yesterday (An Equity Rally Please Santa) is still holding, so no excitement there.

In other markets itís interesting to see the resistance the 50-day moving average is putting up. In my article on moving averages I mentioned that the longer the time span of the moving averages the more street cred they gain. So although I focus on the 21-day mav as a trend indicator, the longer averages (50, 100, 200 day mavs) carry a bit more weight. Check out the EURUSD chart below:

Click the image to open in full size.

Iíve been watching and trading this one a lot recently; the price action has been OK and the shorter averages are starting to push up. But so far the price has bounced back from the 50-day average. Thereís a similar story with the S&P and Dow, though the Dax has pushed through this morning. The only major to show a daily close above the line is the FTSE, where traders will now look at that as a line of support.

For what itís worth, I reckon the chart patterns are leading to a break above these averages; the question then will be whether they can act as a support.

Finally, please give generously to suffering executives:

Happy Trading
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Old Dec 12, 2008, 10:50am   #19
 
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All aboard The Euro Express

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Hi folks,

The Euro has been unleashed; free from the shackles of the 50-day moving average, it blasted through $1.30, adding a further 250 pips, and wiping the floor with Sterling. The Dollar index has broken below the neckline of the Head & Shoulders pattern, giving a good bid to gold. And over in the equity markets there looks to be more enthusiasm for a rally in the UK than in the US.

In yesterdayís blog (US Shares Stumble At 50-Day Resistance) I highlighted a few markets that had come to a halt at their 50-day moving averages. The US equity markets are still in limbo, but the Euro cracked the average with attitude and this morningís buying frenzy put on a further 250-pips against the Dollar. Next target looks to be the downtrend line at $1.34-$1.3440.

Click the image to open in full size.

Iíve been trading the (slightly) less exciting EURGBP currency pair, which hit new highs today. My trading started well, buying the Euro at £0.8769 and closing out the trade at what looked like a toppy £0.8832. Then I made the classic traderís mistake of thinking I was in touch with the market. The EURGBP rate has been rising for a lot longer than the EURUSD pair and the price looks overbought on the daily and all the shorter relative strength indicators.

So after returning to a flat position, and clearly going against the trend, I sold £1 at £0.8830. Why? Especially since Iíve been banging on about the strong trend and not going against it. Iíll use a sporting analogy; a team is at its weakest just after itís scored. Now donít get the wrong idea, Mrs FT was at work. But itís a misplaced confidence after getting something right. This reminder to keep to my rules is currently costing me £60, but I can live with that. However, if £0.89 is broken and held Iíll cut the position, kick the cat and write myself another reminder to stay switched on when Iím in charge of money.

The fall in the US Dollar has taken its Index below the neckline of the Head & Shoulders pattern Iíve been showing in the past couple of blogs. Usually this chart pattern leads to a pretty substantial fall, but some traders want to see a break of 83.11 before getting too excited.

Click the image to open in full size.

Gold has had a whopping day as a result of the weaker Dollar, rising $20 on top of yesterdayís gains. The chart points at resistance around $833, but if the Dollar really tanks I could see this level being broken.

Click the image to open in full size.

Oil is also warming up; the gambler in me fancies a small long bet ahead of next weekís meeting, but Iíd prefer to wait for a reversing trend; one bet against the trend is enough for today.

Happy Trading
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Old Dec 15, 2008, 12:18pm   #20
 
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Is Sterling Next In Line For a Rally?

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Morning folks,

Itís too early to make a firm call on Sterling but, in the same way that I highlighted the Euro rally, itís well worth having a look at. The US Dollar is continuing to weaken and, to my mind, the Euroís 9% December rise against Sterling is hard to justify. But a word of caution, this week has a whole Christmas stocking full of big economic news at a time when quieter markets could lead to more extreme market moves.

When I saw yesterdayís headline in the UKís Sunday Times, ďBritain Ďwill not intervene to prop up poundíĒ I briefly wondered if it would act as a red rag to the Euro bulls. But on closer inspection it was no more than a cheap headline. The Treasury werenít going to raise rates to protect the currency. Well, no sh*t Sherlock!

All the same, it got me looking at my charts a day early and there are early signs of a revival. The two main charts I watch have very different characteristics; letís look at the GBPUSD first:

Click the image to open in full size.

The GBPUSD currency pair could be in the early stages of a rally. A short-term uptrend has taken the price above the (very subjective) downtrend line, and just above the 21-day moving average. To me this chart looks like the fall from $2 coming to an end, but itís too early to confirm the reversal. First off, Iím looking for a break above $1.51 and for the 21-day MAV to turn upwards.

That will tempt me into trading the long bet. However, I suspect the bigger trend wonít come into play unless Novemberís $1.55 level is taken care of.

Against the Euro itís a wholly different story; the EURGBP is one of the strongest trends Iím watching. But itís had one helluva run, rising by 9% in December and remaining way overbought. In some ways this trade has more appeal as I canít find any way of justifying the move, but this trade is a far stronger wind to spit into.

Click the image to open in full size.

The trouble is that this move has been so strong it will take a while to show a good trend reversal, such as the 21-day MAV pointing at the ground and not the sky. The way Iím looking to play this one is to watch the candlesticks for a reversal pattern; at some point soon there should be a great trade here shorting the Euro even before the moving average trend changes. Stage one will be when the price doesnít make a new daily high; the next stage will be a close below the previous dayís low.

At this stage both trades are high risk so Iíll keep my bets small. Iím having to make my annual trip to the shops this morning so Iíll leave any trades until the US session.

If youíre new to trading be very wary of markets over the next 3 weeks. I spend a lot of time looking at chart patterns, but they are far less reliable over the Christmas period. Trading patterns are confused by a lot of traders preferring the pub to the dealing desk so volumes are a lot lower. Also, a lot of funds have specific re-balancing requirements that might lead to large trades in different directions.

To confuse matters even more, thereís a lot of news this week, including a likely cut in US interest rates and an OPEC meeting. Check out all the news events in the Weekly Wrap.

Happy Trading
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Old Dec 16, 2008, 5:15pm   #21
 
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Sterling Surges Against The Dollar

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Hi folks,

If Iíd known that yesterdayís blog (Is Sterling Next In Line For a Rally?) was going to have such an effect on the global currency markets Iíd have used a bigger bet size. As it happens I made a good return on my long bet in GBPUSD, but my open short in EURGBP is only producing loose change at the moment.

Sterling picked up a treat yesterday, though the weaker Dollar was a large influence. My trade in GBPUSD put £250 in my back pocket when I was stopped out at $1.5264. It should have been a lot more, but when I highlighted the move yesterday I wasnít confident that it would happen so soon. I felt more relaxed with a small bet size and a wide stop loss to give the trade room to breath.

Check out the chart for GBPUSD:
Click the image to open in full size.

Iím looking for a pullback to the uptrend line to re-open the bet, but not ahead of tonightís Fed announcement on US rates. Iím likely to be singing Away In a Manger at the time of the announcement so I donít want much risk on the table.

My only open position at the moment is a £4 short bet on EURGBP, which isnít setting the world alight. Yesterdayís sale at £0.8988 is showing a small profit after I declined to close out at £0.89 for a quick gain. Today I set a limit order to sell £2 at £0.8946 if support at £0.8950 broke, and itís too soon to tell how wise that was.

Today is the first day in nine not to register a new high (so far). That in itself isnít a reversal sign, but perhaps itís the first sign that some of the fizz is going out of the trade. A lot of speculative short bets on Sterling were opened last week and I reckon that unless theyíve got a really strong view, traders will be happy to take their profits before tucking into their Christmas pud. If that happens it should lead to further weakness in EURGBP.

A few dayís ago I suggested that the US Dollar index was forming a Head & Shoulders pattern (An Equity Rally Please Santa). The pattern worked with a break of the neckline sending the index down to its target level. A rule of thumb reckons that the price should move roughly the same distance from the break of the neckline as the distance from the head to the neckline.

Click the image to open in full size.

I took that as a target of 82 on the index, which was hit yesterday afternoon. This doesnít mean the moveís over, just that, for me, that particular game has played out. To me the EURUSD is looking good, but overdone in the short term and with resistance from the 100-day moving average ahead.

Hey, and if you want to kill a few hours ahead of tonightís Fed announcement, check out this wicked new free extra that Paddypowertraders are providing on Cool:New Research And Data Area.

Happy Trading
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Old Dec 17, 2008, 4:53pm   #22
 
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Equities Falter But The Euro Marches On

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Hi folks,

So Beardy Benís helicopter gun ships sent the bears scampering from the equity camp to join their mates beating up the Dollar. My only involvement last night was to be stopped out of my EURGBP short for a bloody nose, but this morning I used the early morning uncertainty to go long of the FTSE. As we wait for an official announcement on future oil production from OPEC the Euro is king pin in the markets, hitting £0.92 against the Pound.

OK, so who found time to read Moleyís timely piece ahead of last nightís announcement by the FED? It was a great preparation note focussing on what would really be important (i.e. not the rate cut itself, but all the other measures) and he got it bang-on calling a weaker Dollar on the back of the quantitative easing. Check out the Moleís views today on Stocks Soar As The Fed Makes Money Free.

For a few days my daily FTSE chart has been showing a cautiously bullish pattern, not perfect as the ADX trend was still poor, but prices were well through the early moving averages. Iíd been waiting for a good test of 4250 before getting involved and thatís just what happened this morning. Early trade sent the index back through 4300 and down to shake hands with the uptrend line at 4210.

Aware of the risk of falling knives, I waited for a confirmed rise back above 4250 before buying a £2 long bet at 4257, placing my stop just below the dayís low. I rode the rise up to 4337, but decided to take my profits when my intra-day indicators went flat, and sold out at 4317. Did I throw away the chance of a ride up to 4400? Perhaps, but markets this close to Christmas can get a bit daft so I was happy to stick some notes in my pocket to replace the ones I lost on EURGBP.

Click the image to open in full size.

So what to make of the EURGBP rate? Several of us have very publicly made a mess of this one over the past week; on my indicators this trade is showing one of the strongest trends around at the moment. Yet experienced traders (Yep, my hands in the air) have done the equivalent of unzipping their trousers and unleashing six pints of Guinness into a force 8 headwind. And yes, the results were very messy.

Click the image to open in full size.

I canít speak for the others, but I guess I allowed the fundamentals to get in the way of a great chart. Iím struggling with the idea that the Euro is making new highs through the intransigence of the ECB. Sure, thereís a small interest rate advantage, and the popular view is that this will increase in the short term. But the Eurozoneís got the same problems, and arguably less chance of finding a solution as that would require EU members to agree on something.

The strong Euro trend on the chart is emphatic, but look at the RSI down the bottom showing an overbought position. Now this isnít a reversal sign; itís a sort of amber light for traders with long positions. However, the previous two occasions when the RSI shot above 70 eventually saw a sell-off in the Euro. The trouble is, the keyword is Ďeventuallyí. So itís a good trade to keep on the radar, but a dangerous one to pre-empt.

I reckon the illiquid Christmas markets could see some monkey business in this one, but I havenít got a Scooby Doo whether itíll hit 100 or 80, or both!

Happy Trading
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Old Dec 18, 2008, 5:13pm   #23
 
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Euro Aims For Parity With Sterling

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The latest Christmas game is Letís Push The Euro To Parity with Sterling. Another high-octane morning saw the Euro break £0.95, making the final 500-pips a real possibility.

The Euro is now more overbought than the Nintendo Wii, but whoís likely to sell it just yet? A few of us have tried it and shot out the other side like a scalded cat but, if anything, the Ďbuy on dipsí pattern is getting ever more predictable. Iíve traded EURGBP on three occasions this morning; two long trades made me money and a toe-dipping short cost me a few quid to confirm the time wasnít right yet.

Click the image to open in full size.

My first long trade, buying a £5 bet at £0.9385, made me over £200. The rise to £0.95 had all the hallmarks of a final exhaustion rally, so when the price subsequently tanked lower I joined the party with a token £2 sell bet. It started to look like the real thing, but stopped just shy of £0.94, and my slow reactions cost me £30 as I closed out. I recouped that loss and made a bit more by going long in a fiver again.

Iíve been probing my mates in the City about whether there is something behind the move; year-end re-balancing, olicrooks switching Roubles into Euros etc. But theyíre of the opinion itís the easy trade in illiquid markets, spurred on by drug-crazed ECB comments.

I also made a few quid on a short bet in FTSE this morning. I donít have a strong view on equities over the Christmas period, but Iíve traded intra-day technicals a few times.

There was an interesting piece in todayís Financial Times pointing out that the relationship between oil and the price of the US Dollar is currently as rock steady as Madonna and Guy Ritchie. In a previous piece in May (Another Failed Relationship) I wrote that the relationship had broken down with both the Dollar and oil prices rising. A couple of months later the relationship was back on again. In this article John Authors is pointing out that despite a fall in the Dollar, thereís been no positive effect on the oil price. In simple terms, the previous relationship shown on the chart below would suggest an oil price of at least $70.

Click the image to open in full size.

This chart comes from John Authorís Short View video for the Financial Times. You can check it out here on The Short View.

Hey! Thereís no easing down for Christmas at Paddy Towers yet; hot on the heels of the new Interactive Investor service, the Trader Widget has been souped up. The box on the right-hand side of the Home page shows the top long and short open positions at Paddypowertrader. This is a handy little tool for checking what other clients are up to; are you running with the herd or looking for a contrarian trade? And now thereís a speedy single-click chart to see how the price action compares to the positions.

Happy Trading
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Old Dec 19, 2008, 3:35pm   #24
 
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Cheaper Prices In The Christmas Sales

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No Christmas let-up in the forex markets, with the Euro retreating faster than the Italian army. Gold, oil and equities are also dropping their prices in the Christmas sales.

Todayís a bit of a chart feast, though events are overtaking my two-fingered typing. Iíve broken one of my looser trading rules, selling EURGBP (again) against the trend. I traded it a few times yesterday, the subtle difference being that I would use a £5 bet on the upside, but a £2 bet on the sale. Today I sold a £5 bet, and hereís why:

Click the image to open in full size.

Admittedly this is too short a time period to be significant, but yesterday saw a double top, which this morningís rally failed to reach. I sold a fiver at £0.9408 and Iím able to relax now with my stop loss locking in a profit at £0.9358. Itís tricky; this could be the beginning of a massive reversal, which would set me up nicely for January. However, these are silly, illiquid markets with, I suspect, a few traders playing games with the levels. Iíd rather be stopped out for a Christmas profit than spend the break worrying about a loss. So, Iím trailing my stop with enough room for the trade to breathe, but also sticking a few quid in the bank as I go.

Keeping with the Euro, this chart shows just when the cops arrived to shut down the party. Traders yanked on the brakes of the EURUSDís turbo-charged rally as it approached the 200-day moving average.

Click the image to open in full size.

Thatís not calling an end to the Euroís bull run; this could just be a much-needed correction from a hugely overbought position. The 21-day moving average, my favourite trend indicator, is pointing at the nose, not the toes, so Iíd treat this more as a correction than a reversal for a while yet.

And what of gold? Yesterday it was looking spot on; the 21-day MAV supported the up-trend that had just broken above its key 200-day moving average. But it was always going to be vulnerable to any recovery in the Dollar. As the EURUSD rate plunged over 700 pips, gold crashed back below the 200 MAV and is currently testing support at $837.

Click the image to open in full size.

Itís an interesting one; since August gold has struggled above the 200-day MAV, but the trend looks reasonable, suggesting another attempt will be made to capture the higher ground. But in the real world I wouldnít be buying gold with the prospect of further weakness in the EURUSD rate.

Be careful trading the early US market today; as Moley explains it could be a very volatile market up to options expiry at 3 oíclock.

Hey, have you seen another new feature on the Home page, the Trader Report? This is a fast and easy summary of the early headlines and stories to watch, along with a snapshot of what happened in yesterdayís markets. Thereís also a comprehensive list of the dayís economic and corporate releases, so well worth a glance before putting on that bet. The boys reckon it should be out by 9 oíclock each day.

And finally, amongst the daily servings of central bank bailouts and economic forecasts, some sound advice from the Jamaican Central Bank:

Click the image to open in full size.

Happy Trading
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