Market Wizard Analysis

Myths and facts about quantitative and credit easing

2012-02-10T14:09:00.003+01:00

I’ve made some research about QE and LTRO (longer term refinancing operations). In general, everybody knows that these are pretty much the same instruments of monetary easing. However, as always, the devil lies in details.

Firstly, I have to say that I do not fully agree that in the future Eurozone will face a higher inflation and do not keep the so called “price stability” charter. In fact, we can look for USA, where QE was launched three years ago and neither CPI nor PCE is out of control (but I’m not saying that these indicators are very low currently). The same situation was in Japan, where monetary easing was using for a long time and we did not observe an uncontrolled growth of prices. The only danger are prices of energy and food.

Mr. Draghi is very carefully to keep the charter of ECB. This means that launching the same easing like Fed was out of the table. But after providing liquidity to the market, ECB decided to launch three-year loans operations named LTRO. The result was a significant rise of money supply. This growth was planned and it is permanent. That is why we can consider these actions as a normal quantitative easing. The chart below shows monetary aggregates in Eurozone and USA. The pace of growth of M1 is notably faster than M2 from 2008 – this is the definition of monetary easing. Of course another consequence is a change in a shape of yield curve.

So, what are the differences between ECB and Fed?
- LTRO is not an outright purchase of assets (what is made by Fed),

- Liquidity is provided by ECB only in the REPO auctions, so banks have to give
ECB some assets as a collateral. It is intuitive, that the assets which are
the most illiquid are transferred,

- Fed has communicated very precisely what kind of assets will be purchased and
how It should impact on the yield curve,

- LTRO is a three-year operation. QE is not set to any date,

- A huge difference between the speed of actions: Fed wants to influence the
market expectations to gain the price effect almost immediately, but LTRO is
executed much faster (there is no time for market expectations),

- Fed controls how much liquidity is provided. ECB does not set any limits.

More thorough information you can find here: http://www.ecb.int/pub/pdf/scpwps/ecbwp359.pdf

What shows us China’s yield curve?

2012-02-05T14:35:00.005+01:00

As we can read in the FX Pulse research made by Morgan Stanley, the China’s yield curve RMB 10Y - 2Y has shown recently flattening, while Chinese equities have performed very well in January. To be specific, we can look for the chart below. There is the Shanghai Composite Index and mentioned above, yield curve.

Source: zerohedge.com

The relationship between the bond market and equities in China is clearly visible. This chart suggests that the downtrend on shares will be continued in a foreseeable future. The flattening yield curve reflects concerns about the sustainability of growth in China. We have observed a very similar situation in early 2011 (dark green circles), when yield curve has not changed significantly, but the market have seen a rally. What happened next was a massive drop of Shanghai Index.

Below you can see the Shanghai Composite Index in the mid-term perspective. The downward trend is unquestionable. Conclusions which were drawn from the previous chart could fit to this one – index is going toward the trend line and this could be a hugely important moment. If the level of 2400 points turns out to be a strong resistance, we can expect new lows on the Chinese equities in the coming months.

Source: Financial Times (interactive chart)

From the macroeconomic point of view, such scenario is also very probable. PMI for manufacturers as well for services are underperformed equivalent indicators in US, UK or even in the euro zone. Only the recent GDP number was surprisingly good. Still, it is important to pay attention on the news from China and readings of leading indicators. For now, the hard-landing is on the way.

The macro outlook - EUR/USD

2012-01-25T23:46:00.005+01:00

The recent euro recovery could be surprised for those who bet on the faster ECB’s balance sheet expansion. Although this easing could still be in use in a foreseeable future, but the ratio of ECB’s balance sheet relative to the Fed is not in favor of weakening euro. Especially after today’s Bernanke speech, I think that the probability of additional measure like another round of QE is much higher than just few days ago. Such opinion is also pointed out by market and analysis of EUR/USD chart with Fed/ECB index.

Source:http://www.zerohedge.com/news/market-now-pricing-770-billion-increase-fed-balance-sheet

However, there are few more reasons which tell about upward outlook for euro. Since December 2011, after important change in the monetary policy made by Mario Draghi, I am firmly convinced that Europe has a chance to avoid the recession. In fact, I’ve written about it as the editor of new magazine formed by students from the Faculty of Economic Sciences in Warsaw: “To Zalezy” (article is in Polish).

After two months, we can look again on the PMI charts and notice that the economic situation is significantly improving, at least in the manufacturers point of view.

According to this chart, the periphery of Eurozone does not perform so great. Impressive growth in PMI has Germany. The confirmation of this is also today’s IFO Business Climate reading.

Yet, we should not be so optimistic, because the most important part of PMI indicator, employment index, shows very gloomy prospects:

At the end, there is one more chart. The net speculative euro positions, which is published by CFTC every week, shows the highest number of short euro positions in the last 3 years. If we assume a contrarian approach, we can say that this is a high time to be long on euro…

Source: Financial Times

Polish zloty - technical analysis

2012-01-18T08:40:00.002+01:00

The end of an upward trend is probably coming. Now - waiting for the correction.

EURCHF in focus

2012-01-09T23:14:00.005+01:00

After Hildebrand's resignation, EURCHF are going down towards 1,21 level. Taking into the account the floor of 1,20 set by SNB, there is a good moment to consider to take long on EURCHF. Take a look at the chart below.

Moreover - some macroeconomic view on the Switzerland you can see here:

http://www.zerohedge.com/news/socgen-hildebrand-departure-next-steps-will-snb-have-make-move

Is it worth to trust the ADPs numbers?

2012-01-05T23:07:00.003+01:00

I've found extremely interesting chart about ADP reports. The chart below shows the average gap between first ADP and first NFP payroll reports, since 2006. We can see that this miss was the highest in December...

Source: wsj.com

http://blogs.wsj.com/marketbeat/2012/01/05/why-traders-dont-trust-the-adps-read-on-fridays-jobs-report/

NFP in focus #3

2012-01-03T22:40:00.004+01:00

Another month has passed so it is high time to make forecasts about potential NFP data, which are supposed to be released this week. Latest strong manufacturing data shows that we can expect a very good reading in comparison with the last month. However, if you look for the market it is seems that investors are already price it in. This mean that the market reaction on the positive data could be completely different, especially in the intraday trading. So keep it in mind.

According to Bloomberg survey, non-farm employment change will be at 150 000 in December, which is significant higher than the preliminary reading for November – 120 000. But, let’s take a look what tells us the latest reading of macroeconomic indicators:

Richmond Index is very weak in December 2011, but ISM and Philadelphia shows expansion. In fact, ISM Employment Index rose from 51.8 to 55.1, which is quite a lot.

The next extremely important indicator is NY Empire State Manufacturing Index. Below you can see charts which are related to employment situation. The employment Index shows expansion in December at 2.33 level, which is much higher in comparison with -3.66 in November.

And the last indicator – Chicago PMI Index. We can read the statement about last reading on the Kingsbury International’s website:

“The Chicago Purchasing Managers reported the December CHICAGO BUSINESS BAROMETER stabilized near November's 7-month high and marked a 27th month of expansion.
BUSINESS ACTIVITY:
• PRICES PAID rebounded from November's 14-month low;
• EMPLOYMENT erased November's deceleration;
• ORDER BACKLOGS expanded to its highest level since April 2011;
• PRODUCTION, NEW ORDERS edged off November's 7-and 8-month highs, respectively.”

To sum up – I expect better NFP reading than this in November. However, not all indicators shows such scenario. Estimates at the level of 150 000 seem to be achievable. Below you can see technical analysis chart of SP500 futures: strong upward trend could be continued. Fibonacci retracement and Andrews Pitchfork lines could be a good indicator on what levels SP500 can stop in case of a correction.

Vacation till early January

2011-12-23T00:47:00.002+01:00

It’s high time to rest a little bit and enjoy Easter break. I will go back to trading and posting about markets in the beginning of January.

Have a lovely Xmas and a Happy New Year!!!

What tells us Citi Economic Surprise Index?

2011-12-20T00:46:00.005+01:00

Citigroup Economic Surprise Index is the indicator which I have followed for a few months and I am very excited about his construction and huge predictive power. In fact, I wanted to write about it some time ago, but now it is much better time to follow CESI because of the level it has reached recently. However, it could be very difficult to properly interpret this index.

Firstly, let focus on the CESI for United States. Below you can find the definition of CESI from Bloomberg:

“The Citigroup Economic Surprise Indices are objective and quantitative measures of economic news. They are defined as weighted historical standard deviations of data surprises (actual releases vs Bloomberg survey median). A positive reading of the Economic Surprise Index suggests that economic releases have on balance beating consensus. The indices are calculated daily in a rolling three-month window. The weights of economic indicators are derived from relative high-frequency spot FX impacts of 1 standard deviation data surprises. The indices also employ a time decay function to replicate the limited memory of markets.”

In a nutshell, the CESI is an indicator which measure the variations in the gap between the expectations and the real economic data. There are also a very clever ideas as giving more weight to recent figures and to highly significant data (for example NFP have a much stronger impact than PPI index etc.). Let’s look now for a 5-year chart of Citigroup’s Index:

We can notice his periodicity and the significance of the recent levels of index. This is actually a reasonable guide to market’s mood. Although there are two possibilities of explaining the current situation:

1. Economists have started to believe in a stronger economy and upgrade their forecasts, but the data comes in are pretty much the same so there is no longer positive surprise

2. Economy slows down and headed into the possible recession, which of course there is also no longer any positive surprise in the economic data.

We have also take into the consideration that the index does not measure “political surprises” which are recently highly frequent.

However, below we can see the CESI in a comparison with SP500 (3 month per cent change). It shows very clearly what is the possible next mid-term direction for US equities. It is hugely important right now to follow the index because his reversion could explain a possible downtrend on the SP500.

Source: Financial Times

Trading the S&P500 #1

2011-12-14T15:20:00.004+01:00

Risk aversion is coming back. This means that the scenario about Bunds from the last post become less likely.

Below you can see trade on the S&P500 from this morning. Just closed, but it seems to go down lower in the next few days.

Bunds decouple from havens? (part 2)

2011-12-11T11:22:00.002+01:00

According to my last post about Bunds futures, where I considered the possibility of rising 10-year German bonds yields, we have recently seen sharp upward price move and rebound from the upper line of Pitchfork on daily chart. Very similar situation is on the H2 chart. Price also react on the Pitchfork as a sign of the end of potential correction. In addition, we can notice on this chart the important 61.8% Fibonacci level and harmonic pattern with “ABC” correction.

Economic conditions also indicates a possible return to risky assets. Then, all traders with short positions on Bunds futures will benefit on that. Let see how markets open on Monday.

Debt restructuring?

2011-12-07T23:38:00.005+01:00

Recently I came across on the “astonishing” article in FT written by Nouriel Roubini. Surprising for me, because the thesis and arguments he used are very questionable. In fact, I was thinking whether this article is not written on someone’s special purposes (or someone’s order), but, fortunately, it is not my cup of tea…

In a nutshell, Mr Roubini said the entity of article already in the first sentence: “It is increasingly clear that Italy’s public debt is unsustainable and needs an orderly restructuring to avert a disorderly default.” This thesis makes me feel very curious what this came from. We can see in this sentence the word “restructuring”, but not “austerity” or “fiscal tightening”. That is one thing in which I cannot agree with Mr Roubini. I think that talking about restructuring and disorderly default in case of Italy is too soon and the thesis is far-fetched. Italy has much more better situation than Greece and more credible government, ready to introduce any austerity measures which will be necessary. However, I can agree that we need the lender of last resort in Europe. Without that it will be very hard to restore debt sustainability for such countries like Italy and Spain (I mean more reasonable yields). Maybe Thursday’s and Friday’s EU summit could resolve something.

The ECB has clearly signaled that they are not institution for buying countries’ debt. They are supposed to worry about price stability, as it is said in their statute. On the other hand, I have doubts what is the real role of ECB, especially when Mario Draghi and Nicolas Sarkozy says about deflation in Europe. I’m asking: where is this risk of deflation? Is it real risk or just an imaginary one? Deflation could be a good excuse for ECB to intervene on debt market.

In my opinion Merkel and Sarkozy are very aware of implications of potential Italian’s debt restructuring, so they will push for any solutions which calm down markets. In fact, the latest austerity plan announced by Monti for 30bn euro extra on the existing cuts was approved by investors in a hugely positive way. Moreover, as we can look on the chart below, the situation of 120 percent of debt/GDP ratio is not so new for Italy. They had such problems in 90’s and it is achievable to return with debt to more reasonable levels.

Source: Financial Times

So, in the long-term, or in other words – in the next 12 months, Italian’s problems are not so severe as it shows Mr Roubini. However, EU has to act more accurately.
Let’s look for equities – below S&P500 outlook. There is a lot of “flow” to push market up. I recommend RSI(9) indicator to "catch dips".

NFP in focus #2

2011-12-01T11:47:00.002+01:00

I’ve decided to continue „NFP in focus” series as the attempt to predict the possible change in non-farm employment in US. There are few arguments which shows that NFP should be far better than the market expectations are - 120k level.

Firstly and traditionally, let’s look for the regional employment indexes. November’s Philadelphia Fed Index was worse than expectations and worse than reading in October, although the employment sub-index performed very well. It rose 11 points from 1.4 to 12.0 points. It is significant change which could be reflected in better NFP data.

Philly employment index indicate an increase NFP.

Furthermore, we can look a little closer on the Chicago PMI. The reading of this indicator was a completely surprise for market as analysts expected just a little increase. It turns out that PMI reached 62.6 points and rose 4.2 points in comparison with October. You can see below the short summary made by Kingsbury International about Chicago PMI:

“The Chicago Purchasing Managers reported the CHICAGO BUSINESS BAROMETER rebounded to a 7-month high in November and marked the 26th month of expansion.
BUSINESS ACTIVITY:
• EMPLOYMENT reversed half of its gains since August;
• NEW ORDERS expanded to an 8-month high and PRODUCTION expanded to a 7-month high;
• PRICES PAID expanded at the slowest rate in 14-months.
BUYING POLICY:
• PRODUCTION MATERIAL, MRO SUPPLIES, CAPITAL EQUIPMENT all relatively unchanged.”

So as we can see, the employment sub-index also shows better results. ADP report, published yesterday, shows almost 100k more hiring than analysts expected. Such huge increase could also boost NFP data significantly. To sum up, I will be very disappointed if employment change reading will be below the number expected by market.

Economic data to observe

2011-11-28T10:51:00.001+01:00

Despite a very gloomy article in Financial Times, markets have started this week with the positive sentiment. This week will be also important because of the significant number of data in the economic calendar, which you can find below (for US):

Bunds decouple from havens?

2011-11-25T11:29:00.003+01:00

It was a busy week. However, few interesting things happened on markets and should be considered in terms of future markets movements.

Firstly, euro zone leaders still tries to calm down markets by no meaningful meetings. There are no conclusions about financial taxes, ECB bond buying program and more importantly, it is almost certain that eurobonds will not be introduce on markets because in other case the incentives to fiscal tightening will be abandoned.

The most ridiculous thing for me is the fact how wide is the spread between the French and German government bond yields. These two countries are the core of Eurozone and they both have a Triple-A credit rating. However, the gap between these yields is, as far as I am concerned, too huge for countries with the same credit rating. These mean that either France will lose their credit worthiness or German bonds will go down (so that yields could go up).

French-German 10-year yields spread
Source: Bloomberg

The last idea is not so impossible as it seems to be just few day ago. Germany had a huge difficulty completing its bonds auctions on Wednesday. In fact, there was the lowest demand at an auction of the 10-year bonds since the euro was created. As a result yields skyrocketed and as a sign of Germany losing some of its safe haven lustre, the UK’s cost of borrowing benchmark 10-year debt fell below that of Germany on Thursday for the first time since March 2009 (when the Bank of England launched quantitative easing to stimulate the UK economy). I do not have any experience in bonds trading, but if we take a look on the futures German Bunds chart, we can see a double top pattern as the indication of losing upward momentum on market. On the other hand, the price is on the median lines of Pitchfork and just a little above the long-term trend line.

China frighten markets

2011-11-21T09:59:00.002+01:00

According to my last post about China which you can find it here "Another point of view" , this country have to face a serious problem of economic slowdown, shrinking export and overheated property markets. The last one has recently seen a sharp fall in transactions. This raises fears that a key engine of the economic growth is running out of steam.

All these facts were acknowledged by Wang Qishan, the Chinese leader in charge of finance. He has predicted that the global economy will slump into long-term recession and said that China will need financial reforms to cope with recent problems.
In a consequence, China will be forced to soften its relatively tight monetary policy, which was lastly quite efficient – inflation fell from an annual rate 6.5 per cent to 5.5 per cent in October.

On Wednesday, 23rd November, there will be a release of PMI Index (flash), which could be disappointed and confirm concerns of Mr Wang Qishan.

Possible contagion for US banks?

2011-11-17T13:06:00.003+01:00

The latest news from Fitch Ratings give a lot of fear to investors. The sentiment changes. According to Fitch:
“Unless the euro zone debt crisis is resolved in a timely and orderly manner, the broad credit outlook for the U.S. banking industry could worsen”

In addition, disappointing Spanish debt auctions provide new reasons for investors to push up bond yields: Spain 10-yr auction, yield 6.975, highest since 1997.
However, Spain still seems to be more attractive than Italy, because of the higher growth of GDP.
Below you can see Spnish yields on the secondary market:

Source: Bloomberg

Stress in the interbank market heightened

“The gap between the London interbank offered rate and the overnight index swap, or what traders expect the Federal Reserve’s benchmark to be over the term of the contract, widened to 38 basis points today. It was the highest level since June 2009.”
Source: Bloomberg

Italy’s tipping point

2011-11-10T10:42:00.000+01:00

After passing the magic level of 7 per cent by Italian 10-year bonds yields, everyone seems to ask what next. There is no doubt that S. Berlusconi should step down urgently and Italian lawmakers have to hurry up with new fiscal solutions. Austerity program should be hugely restricted and after that ECB actions to print money will make much more sense. Recently, ECB did not have much to say on the debt market.

The fact is that really pain will be felled by Italy if yields stays longer above 7 per cent. This means huge borrowing costs and debt of 120 per cent of output will become too painful to support. The scale of how bad situation is, we can see on the Italian yield curve. Yields are much higher on the short date bonds than longer issues. Yet, one week ago, yield curve was normal – slightly ascending. All this means that investors are betting things will get much worse over the next year.

According to familiar sources (trader from one of the largest banks in Poland), Italian banks are worried whether this massive speculation do not send Italian yields into the 20 per cent territory…

This contagion could be stopped only by ECB. And they must to act quickly, before France will be downgraded.

DAX outlook

2011-11-08T10:09:00.002+01:00

Pitchfork + strong support = great opportunity for longs. 1st target is the upper line of Pitchfork. In the long-term there is a probability to reach even 200.0% Fibonacci, which is around 7100.0 level.

Should Draghi cut rates?

2011-11-01T18:25:00.006+01:00

It is a question which not everyone asked. Analysts expect that interest rates will remain on the 1.5 percent level. As far as I am concerned, Draghi should very carefully consider such decision.

Despite the fact that he is Italian, by cutting rates tomorrow he could help his country significantly. Today’s Italian 10-year bonds yields reach all time high and by cutting rates we might see some relief on the debt market. But there are more serious arguments. In my opinion, Trichet made a mistake by raising rates in July. I think that this raise was not necessary at all. If we look for euro zone PMIs, we can see a strong downtrend since April. The similar situation was just before the crisis in 2008. Purchasing Manager Index have been declining for few months but in the mid of 2008 we have seen one raise of rates, which as we can notice on the chart below, was revised very quickly.

Source: Reuters

Chart below shows PMI and change in GDP in euro-area. The regional PMI slipped to the lowest level since July 2009 and recorded a sixth consecutive decline.

Source: Markit Economics

Some might say that euro-zone have a 3.0 percent inflation (there was a flash estimate reading on Monday) and ECB should not do anything with interest rates. However, the UK have also very high inflation but still BoE somehow manage to loose monetary policy. In addition, the latest data about the unemployment in euro zone is also alarming…

If we do not see on Thursday any move, I expect that Draghi will at least signal cut rates on December. But that will depend on the economy outlook.

Excessive optimism could be dangerous

2011-10-28T14:11:00.004+02:00

After such a tremendous month on stock markets, it seems for me too beautiful to see another record gains in the next few days. Despite quite good data from US economy in this week like prelim GDP in 3Q, there are still some arguments which could suggests a possible decline and escape from risky assets.

Firstly, there is a risk that Wednesday’s EU summit does not provide long-term solution. In fact, we know general agreements like 50 per cent haircut on Greek bonds which should be made by banks “voluntary”. However, the implementation of euro zone deals could turn out to be more complex than the negotiations itself. There is a long list of details and questions which are currently asked by analysts and economists. As far as I’m concerned, it is very unclear how will the EFSF be levered or is the $150bn recapitalizations for banks enough? It is also hugely important whether China will agree for helping euro zone. This is actually not so certain especially if we look for problems which China have to face – possible property market bubble and the economy slowdown (9.1% per cent growth of GDP in 3Q).

In other words, markets could suffer hangover after a giant rally. This thesis is supported by Financial Times investment editor, who once again made an astonishing chart, where he compare previous market reactions to the Europeans’ summits this year. As it turns out, markets usually give back all earlier gains after investors notice that the lack of details are a serious problem. Another argument is the situation on the debt market. It is easily to notice that European bonds did not see a recovery on the same scale as it was on the equity markets. For example, Italian bonds are still trading close the 6 per cent level. This means that problems have not been solved yet. Take a look on the chart below. History repeats itself so it is likely that in the next days we can see a big downside move.

Source: Financial Times

And still, the biggest risk for US economy is… Europe. Below there is the chart with S&P500 technical analysis.

US: economic calendar

2011-10-24T19:14:00.001+02:00

This week could bring more positive data than the previous one. This means obviously that it will results in another week of gain in stock markets, which are now very fragile especially if we look on the laziness of authorities in solving debt crisis in Europe. However, it seems that investors are now very accustomed to bad news from euro zone. That is why I think that we will still see a pressure on the debt market, but not on the equities.

Below I attached macroeconomic data which are supposed to be released in this week. I marked the most important indicators, which are GDP in 3Q and personal income and spending’s in USA. As we can see, analysts expect great readings. We will see if it turns out to be achievable.

Source: Bloomberg

Financial markets overview - UK

2011-10-21T15:46:00.002+02:00

This week was very interesting in terms of macroeconomic indicators readings. The most surprising were data from the UK. I notice that I did not write about UK economy at all. However, the activity of the Bank of England become very fascinating. They still keep 2.0 per cent inflation target and just after a week of announcement another round of QE, inflation jump to 0.6 per cent MoM and 5.2 per cent YoY. It is in fact the 20 year high. To imagine how bad are this data, compare this situation to Poland, for instance. Polish CPI is on the 3.9 per cent level and the main interest rate is 4.5 per cent. That is what we can called a healthy monetary policy. And that means that UK citizens have a huge problem – rising cost of living and sluggish economic recovery. Below you can see a chart of Consumer Price Index with Retail Price Index.

This chart has a further consequences as well. It is worth to notice, that last year OBR assumed that September 2011 inflation level would be 3.1 percent and earnings will grow 2.2 percent this year. Despite the fact that earnings have still a possibility to meet forecasts, we actually know right know that real income have suffered more than 2 per cent because of the unexpected increase in food, oil and energy prices. According to Financial Times, real household disposable incomes are at least £17bn lower than expected a year ago. This obviously results in lower consumption and shortfall in GDP. Indeed, the UK’s GDP has also a grim outlook. According to Ernst & Young Item Club forecast expecting UK growth of only 0.9 per cent this year. In the last statement, such thesis could be confirmed by Sir Mervyn King’s, who warned that the recovery is off-track.

However, there is a hope. The additional asset purchase announced by BoE last week, could provide some improvement in the economy. 75bn pounds in the next three months could stimulate to grow GBP significantly. Such a scenario is supported by technical analysis chart, take a look below – the strong rebound on the weekly chart could indicate new long-term uptrend. And if pound will become a stronger currency, a result could be in the much less inflation pressure and possibility to faster economic recovery. Furthermore, maybe we will see a recovery sooner than we think. The September Non-Manufacturing PMI Index was at the 52.9 level, considerably more than 51.1 a month before. On the other hand, the September unemployment rate established on the 8.1 per cent, in comparison with 8.0 per cent in August. Too many uncertainties so far. However, on GBPUSD I am bullish.

Traders' Rules

2011-10-18T18:05:00.002+02:00

Another article was published in Dukascopy Fx Article Contest by Nievinny. And again great job and many useful informations.

Traders 13 Rules Of Thumb

Below I gather all rules in a brief summary and bold the most important:

1st Nobody is bigger than the market.
2nd Learn to be in the minority.
3rd Simplify everything to a minimum.
4th Determine your goal.
5th Be objective, exercise yours psyche.
6th Check everything twice.
7th Start with trend analysis, always and in every market.
8th Let your profits run and cut losses rapidly.
9th Use money management principles.
10th Have a plan and stick to it.
11th Loss is a natural part of trading.
12th Control your risk, use protective orders.
13th Do not overdo it with trade.

Another point of view

2011-10-15T16:37:00.001+02:00

There is an interesting analysis made by Financial Times investment editor, James Mackintosh, who claims that slowdown in the China economy is now significant and a grim data could suggest a potential recession in USA. Despite of the fact that I am still bullish (as I claimed it in recent posts), this analysis is very reasonable. Let’s take a look for it more closely.

Below we can see data from Chinese exports, year on year growth. Blue line is a moving average as a good tool to smooth seasonal noise. Last Thursday the data was still positive – 17 percent growth y/y in exports. However, it was less than market expectations and far too little than number in previous month. The trend is deteriorating as it was to be in the beginning of 2008.

Source: Finanacial Times

All of this is also represented by Managers indexes in China who confirmed concern about lower external demand. The stagnation in manufacturing sector continued in September, according to HSBC research. As we can read the report published on September 30, manufacturing output rose marginal, but new export business declines for fifth month in succession. Furthermore, it is very possible that industrial activity will continue to cool as the result of lagged effects of credit tightening. It’s curious whether the slowdown in China will cause a serious problems in USA or Europe. We will see.

Source: HSBC

Update on the economic situation

2011-10-12T18:35:00.003+02:00

Since my last post about S&P500, nothing changed in my outlook and I am still bullish on equities, euro and bearish on dollar. In fact, there is a lot of possibility that after reach more than 50 thousands short positions on euro contracts (on the CME) few weeks ago, now we are in the process of returning to long-term bullish trend. There were two news which help euro the most today. The first one was industrial production data, which were far better than expectations. The second were rumors that Slovakia will approve EFSF expansion, eventually.

Back to the industrial production – we can say that these data have not been hurt by the recent crisis in Greece and a slowdown in the economy. Just take a look how strong was production in the past few months.

Source: Eurostat

And the next chart is USD index. That is why I think that dollar will weaken – extremely precise reaction on the Fibonacci level and significant S/R.

Something worth to read!

2011-10-10T09:42:00.003+02:00

Below you can find links to two great articles about forex market. Articles were written by Mateusz and earlier text was available only in Polish. In addition, by clicking on the link you can help him to win Dukascopy FX Article Contest. Please also feel free to comment and ask questions to the author.

Volume Adjusted Double Bottom

Problem Of Market Purge

Enjoy!

NFP in focus

2011-10-05T00:41:00.004+02:00

NFP data, which stands for non-farm employment change, is supposed to release on Friday, October 7. I have a real suspicion that the NFP for September could be far better than analysts’ expectations. However, I do not have any hard data to analyze these, but there are few numbers which could indicate a potential recovery in a job market.
Firstly, let’s look for the market itself. Traditionally, the S&P500 index and a technical analysis:

Quick glance at the chart and we can see today false breakout. It is not surprise me at all that traders wanted to drive market into the level of last bottoms (made on September 9). After Bernanke speech and US market opens, equities go up immediately. But the real fuel for markets was news about co-ordinated recapitalisations of financial institutions, which is examine by European Union finance ministers. The impact of these info was so huge that sentiment could not be disturb even by Moody’s downgrade Italy's government bond ratings from Aa2 to A2 with a negative outlook.
To sum up, all these means that traders could prepare for Fridays data and move market into the potential future mid-term direction. Although it is still possible that markets go back to the previous levels tomorrow or on Thursday and that’s why, as I said earlier, the employment data will be crucial.

Now, let’s move on to the macroeconomic part.

We have seen regional and national PMI’s data for September. All this data were better than these released in previous months and in some cases far better than expectations were. But if we focus on the employment part in manufacturing business barometer, we can discover some great numbers. For instance, the Chicago PMI rebounded to the 60.4 level (in comparison with 56.5 in August), and employment expanded to highest level in 4 months. Below you can see a table from the last report about Chicago PMI.

Very similar situations was in the Richmond Fed Manufacturing Index. You can see details in the attachment below. Again, employment index grew significantly.

In the Philly Fed Manufacturing Index, employment index grew to 5.8 in September from -5.2 in August (the last reading is not on the chart). Such increase could improve NFP data significantly, as we can see on the chart below high correlation between these two indicators.

And finally, ISM Manufacturing Index – summary is attached below. However, in the ISM Non-Manufacturing Index, the employment is not so strong in September as it was to be in August.

NFP data on Friday, we will see what happens… :)

S&P500 again and US market sentiment outlook

2011-09-28T11:04:00.004+02:00

Important data will be released in this week. These reading could be a good support for recent recovery in market sentiment. Taking into consideration intraday technical analysis on S&P500 we have a very interesting situation (below you can see futures December contracts for S&P500).

On the one hand – new uptrend after bounce from 1100.0 level. On the other – strong resistance in the range of 1186 – 1190, which is confirmed by high volume. The breakdown of the lower line of Pitchfork could be a potential signal to drop index.
However, there are some data which should attract our attention:

Today: US durable goods orders for August. This indicator could provide better moods. There is a lot of speculation that after second successive month of Boeing sales, we will see the better reading than expected. Although forecasts without transportation sector are showing nearly 1.0 per cent fall.

Thursday: the third reading of GDP for the second quarter. There are forecasts for upward revision from 1 per cent to 1.1 per cent. Analysts says, that this rise reflects increased levels of construction spending. Despite the grim data from the US housing market – fall in the new home sales and still not good enough the S&P/Case-Shiller house price index – we can see ongoing improvement in the investors sentiment after GDP data.

And Friday – the most important day. There will be published US personal spending, personal income and Chicago PMI. The last one is important due to high correlation with ISM. Furthermore, better than expected ISM could be a good reason for the a permanent rises on equities.

S&P500 outlook

2011-09-25T22:48:00.002+02:00

The hypothesis is simple: we need to see better ISM first if we want to see rises on S&P500. Take a look at the chart below. I had no possibility to combine S&P500 with ISM graph. However, I marked with arrows every turn in the long-term trend on equities. If we consider the structure of the ISM indicator, there is nothing surprise in the fact, that it has a predictive power in the market sentiment (especially stock market). I am writing about it because we are in the significant moment, when there is a lot of indecisiveness in the market. The next ISM for September will be released on the October 3rd. In my opinion, in the long-term, equities will be growing if the next two or three ISM numbers will bounce above the range of 51.0 – 52.0.

The last observation: S&P500 index made a very similar reversal pattern in comparison with the one made just before the crisis in 2008. On the last Friday S&P have stayed above the 1100.0, which means that there is a probability to bounce up, as the historical pattern suggests…

"There is no smooth path to solve the problems…"

2011-09-18T17:29:00.006+02:00

- said Scott Mather, head of global bond portfolio management at Pimco – one of the largest investment fund in the world. It’s obvious that he was talking about Europe debt crisis. He added some interesting points in the interview for Wall Street Journal, like “The euro’s rally won’t last. The fair value for the euro should be around $1.20.” He thinks also that the dollar probably weaken in the long-term, but in the short term he expects a significant decrease of euro.

That point of view seems to be very logical. Politicians are trying to buy some time. However, they are not aware that the time operates against them. We all know that in the current structure, Euro zone should not be existed. So far, it generates more costs than benefits. All economists and analysts are fully agreed that Greece should default and exit Euro zone (it includes the exit from the EMU). They said that because the default of Greece is discounted, especially if we look for yields of Greece bonds. Of course, this is true. However, I think that they do not fully understand what will be the consequences of such scenario in terms of financial sector stability.

Firstly, leaving the EU by country is legally possible, but, according to UBS analysts, there are no any mechanisms (or instructions) for that situation, what makes it very complicated process. Furthermore, there are few calculations for that. For example, the cost for country leaving the Euro are estimated at 40 – 50 percent of GDP (9500 – 11500 EUR per person) in the exiting country in the first year. There are also costs in the next years, but nearly 3 times less. For core countries, like Germany, the costs of such event should be around 20 to 25 percent of GDP in the first year. That is the equivalent of 3500 – 4500 EUR per person.
So, as we can see, these numbers are terrifying. But there are more problems. If we assume that EU will be wanted to do it in the quite ordered way, that means all necessary renegotiations of the European treaties. But this implies a tough negotiations with all EU countries and lengthy legislation process. However, EU do not have much time…

There is also a second option. Greece can ignored all the international agreements and unilaterally withdrawn from the EU and the EMU. The consequences of such step will be the credit default event on government debt and established new national currency – which will be probably the Drachma (GRD). However, the biggest problem will be the default of corporate debt. Companies will be received revenues in the GRD, but serviced debt in the EUR. That could be a disaster, especially when the GRD depreciate significantly. As a result, the cost of raising capital sharply increase and the banking sector will be in a huge problem.

To sum up, all of these thesis above was considered by UBS Investment Research in the very reasonable way. Now I am fully understand what Merkel and Sarkozy do. They knew, that in a case of such events like Greece default or leaving EU, the panic in the financial markets will be so enormous, that it could expand for another countries - next candidates to leave EMU. And then everyone will be talking about Italy, Portugal and Spain, which is the worst scenario.

In my opinion, there are few measures which have to be taken to avoid a recession in case of Greece default. Firstly, there should be a high protection of people savings like deposits in banks. Secondly, banks in a defaulted country should be able to face the scenario of financial meltdown. Simplifying, government can’t allow banks to collapse. And finally, banking system should be recapitalized. But it is not as easy as it seems to be. To achieve that, there is a need for a large amount of money.
Fortunately, the ECB have a power to print money. That means that they can ease tension in the markets by buying Italian and Spanish debt. Without that, the recent collapse on the markets could be more serious.

On the other hand, Germany do not agreed in any terms on Eurobonds. And it does not surprise me at all. Indeed, consider the situation, where there bonds issued for servicing Greece debt, have the yields few percent higher than the Germany yields. In addition, these bonds will be guaranteed by German government. This implies that the buyers of German bonds move their money to Eurobonds, and in a consequence, the German yields skyrocket. Eurobonds can also have further consequences like abounding the fiscal consolidation and budgetary reforms. With Eurobonds, there will be no invectives to do that.

Now, let’s take a quick look for markets.

ECB has decided with Fed, BOE, BOJ, and SNB to provide US dollar liquidity by operations with three months maturity. The schedule for these additional operations is as follows (bear in mind these dates as these operations could have an impact on market):

And it seems to be a very wise decision, especially if we take a look for a chart below:

Source: Bloomberg

Outlook for EURUSD – the key resistances and supports on daily and 60-minutes charts:

And the last thing: I downloaded data form reports made by CFTC. Below you can see the chart showing commitments of traders on EUR futures on the Chicago Mercantile Exchange. The chart was made by the difference between the long and short speculative positions. I also mark the level of 50 (and-50) thousands and 100 (and -100) thousands of contracts as a good indication of overbought and oversold market. For now, traders bet on the falling euro and there is a net exposure of -54459 contracts this week in comparison with -36443 contracts the week before. Such move could be an indication to buy euro… However, there is still a far away from the level of -100 thousands contracts.

The latest news:

2011-09-12T20:49:00.002+02:00

Increased volatility (and jump in volume) on the eurusd in the recent minutes was probably caused by this info:

Source: Dow Jones Newswires

Bad story for the euro

2011-09-11T20:47:00.002+02:00

The chart of the day below: the Euribor-OIS spread - a measure of banks’ willingness to lend to each other. The spread widened to 83 basis points in the afternoon (GMT), 09.09. This indicate the higher level of stress in financial markets. However, we are still far away from the highest level in 2008 - 206.9 basis points after Lehman collapsed. It is still unlikely that the spread reach this level in the short term, because ECB provide liquidity to banks and appropriate measures. But with growing tension on European sovereign debt crisis, the euro is still putting under strong selling pressure…

Source: Bloomberg Brief, chart was made on 08.09.2011.

After the Trichet and Bernanke speech...

2011-09-08T20:41:00.004+02:00

...EURUSD plummeted. The key were two sentences:

- We see downside risk to growth at present
- Risk to inflation are balanced

It means that we will not probably see any more moves on the reference rate until the end of 2011. It is likely that in the near future (short-term and mid-term perspective) euro will have been losing its value.

Below there is a shortcut of the Bernanke speech (divided on the different topics). He clearly suggest monetary stimulus in the next FOMC meeting. However, the market does not seem to care of it...

ON RATINGS DOWNGRADE
"Interestingly, Treasury interest rates are actually lower today than they were before the downgrade, so there has not, so far at least, been a permanent impact on our interest costs although some of the downgrade effects have flowed through to other borrowers besides the U.S. Treasury.
"If you listen to what S&P said, they didn't make the claim that the U.S. didn't have the economic resources to pay for its liabilities, we do. It's not a question of economics, we are a very rich country."

ON NEED FOR BETTER FISCAL DECISION-MAKING PROCESS
"We have to do this all in a way that is not disruptive to financial markets, as the discussions over the summer did prove to be. We need a better process so that we don't have the same consequences that we saw with the downgrade and with some of the financial volatility that was associated with the process this summer.
"There are a number of countries around the world, Switzerland is one example, where fiscal rules have been put in place and they helped at least provide a framework for policymakers to make good coherent long-term decisions."

FROM PREPARED REMARKS:
ON EMPLOYING A RANGE OF TOOLS
"In addition to refining our forward guidance, the Federal Reserve has a range of tools that could be used to provide additional monetary stimulus. We discussed the relative merits and costs of such tools at our August meeting. My FOMC colleagues and I will continue to consider those and other pertinent issues, including, of course, economic and financial developments, at our meeting in September and are prepared to employ these tools as appropriate to
promote a stronger economic recovery in a context of price stability."

ON THE FISCAL DRAG ON THE ECONOMY
"The prospect of an increasing fiscal drag on the economy in the face of an already sluggish recovery highlights one of the many difficult tradeoffs currently faced by fiscal policymakers."

ON INFLATION
"We see little indication that the higher rate of inflation experienced so far this year has become ingrained in the economy."

ON ECONOMIC SLACK
"In addition to the stability of longer-term inflation expectations, the substantial amount of resource slack that exists in U.S. labor and product markets should continue to have a moderating influence on inflationary pressures. Notably, because of ongoing weakness in labor demand over the course of the recovery, nominal wage increases have been roughly offset by productivity gains, leaving the level of unit labor costs close to where it had stood at the onset of the recession. Given the large share of labor costs in the production costs of most firms, subdued unit labor costs should be an important restraining influence on inflation."

Source: Reuters

Short comment on the current economic situation

2011-09-06T20:48:00.006+02:00

It happens a lot recently. I decided to select the most important news and analyze them.

Firstly, ISM Non-Manufacturing Index – in other word we can say Services PMI. It turns out to be better than expectations, and, surprisingly, better than these in July. I want to focus on the job market, and it is not seems to be in a good shape. Despite of these rise in ISM Index, the ISM Employment Index noted slower growth to the 51.6 level in August from 52.5 in July and 54.1 in June. That is a significant information, because with the last published Nonfarm payrolls it proves the continuously deteriorating numbers of employed people. The problem was shown on the chart below:

And one more chart:

So we are two years after the recession and the unemployment rate is still near their top. Fiscal policy is not much to do, especially when politics will rather cutting spending’s. In a consequence, the real boost could come from the monetary policy. The possible option taking into the account by Fed is Operation Twist, which include duration extension. This can be done by outright sales of short-term paper. The question is when the Fed will decide to do that? Maybe in their next policy meeting in September 20-21?

However, are these all measures will be sufficient to encourage companies to investments and create jobs? This is doubtful. The two rounds of QE result in rising stock markets and commodities. It is also help the dollar. But it does not affect in the real economy significantly and permanently. Moreover, we are facing a serious slowdown in Europe. The fears about debt problems in Italy are spreading, sending yields higher. And, more importantly, setting the floor on EURCHF by SNB could have an impact on the faster decrease euro vs. dollar. In USA, the benchmark yields touched 1.908 percent, lowest in 60 years. Below we can see the spread between the yields in German and Italy bonds.

Source: Bloomberg

And one more information, from Reuters: “GLOBAL AUG COMPOSITE PMI FALLS TO 51.5 (52.5 JULY); LOWEST SINCE AUG 2009 –JPMORGAN”

In the next posts I will focus more on technical analysis and trading opportunities.

The latest news:

2011-09-06T10:09:00.003+02:00

- SNB set floor Franc at CHF 1.2 Vs Euro (to enforce floor with utmost determination)

SNB says:
- Ready to buy foreign currency in unlimited quantities
- CHF overvalued even at CHF 1.2 Euro
- Ready to take further measures if economy, deflationary risks require
- Massive CHF overvaluation carries risk deflation and poses acute threat to Swiss economy
- SNB aims to substantial, sustained weakening of the Swiss Franc

ISM may decline on Thursday but not significantly

2011-08-31T22:54:00.004+02:00

Today’s Chicago PMI declined from 58.8 in July to 56.5 in August. However, this report was better than market expectations, which was 54.3. Chicago business barometer slipped to a 21-month low. The biggest slowdown was observed in a production and order backlogs. Despite that, the index is still above the 50.0 level, which stands for expansion.

Why am I mentioned about it? The Chicago PMI has about 90 percent correlation with ISM Manufacturing Index, which, in fact, is a leading indicator of economic health – business conditions like employment, production, new orders, prices, supplier deliveries and inventories.

Forecasts assumes decline ISM to 48.5 level, which stands for slowdown for economy. The level of 50.0 is a significant boundary. Taking into the consideration the latest readings - Philly Fed Index or NY Empire State Index, I think that likelihood of decline below 50.0 is very high, but it could not be as pessimistic as the expectations are. However, the better reading than expected could have a good impact for equities.
On the chart below, the latest sharp decrease of Chicago PMI indicates the probable future collapse in ISM in next months.

Economic data to observe

2011-08-28T23:02:00.002+02:00

This week will be very exciting. Below there is a list of economic data, which will be released in the next 5 days. In Wednesday there will be also the Chicago PMI, which is strongly correlated with ISM Manufacturing. However, about that I will write sth in the next few days.

Possibility of double-dip in the US?

2011-08-25T12:57:00.002+02:00

Last week was very interesting in terms of readings from the US economy. On Thursday the Philly Fed Manufacturing Index was published and it was at the lowest level since March 2009 (- 30.8), when the economy was still in recession. However, one, weak reading don’t make a trend, but it is a significant warning of coming slowdown (and a reccesion). There is a fact, that a decline in the regional indexes could have an important impact on the next macroeconomic indicators (like unemployment, ISM, GDP and bussiness activity). Furthermore, the big market move on that day session was caused by US economic data. Equity markets fall and the benchmark 10-year note to an all time low yield of 1.9735 percent. The reason for the such extreme market response may be the Philadelphia Fed Index predictive power for nonfarm payrolls. Take a look at the chart below. Non-farm payrolls and Philly Fed are strongly correlated.

Tommorow there will be Jackson Hole conference, where Ben Bernanke is supposed to made a speech about the prospects of the economy. As far as I’m concerned, there will not be the third round of QE. However, that scenario is still possible. More ideas what will happened tomorrow you can find here.

Come back with EURUSD outlook

2011-06-15T16:51:00.004+02:00

Bloomberg charts: put options are more expensive than call. Volatility smile is skew.

EURUSD daily chart - uptrend is not so strong...

GBPUSD, Daily

2011-04-09T23:58:00.002+02:00

According to last note, the first TP for longs have been reached. For now, there is a possibility for a correction before the next impulse.

GBP/USD + "old" Pitchfork

2011-03-28T17:16:00.006+02:00

That's nice picture below - GBP/USD H4 - all cycle of 5 elliott waves and a possible irregular ABC correction is contain in one Pitchfork. Take a look:

Euro/yen - a great chance to reach new local tops

2011-03-22T19:00:00.007+01:00

The BOJ intervention was really fast and succesful. We are now observing outflow of the capital from the japanese market, so the mid-term consequences should lead up the eur/jpy. However, the market reach double top as far and the RSI oscilator does not indicates the power to go up. I expect just one more wave down, likely to the strong resistance of 112.0 level. (it is a kind of a "flip" in PA, which means the res/supp change into supp/res etc.) The target for longs seems to be about the 122.0 level. We also have to be aware of impetously move market up, and here the "buy limit" transaction seems to be a better solution.

The second chart shows the same daily data, but in the line chart, not candlesticks (in this way we can precisely find good sup/res.)

And be aware of risk! Happy Trading!

Gold & Silver again - short term analysis

2011-03-18T22:23:00.005+01:00

Gold - the market is in the really important point. On the one hand we had an ABCD structure correction (H4, chart below - the red lines), which clearly indicates that the short term up-trend will continue, but on the other hand the 1422.0 level looks like the hard one and I will be looking forward for any bigger potential pin-bars here. But it is not obligatory as far as the outlook for the nearest two weeks is up, in my opinion.

However, looking on the daily chart, silver seems to be overspeculated. But it is misleading. There are quite good long signals if you take a look on the lower TF - I mean the ideal Gartley pattern, which ended on the 61.8 fibo level. The 35.535 level is the first potential problem to continue up move. I want to catch the nearest correction on the intraday (M15) and we will see how it goes.

But markets will do what they want, so be prepared for everything... ;)

Happy Trading!

How useful are Median Lines? #5

2011-03-04T16:14:00.002+01:00

Interesting situation in the short term view on eurodollar (TF=H1). How long will the market rise up?

GBP/CHF what next? / EUR/USD outlook

2011-02-23T22:43:00.005+01:00

Pound against Swiss Franc touched the first TP, which is the first strong support on daily chart. The question is - what next? Although, Stochastic Oscillattor are going to be more and more oversold, it can be a good sign for continuing the downtrend (During the strong trend, stoch can be almost all time in the oversold (overbought) position). Regardless that, the weekly chart is looking really good and I will be staying with the half of position.

Eurodollar H1 --> Andrew's Pitchfork and RSI(9). No more comment is needed. The key point is the 1.3750 level.

Two scenarios for GBP/CHF

2011-02-14T20:22:00.007+01:00

Pound is in the process of forming ABC correction. There is an opportunity that wave C has just ended, but I would like to see "price action" on the fibo 78.6% (for example bigger pinbar, engulfing pattern or just H&S pattern on lower TF). Below you can see the daily chart with Gartley pattern and divergence on Stochastic Oscillator:

On the other hand, wave A does not equal wave C yet, so there is a possibility to reach the 88.6% fibo level, where is a strong resistance.

EURUSD weekly outlook

2011-02-09T09:08:00.001+01:00

Inside bar formation + pin bar.

EURUSD short-term

2011-02-08T16:15:00.004+01:00

Looking for some occasions to short on lower TF.

The breakout upper-ML will be a confirmation of strength of euro.

GBPUSD - significant moment

2011-02-05T13:46:00.008+01:00

In the long-term (daily) - we have a significant resistance (Pitchfork), and support on ~ 1.60.

In the short-term (H4) - we have another Pitchfork as a resistance and probably we will see one more wave up to finish the up-trend (after breaking 1.6170 level).

And here we go...

2011-02-01T21:19:00.004+01:00

Indexes run to new highs, eurodollar moves up significantly (breaking the strong resistance which about I wrote lastly) and VIX moves down below 20 again. That all are signs that the up-trend will be continue.

I was waiting so long for any move on Aussie, and finally it hapenned. Aud/Usd can be in the process of forming a 3rd Elliot Wave, so "sky is the limit". ;) I will expect some corrections to have a good opportunity to go long and benefit from the up-trend.

Intermarket analysis #1

2011-01-22T23:24:00.006+01:00

Just technical approach to different markets and conclusions:

Below we have a screenshot of CFD VIX index quoted by CBOE. What exactly is a VIX, we can read here. In a few words, VIX measures 30-day expected volatility of the S&P 500 Index. The components of VIX are near - and next-term put and call options, usually in the first and second SPX contract months. In the result we can expect the higher possibility of correction on the SP500 when VIX are quoted in the new minima, and we can expect a new up-trend on the SP500 after VIX are qouted in the new maxima. As far, VIX touched near 16.90 level which is really low (relatively). It means that the put options for SP500 are much more cheaper and I will not be surprised if indexes starting a phase of distribution or a deep correction. On the other hand, there is still a possibility that the optimism on markets will be maintained and VIX will be in a consolidation between 15.0 and 20.0. (For anyone who want to check the effectiveness of the VIX index, I recommend to compare the SP500 chart with the volatility index.)

On the SP500 chart we can see a strong resistance on the 1300-1310 levels, but for now there are not any signals for selling off. If they exposed, I will try immediately to make an analysis and posted it here.

On the EurUsd chart we can see a strong bull-trend, but I'm considering also a possibility of irregular wave in terms of Elliot Wave Theory and back to the down trend.

On Gold and Silver market we are in process of correction bull-trend, so any further "short" occasions on currencies are possible... (for example look for Aud/Usd which is known as a "commodity" currency).

Commodities: Gold & Silver

2011-01-15T20:51:00.006+01:00

After a short break, it's high time to back to the market. Gold draw my attention, because we have a kind of a huge distribution on that market. The trend is "exhausted" so I will be looking forward for a correction, but after the breakout the 1350 level.

Similar situation is on the Silver market. We are between two strong S/R and within few days everything should be more clear. 28$ is the key level here.

Outlook for two majors...

2010-12-30T16:59:00.007+01:00

First Aud/Usd. Lastly I've written about it more and more often. I think that currency is really technical. There were a really strong signals after the breakout blue Median Line which you can view in my last note. Now, on the daily TF we can see a double top pattern and in the short term a possible correction (higher bound of ML is a good support) and it will be a some kind of "test" for the existing trend. I attached below H4 time frame:

Eur/Usd - everything you can see on the attached images. This scenario will be possible after the breakout strong resistance: 38.2 fibo.

And on the H1 TF we have a strong up-trend:

Aussie reconsideration

2010-12-20T00:37:00.004+01:00

According to my last note, the view for the market has changed dramatically. Firstly, take a look at the daily chart and notice the blue Median Line, which give with "dark-purple" ML a really strong resistance - now it's obvious that we won't see the 3rd wave which I lastly wrote about. On the daily chart we also see H&S. I'm still waitng for more clear signals - intraday.

Aussie and Swiss Franc

2010-12-13T19:42:00.005+01:00

The frist TP for CHF has been reached:

In according to the last Aussie analysis here, the market is probably in process of construction wave iii in 3.. :)

How useful are Median Lines? #4

2010-12-08T22:35:00.003+01:00

USD/CHF H1, Gartley + Median Lines, good opportunity to short, still valid:

Aussie analysis

2010-12-03T00:05:00.006+01:00

Charts below, H4 and daily respectively:

What's my view? I think there is a huge possibility to go up and continue the trend. There was a good point on H1 to buy AUD/USD but I missed it. I'm expecting a correction on H1 at seek opportunity to go long on lower time frames.

And last chart which represent the opposite view - but still possible:

Greece, Ireland!!! Belgium, Portugal, Spain?

2010-11-30T00:59:00.002+01:00

We are closer and closer to lower median line, the first really strong support for eurodollar. Everything "thanks" to bad situations in euroland. As far, the market touch the strong resistance, I closed my shorts and trade depending on the price action at 1.3075 level.

Take a look at the picture below:

Happy trading!

EurUsd outlook

2010-11-21T23:42:00.006+01:00

I'm curious if the market will continue up move to the 1.3920, because at that level I'm expecting a "battle" about the future midterm direction of eurodollar. But I don't want to forecast anything - just prepare my trading plan on such scenario. On the second chart (H4) there is a possibility to form a reverse cross (3920) and then continue to go down. But on the daily and weekly chart we have a simple correction in strong bull trend, so be vigilant for any shorts.

How useful are Median Lines? #3

2010-11-11T23:15:00.005+01:00

The chart which refer to latest posts:

On the last days I was short on eurusd, but now I'm considering a scenario with the end of wave 4 or at least a correction of the last downward move. But the bearish sentiment on euro is still valid...

Equity Magazine 06

2010-11-08T15:24:00.003+01:00

Equity Magazine

New ideas, new charts...

2010-11-01T20:30:00.005+01:00

After few days break I'm posting charts with my trading tools which I currently use. I was also thinking much about sterling and after taking into consderation fundamentals informations about UK (a thought-out economic reforms), I decided to show you another possibility for gbp/usd.

And below you can see my view for euro:

Sterling: irregular wave?

2010-10-17T22:05:00.004+02:00

Everybody gets what they want out of the market - said once upon a time Ed Seykota. I can't count anything on gbp/usd in harmony with Elliot Wave Theory, but I see an ideal irregular correction on daily. So I will stop thinking about EWT and start playing what I see. I listed below some details about formation:

BC=AD
CD = 138.2% BC
BC = 161.8 AB
CD = 161.8 AB

So, it's likely that we will see down moves and target in 1.53 - 1.49 area.

Euro continues his rally...

2010-10-15T00:02:00.004+02:00

As I said before, I expected a correction on euro. We have seen small problems with 1.40 level. I don't care how long euro will go up in future, but market seems to be really strong. Anyway, there is a possibility of irregular correction on daily - in this scenario euro now creating a BC leg. Charts below simply show tools which I used to catch the up moves and as far they are really effective.

Eurodollar Daily

2010-10-10T22:28:00.003+02:00

First, take a look at my last charts eurusd with median lines and notice that the upward ML are still valid, to recognize resistance levels as well as support levels.

Now, I'm expecting a resistance on eurusd and probably wave 4.

How useful are Median Lines? #2

2010-10-04T21:58:00.003+02:00

Pitchfork lines which I currently observe on eurodollar and gbpusd. In lower TF you could seek ML for down moves if you expect change the trend or catch the corrections.

How useful are Median Lines? #1

2010-09-30T21:48:00.006+02:00

Everything is explained on the chart below, I recommend you to try it on lower time frames. It's amazing tools if we know how to use this lines, especially with knowledge about Elliot wave principle.

Eurodollar M5 & Daily

2010-09-27T21:11:00.007+02:00

Today I want to show rather educational charts, using Jim Kane approach to median lines in potential ABCD correction. So let's look for two charts below:

Finally, eurusd didn't break the 1.35 area, which was kind of surprise for me. But the daily chart looks like we should now expect some correction. Eurodollar also touch the 50% retracement of last downward move from 1.51 to 1.18. So far I'm out of any longs.

Sterling - what next?

2010-09-23T20:35:00.006+02:00

Some ideas for further sterling pound moves. For different reasons I'm bullish but after drew up a few lines I think I should consider my view. Take a look for charts below and watch for the 1.57 level tomorrow.

The significant retest on USD/PLN

2010-09-19T23:15:00.002+02:00

According to my last note about Polish Zloty, I would like you to see the next possible scenario, in my opinion:

Euro and Pound Outlook

2010-09-15T20:27:00.006+02:00

After a few days break, mainly caused by a severe cold and studied Kane Trading Books, I've decided to come back to market analyses and to trading. Because I have recently a very limited time, I'm mostly focus on eurodollar and cable.

Possible scenarios for eurusd below on the charts. Tomorrow I'll be seek entry, but all depends on price action at the trendline. As far, I'm more convinced to short eurusd.

But, in contrast to eurodollar, pound made today a new high and it's likely to continue the upward move. 1.5640 level seem to be a strong resistance, so in the short-term I expect a correction.

Daytrading charts #3 & usd/pln possible reentry

2010-09-07T12:08:00.004+02:00

My today trades: application of market geometry and trend following. Good way to connect to the existing trend, because, as we know, nobody can catch every single move from the begining... ;)

Please take a look also at the US Dollar against Polish Zloty chart. After the perfect correction to the 3.19 level, there was a violent move down. Now, I'm waiting for the reentry short and I will seek price action on the red lines (fibo from different waves). It's all depend on the strength of the red levels.

Big day for Aussie

2010-09-03T07:57:00.003+02:00

Another good opportunity to think about mid-term entry on Australian Dollar. After a collapse at the begining of August, AUDUSD made a rebound (ABCD) to the .9119 level. On the chart below we are seeing such fibos:

AB=CD
External Ret BC - 1.5
External Ret AB - 1.272-1.382
Internal Ret for all down-movement after 06.08 - 0.786

But we should remember that today will be published jobs data from USA, so be focus.

SP500

2010-08-29T22:59:00.002+02:00

One chart, but for me, means a lot. The red lines on the chart below are only(!) APP and Fibo Extensions for the period from 05.08.2010 to 25.08.2010. Please notice fibo time zones as well. Entries could be different, depending on a trading style.

The problem is - where will be a take profit? Any suggestions?

Aussie #2

2010-08-26T12:01:00.006+02:00

Accroding to my last analysis about audusd (http://market-wizard-analysis.blogspot.com/2010/08/aussie-will-you-fall-down.html), it's seem reasonable to think about finished declining. I was trying to marked waves on the charts, but it's rather hard for today. But, daytrading opportunities bringing by that currency in the form of harmonic trading enable to trade with really good results - time frame H1 as well as M5.

The 127.2 or 138.2 extensions of wave A is two strong supports which could be end of wave C. Situation in mid term is not enough clear for me, especially looking for economic data. The level .8715 is also equality of wave A with potential wave C.

The second chart is H1 data. Levels: .8890 and .8936 are strong resistance for me. Breaking the trendline will be one of the reason to think about longs. For now - I'm bearish.

Pound carry on to plunge?

2010-08-24T22:04:00.005+02:00

The previous chart (stiil valid) with update and one of scenario...

End of the week analysis

2010-08-20T23:16:00.002+02:00

My outlook for Pound against Dollar. IMHO, the possibility to move up and down is 50/50. Max for me is 1.5723, but on the way there are so much levels where the supply pressure was (and is) really strong, like 1.5670. Stoch is also negative, so Monday open could be down.I'm bearish for next week.

Daytrading charts #2 & medium term sterling outlook

2010-08-15T16:46:00.004+02:00

We have seen curious moves on GBPUSD market last week. I don't want to become engrossed in UK economy (as you probably know it's not well..), but charts tell us everything.

First: elliot wave analysis for last week:

Friday trade:

My thoughts for medium term:

I would not be surprised if we'll see a triangle (wave IV).

Daytrading charts #1

2010-08-12T10:13:00.006+02:00

Recent events on stock and currencies market obliged me to take up some discussion.

Last charts, where I was predicting up move of GBPJPY based on Bullish Gartley Pattern. That day I was seeking longs and nothing came of it. Take a look at the intraday chart and you will find out why:

There were also some indications from USDJPY which didn't fit to long GBPJPY, but it's good to learn where something is not working well... To sum up, day later - collapse on GBPUSD and EURUSD brought collapse on GBPJPY, but it was only clear from intraday charts... in my opinion of course. :) After my little research, harmonic pattern on crosses is not as good as on majors.

And for the end - chart from today:

Outlook for the next week...

2010-08-08T22:12:00.004+02:00

Three charts and as little as possible comments... :)

SP500 - to be honest - in midterm I'm bullish, but there is a possibility for that:

Reasons: divergence on MACD, exhaustion of the up-movement and EWT counting is still valid.

GBPJPY - charts explain everything - consolidation was broken up, pay attention to EMA100. My target is about 140. I will consider longs on 15M chart to minimize SL.

Aussie, will you fall down?

2010-08-03T22:18:00.006+02:00

I'm not such a big fun of playing against a strong trend, but I think it is some opportunity to short audusd. Please take a look below, I think the max for audusd is 0.9190, then I hope it will be a collapse... or not ;)

But one element is not working here: still strong eurusd...

High probability trades..?

2010-08-02T23:11:00.007+02:00

Well, I found it interesting to share about what happens in gold market. Charts say everything. IMHO I expect gold will go down to the 1140 area (wave A = wave C, some density of fibo) and it will be a key level for next few weeks:

But in short term, there is a possible to jump up to a new local high. The potential structure ABC is a reverse cross with condition wave A = wave C.

It doesn't seem to happen, but it's better if we have a plan B... ;)

And the last chart, just for fun.. ;)

Let's get started

2010-07-28T23:43:00.006+02:00

Ok, It is high time for my first post. Please take a look at the charts below:

Beatiful cotton market ;) Harmonic pattern (something like Gartley but it's not ideal) + ABC correction after 5-wave trend is complete. After short analysis it's easy to notice that the most possible target for end of wave C was around 72,75 cents a pound (e.g. wave A = wave C and density of fibo). But price touched 72.92 and rocket up. I suppose it was brought about growing demand from Chinese.

Fundamentals for cotton

What next? I think today we have just started forming wave ii wchich should bring opportunity to open new long positions, but it have to be cautious for fundamentals! 75,45 cents is possible...

2010-07-15T22:57:00.002+02:00

The page is under construction. I'm going to start on the 1st of August.