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Posts Tagged ‘Euro’

Dollar Rallies, Equities Retreat, And Silver Implodes

November 9, 2010 Leave a comment

On Sunday, in "Weekly Preview: Nov. 8-12",  I expressed a strong bias towards establishing Dollar bullish positions while taking a bearish stance on equity indices. Also, in addition to these core ideas, in recent days, I pointed out three individual stock ideas (one bearish & two triangle set-ups without definitive biases, click here and here), and another triangle set-up in USDJPY. So far, the Dollar has rallied smartly off the LT trend-line, equity indices have begun pulling back, the stock ideas are in a holding pattern, and USDJPY — after making a head-fake lower this morning — joined the Dollar rally by breaking out above the top-side trend-line of the triangle.

Today, what really grabbed my attention; the precious metal sector, more specifically – Silver. The volatility seen today has very few precedence.  This afternoon, silver experienced an 11% reversal from high to low in less than three hours. Gold — not having garnered the same degree of speculative fervor — was much tamer with a daily range of only 3%. What ignited the post-market sell-off in Silver was a letter sent out by the CME outlining higher margin requirements; so it seems. However, interestingly enough, upon closer inspection, the S&P, and the 'risk-on trade' in general, was under pressure all afternoon. During much of Silver's (SI) sell-off, the price movement correlation to the S&P 500 ranged between 60-100% on a 5 minute intra-day chart.  The fact is — reactions with so few historical precedence — do not occur on news of this type, which, in my opinion, demonstrates just how grossly overbought Silver is.


Silver es

Back on 10/18, I felt we were upon a decent short-selling opportunity — SI pulled back quietly, touching the 20 day ema — but, today's action created the type of reversal that spawns extended periods of volatility and price weakness. Due to Silver's volatility and wild swings often associated with inflection points, it shouldn't come as a surprise if we see a retest of today's high, 29.34, before rolling over. With that in mind, it would be prudent to consider this possibility when devising a trading plan.


Silver

Interest rates are already presenting an interesting 'fade-the-fed' trade. I know this contrarian idea is at odds with the age-old axiom, "Don't fight the fed". However, when 5-year rates  decline from 2.75%, as they were back in April, to last week's low of just above 1%, I am left wondering how much more down-side is left in this move. The 10-year rate could be carving out a bullish inverted head-and-shoulders pattern. I will continue to monitor the situation for any low-risk entry points.

Summing it up: From where I'm perched, at this time, the most explosive opportunities are in the FX markets and precious metals. Specifically, I am focused on Dollar long positions expressed through shorts in the EURUSD, GBPUSD & long USDJPY, AND Short positions most heavily concentrated in Silver, with some Gold. Additional set-ups: Long SPY & QQQQ puts; short LVS. Pending trades: NFLX and BIDU. (Trade Update: EURJPY needs to hold above 111.25 ,at this time, for me to remain constructive.)



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Market Signaling Is Mixed – Head And Shoulder Pattern Could Get Tricky

June 24, 2010 Leave a comment

I might be over thinking the situation here, but I have reason to believe the head-and-shoulders pattern that EVERYONE is watching won't materialize as the bears are hoping. This wouldn't be the first time an overly popularized pattern fails to act as it "should". This does not mean that the pattern won't come to fruition, I just think that the formation will end with less than ideal symmetry.

Don't get me wrong, I am indeed bearish heading into the 2nd half of the year, and very much so! However, I have my doubts as to whether the past four days of selling is the kick-off to the next leg lower. The volume didn't spike and the breadth was not as dismal as I would like to see if indeed we were starting leg #2. 

Furthermore, one of my favorite indicators for timing intermediate term turning points is just coming out of oversold territory. Even during the 2007-2009 downdraft the market never rolled over with real meaning while this indicator was at its current depressed levels. The "Intermediate-Term Indicator Score" created by Sentimentrader, as evidenced by the graph below, has proven to be a very reliable tool for market timing.

ITS

The Euro, global equities, and commodities haven't experienced any real significant selling pressure. In fact, the EURUSD has been positive the past two days.

What this all means to me, is that the market is likely to continue to gyrate for the foreseeable future. Today we closed on the bottom side of a possible upward channel. An ideal scenario to take place in coming weeks would be to see a channel form while all oversold conditions are completely removed from the market. Then at some point, possibly in July, the market breaks the channel with all assets declining in harmony. May or may not happen in this exact manner, it could be some other variation of this scenario…..only time will tell.

One could even make the argument that an inverted head-and-shoulders pattern is taking shape and the market will soon attempt another rally. It is most clearly visible in the Russell 2k.

SpxR2k

 

The fundamental landscape is shaping up for another signficant decline – now its just a question of getting a more clear picture of the technicals and timing. Very shortly, I will be publishing my thesis for H2 2010 and beyond. Inside, I will examine the fundamental, technical, and sentiment aspects of the global marketplace and what I beleive it means going forward.