Trade # 23: GBP/JPY Long

I last posted about the GBP/JPY here. I mentioned that I would look to go long on a correction. That correction has come to fruition and I will go long @ 187.40, stop @ 184.30. My target is 215 or so. This carry trade should provide nice interest.

Notice the 5-wave rally from 184.46. I believe that this is Wave-A for a correction up to 215. Price has since dropped to correct this 5-wave structure, in what appears to be 3-waves so far. I am buying around the 78.6% fibo and Wave-2 low, which should support prices at least temporarily. My stop is below 184.46 on the belief that this level will hold.

I think after today's stock market drop, lawmakers will realize that the broader economy is suffering from the financial crisis, so a surprise package would make sense at this point in the near future. This should make GBP/JPY rally strongly


Trade # 22: EUR/GBP Short

I last posted about the EUR/GBP here. I think the structure is bearish, and I will short @ .7940. My stop will be at .8025. My target is .7800 or below.

After a steady decline to .7850, price has corrected in 3-waves. However, the EUR failed to stay strong for long, and seems ready to continue it's downtrend. I want to go short with a stop above the 50% fibo. If I am right about this, price should stay below .7980, as I think this is the Wave2 high.

Trade # 21: GBP/USD Long

I last posted about this trade here. Since then, GBP/USD has rallied nicely, but the premise for entering the trade has changed. Therefore, I am going to cancel this trade.


Bought some stocks

I last posted about the overall market here. The probability is growing that 1134 marked a multi-week/month bottom. Therefore, I used the market weakness today to buy some stocks to hold for a few weeks/months. Hopefully 1134 holds.

Notice on the Dow Industrials chart above that an ABC correction from 14198 may be complete for now. Positive MACD divergence is nearly confirmed, and volume spiked big time, just like at previous multi-week bottoms.

I am noticing a profound difference in this rally attempt vs. the rally attempts at previous trend lows. After the Nov. '07, Jan. '08, and Jul. '08 lows, the market rallied strongly for 5-10 days with little pullbacks, probably producing a psychology of "the market must have bottomed, buy buy buy." This time around, after a strong two-day rally, we are seeing a sharp decline. The pschology at this point seems more like "oh looks like the bailout is going to fail and we are going back to new lows." However, the volume tells a different story. Notice after two strong up days on huge volume, the past two down days have occured on tiny volume. This fact should increase the likelihood of a continued rally, since the selling pressure is dropping significantly.

The rally, as shown by the15m intraday Dow chart above, also sports a different wave pattern than did the rallies off previous trend lows. Notice that this time around, price rose in 5-waves, and is is now being corrected by a choppy, slow decline. At the previous trend lows, the initial rally occured in 3-waves (corrective). Theoretically, 5-waves up indicates that the underlying trend has turned upwards.

Citigroup (C) is the first stock I bought today. I last posted about C here. Price made a slightly lower trend low, but then reversed sharply, forming an bullish engulfing candle on record volume. In fact, 26.6% of C's entire float was exchanged last week. Clearly, if investors were willing to purchase a quarter of C in one week, they must have faith in this company's staying power. Finally, MACD divergence continues to portend a strong bullish move. I think we could get back to $30.

My second stock buy, Goldman Sachs (GS), has an even more amazing chart than C. From the trend low in 2002, GS rallied in 5-waves, and has now corrected this rally in 3-waves. Of course, the downtrend could continue from here, but consider that nearly the entire stock base was traded last week. The buying was so intense that even amidst speculation of bankruptcy, GS only declined 15% on the week! Also, Bershire Hathaway's $5 billion investment in GS should boost the market's confidence in banks.

The 78.6% fib, the channel bottom, and the Wave2 low all provided support. I think we could see $160 on the short term, and much higher prices if GS rallys above the down channel.

Apple (AAPL) was my third buy. My last long term look at AAPL was posted here. I like AAPL's products and its management. Right now it has a reasonable P/E, but as I wrote in that last post, the Wave count indicates that AAPL run could have ended for some time. However, since there are 3-waves down from $192, and priced bounced of the support trendline, I think we could see $160-170 as AAPL follows the rest of the market that (hopefully) rallies.

Ford (F) is a bit more of a speculative play for me. Based on how bearish everyone is on F, I would assume the worst case scenario has been basically priced in. Businessweek had a super bearish cover story on F, but I think F's strategy to start producing smaller, more fuel-efficient cars should pay off.

On the technical side, notice that price has formed a decent base above $4 and is posting MACD divergence. During the recent market decline, F actually rallied on increasing volume, and is now correcting on lower volume. This tells me that if the overall market picks up, F should outperform. $6 to $6.50 is my initial target.

My last buy was the India Fund (IFN). India was a hot investment last year, but since that speculative bubble popped, the ETF has shaved off 58% of its value. I think India will continue to grow quickly thanks to a strong knowledge-capital base that can take advantage of the growing knowledge economy, so this seems like a decent buying oppurtunity.

After a multi-year bull market that formed in 5-waves, price has so far corrected with 3 down waves. This could be WaveA of a larger ABC correction, but either way, I think we should see a bounce since the 61.8% retracement provided good support. There is also slight positive MACD divergence that should lead the price upwards. $50 seems like a reasonable target.

Final Note: A last important indicator for an extendeed uptrend is a follow-through day (+1.7-2% for a market index on higher volume). William O'Neils research indicates that no significant uptrend has started without a follow through day that occurs within 4-10 days of the market low.


GBP/JPY Looking bullish

I think the GBP/JPY will enjoy a decent rally over the coming weeks/months. I will look to go long on a pullback.

Notice the very clear 5-wave decline from the 251 high. Wave 5 appears finished, and MACD divergence is nearing confirmation. Since I think the SPX is bottoming, I would expect any JPY pairs to bottom as well. I will wait for confirmation from MACD before establishing a long position.


Trade # 21: GBP/USD Long

I am going long GBP/USD @ 1.7935, stop @ 1.7375. This is a long-term trade, and I will lock in gains by trailing my stop. I expect price to make a least a new trend high above 1.8400, but it could go much higher, as COT data shows commercials a highly net-short the US dollar index.

The 2h chart above shows a nice leading diagonal formation (or perhaps a series of 1st and 2nd waves). Based on the MACD/RSI divergences, I would expect price to correct sharply at this point to shake out weak long players.

There is plenty of support in the 1.79 zone:
  • 1.7929: Weekly S1 support level
  • 1.7914: 50% fib retracement
  • 1.7911: Wave-iv low

I am guessing that the GBP/USD will not make a new trend low in the near future based on the large deficit-financed market bailout. Therefore, my stop will be below this level.


Trade # 20: EUR/USD Short (Update)

I last posted about this trade here. I was stopped out for -80 pips after the market made a false breakout below the trendline. Given the bullish response, I may look to go long in the near future.

Trade # 19: EUR/GBP Short (Update)

I last posted about this trade here. I was stopped out for -50 pips.


Trade # 20: EUR/USD Short

I am going short EUR/USD @ 1.4150, stop @ 1.4230. My target is1.3900. However, if price breaks below that level, there could be a strong continuation selloff, so I will trail my stop if the trade goes in my favor.

Notice that price bounced off the green trendline. This is a multi-year trendline that is drawn by connecting the Jan '02 and Nov '05 lows. It looks like this level could be broken, as the rally was only in 3-waves. There is clear negative MACD and RSI divergence, and retail traders switched back to a net long position. I would expect a drop to at least 1.3900, and a close below 1.3850 could cause the price to plummet. I am shorting on a break of the blue trendline (which would also indicate a breach of the weekly pivot point at 1.4176. My stop is above this price region.


SPX update

I last posted about the market here. After today's drop, it is harder to argue that the decline from 1313 is an ending diagonal. If the market doesn't turn up strongly soon, I think 1060-1135 will the the next stopping point.

Here is a list of support in this zone:
  • 1136: trend low
  • 1134: WaveC = WaveA
  • 1077: 61.8% fib of the rally from 768-->1576
  • 1073: Wave-c = Wave-a
  • 1061: Wave4 low

If the VIX spikes up to 45 or higher, I will try buying a put. What an interesting time to be watching the market!

Trade # 19: EUR/GBP Short (Update)

I last posted about this trade here. I am going to go short @ .7860, stop @ .7915. My target is below .7800, and I will trail my stop if price breaks lower.

So far, it looks like Wave1 and Wave2 are complete from .8186, and Wave3 seems to be starting. Price is being supported by the rising trendline as well as the S1 pivot, so I will go short if price breaks below these levels. MACD and RSI divergence concern me, but if Wave3 is really starting, these divergences will be cleared. My stop is above the congestion zone at .7900


The market is showing signs of bullishness

I last posted about the general market indices here. Since then, we have seen new trend lows, but I am getting the feeling that this is the final exhaustion move before a decent uptrend. Sentiment is extremely bearish thanks to the financial sector, yet we are seeing signs of phantom buying. I will look to go long stocks if price breaks above 1225-50 or so, or if the market posts a follow-through day.

The chart above is the daily SPY chart. Notice that the most recent decline has been surprisingly choppy and overlapping. Looking at the financial news, one would expect to see a straight down decline similar to what happened in January. Since this has not happened, it seems that there is enough buying at these levels to sustain decent prices. Carl Futia had a nice post discussing the fact that even with 9 months of bad news, we are still only 5% below the January lows. Once the bad news ends, he continues, the phantom demand holding up the market should propel the market higher. Notice today's record volume, and compare this volume spike to previous volume spikes; they all occured a short-term bottoms.

This bottom may be more significant because it could be the final decline in WaveC from SPX 1576. Also, given the overlapping structure of the decline from 1313, it looks like this may be an ending diagonal, which, when broken, could lead to a violent countertrend move. MACD divergence is forming, but not yet confirmed. Also, price has bounced off the 50% fib level of 768-->1576 with vigor.

The recent Tickersense blogger poll is at a record bearish level and everyone I talk to is super bearish. I would imagine that at this point, the worst case scenario for the stock market has been nearly priced in.

For the reasons above, I closed my short position around SPX 1200. However, I will go long only if price breaks above the upper trendline of the ending diagonal, or if we get a bullish follow-through day (+1.7% on higher volume) within 4-10 days.

Some stocks on my buy list include FXI, IFN, GS, BAC, MVL, AAPL, and DXPE.


CNEH Update

I last posted about CNEH here. Since then, I have learned a good lesson: in a bear market, P/E ratios mean nothing. At this point, I still feel that CNEH is a good value, but I am unsure of the short term direction. There are forces that could drive it higher or lower. Longer term, we may be in an extended correction.

The weekly chart above (in log scale) paints a sobering picture of CNEH's price action. It sure looks like 5-waves have unfolded from $.17 to $5.68, which would imply a 3-wave correction. At best, we are hopefully near the end of Wave-a of this correction, but that means that the thesis for new highs is probably out until the market bottoms. Crude may have more to drop before bottoming, which may put further pressure on CNEH's share price.

The daily chart above (linear scale) shows that price is holding at the confluence of the 61.8% fib retracement and channel support. I hope this holds, because if it breaks, there is little support until $1.60.

USO headed for $70

I last posted about Oil here. Clearly, I underestimated the ferocity of this decline. Now, with Oil under $100/barrel, I think we could see it hit $85-90 (USO is roughly .8 * Crude) before it starts a significant rally. That equates to USO dropping to about $70 or so.

Notice the 5-waves rally that is now being corrected. There are three layers of strong support in the USO $70 range that I think should hold as good support for a bounce:

  • $71.82: 61.8% retracement of the rally from $42.56-->$119.17
  • $69.20: Wave-C = Wave-A
  • $68.57: Wave4 low
  • $68.00: long-term trendline support
  • ==========================
  • $69.39: average


Trade # 19: EUR/GBP Short

I have not determined my specific entry point yet, but I am looking to go short EUR/GBP for a decline to at least .7800.

On the weekly chart, notice the clear 5-waves up from .6534. The MACD and RSI divergence indicate that the move is nearly exhausted. Wave-v = Wave-i in percentage terms @ .8191, and the recent high was .8186. Also, given the hammer candle on the weekly chart, I am predisposed to assume the top is in. However, the shorter term chart shows that there could be one more high before the turn.

The 4-hr chart shows 4 waves .7794. I would assume there should be a 5th wave up from this point, but given the factors in the weekly chart, we may not go above .8186. Regardless, I will wait for 5-waves down and sell on an upward correction.

Trade # 18: USD/JPY Short (Update)

I last posted about this trade here. I was stopped out for -90 pips as the market reacted to the FRE/FNM bailout. The USD/JPY had a very nice false breakout on Thursday/Friday, probably getting many players short, only to rally 300+ pips in 24 hours. I was up as much as 200 pips at one point, but I would like to learn to follow Jesse Livermore's advice to hold winners and cut losers short.


Dow confirms Head and Shoulders

I last posted about the Dow here. It doesn't look to hopeful for the bulls. The neckline of the H&S pattern was penetrated today on high volume.


The Q's are Making Me Flip-flop

I last posted about QQQQ here. Based on some of the price action I was seeing in the stronger tech stocks, I concluded that there was a possibility for further upside if these stocks saw strong bullish follow through. None did, so fortunately I did not take any long trades in these issues (AAPL, BIDU, GOOG). Now I believe the Q's are ready to follow the rest of the market lower, possibly to new trend lows.

Notice that Wave-i of WaveC (which started at the end of WaveB) formed in 5-waves. Wave-ii of WaveC formed in 3-waves. This was confirmed today as price broke below $46 on strong volume, and closed below the supporting trendline. Wave-iii of WaveC should commence soon and it should be strong. Also, notice the 5 distribution days in recent price action. Just like in the Dow, it seems that institutions are unloading their shares.


Trade # 18: USD/JPY Short

I want to be short the US dollar, at least on the short term, because of recent COT data that shows commercial traders holding their largest net-short dollar index position since November 2005. I like the bearish pattern on USD/JPY, so I am going short @ 107.70, with a stop @ 108.60. If price breaks below the 107 level, I will trail my stop.

As you can see on the daily chart above, price action has been fairly choppy/overlapping since the March low, which is indicative of a correction. Notice that price has formed a top against the 50% fib retracement of the 124-->95 move. In addition, price tested a 13-year trendline which has proven to be strong resistance. I like the MACD divergence, and the fact that price has dropped below 108.50.

The 4hr chart shows a head and shoulders topping pattern. Price broke below the neckline around 108.50 and then retested the former support level. I am going short once prices confirms the H&S breakout by dropping away from 108.50.

A final bearish indicator is that retail traders are net short USD/JPY.

Trade # 17: GBP/USD Long (Update)

I last posted about this trade here. I am canceling the trade as the pattern I was basing my decision on has been broken. I sure am glad I took a conservative approach by placing an order for an upward breakout rather than trying to call a bottom.