Trade # 30: EUR/USD Long (Update)

I closed out my second position at 1.2995 for -5 pips. I still hold one position from 1.2700. I will rebuy the second position if price drops to 1.2765, and I will move my stop on both positions to 1.2395. My target is now 1.33 and above.

There are several interesting things about the above charts (the top one is EUR/USD 2h, and the bottom one is USD-index daily). Notice that the EUR/USD traced out what appears to be a truncated ending diagonal. This is confirmed by the clear ending diagonal on the USD-index chart. This implies higher prices very quickly because price has broken out of the triangle.

Second, notice that price rallied in 5-waves after breaking out of the ending diagonal. The indicates a trend change. Price has since been in the process of correcting this move. I think price will break 1.2800 because of the head and shoulders formation and because many stops are probably below there. A target for the low of this move would be 1.2710, where Wave-c=Wave-a, but I am buying a bit higher so that I don't miss the expected follow-through up move. My stop is below the Wave1 low, as a breach of this level indicates that my analysis is wrong.


Trade # 30: EUR/USD Long (Update)

I am long from 1.2700 and 1.2900. I will place an order to close 1 contract at 1.3190 and move my stop up to 1.2550.


Trade # 30: EUR/USD Long (Update)

I last posted about this trade here. I am still bullish, and recent price action doesn't negate the bullish bias. However, I think there is a chance that price makes one more slight trend low before going higher, so I am placing an order to buy @ 1.2310, stop @ 1.1950. I am moving the stop on my current long @ 1.2700 to 1.1950. My target is 1.33 and higher.

Notice that price appears to be forming an ending diagonal. If this is the case, I imagine that my current stop would get triggered right before price blasts off. To avoid this, and to capitalize on the potential of one more dip, I am placing a long entry at the lower trendline. My stop is below the 50% fibo of the entire 2000-2008 bull market, so I should be safe for the short term.

I believe there is a higher chance, however, that price stays above 1.23, as the EUR/USD diverged with the USD index. Retail traders are also net short EUR/USD. We just need a catalyst to send this pair higher.


SPX Crash!!!

Well, we did get a drop below 800 after all. All hope is not lost, yet. If the market reverses quickly tomorrow and heads back above 800, I think today's action could have been a fakeout right before a multi-week uptrend. You can see my last post on the SPX here.

Take a look at the chart above. It sure looks like a nice breakout to start a new uptrend, right? Well, I can also see an ending diagonal formation, which is terminal. The last leg of an ending diagonal can sometimes overthrow the upper trendline in order to fake investors out and then reverse. I think this scenario is valid as long as price reverses quickly and/or stays above 723 on SPX (by the way, the above chart is an inverted SPX chart). Flipping the chart allows one to maintain perspective on a move. While sentiment would have you believe that we are headed down forever, the above chart is heartening. The Wave count shows that we should be near a top (bottom in SPX) and MACD is diverging with price. I think the key lies in a quick reversal tomorrow.


Finally we're seeing some accumulation in the market

I am noticing subtle signs of market strength over the past month, and I think we are close to putting in a significant low. I last posted about the overall market here.

Notice on the daily chart (above) that price has been in a range for the past several weeks. Note the 5 accumulation days, where the market closed up on higher volume. William O'Neil says that when you see 5 distribution days in an uptrend, you should get ready for a decline. I posted about this phenomenon several times this year in real time (see here, here, here, or here). I don't see why the reverse logic shouldn't hold true, i.e. 5 accumulations days in a downtrend would portend a sharp rally.

Also, notice that MACD has diverged with price, and that this final down wave may be an ending diagonal. If price resolves these patterns as normal, we could be in a for a very strong rally very soon.

Now, I have to say, this is contrary to what many people are expecting over the near term. I am reading a lot about expectations of a crash to below 800 or so. Well, if everyone's expecting that, who's going to sell to push prices down???


USO is scraping bottom

I think USO will drop another dollar or two and form an important medium term low around $42-$43 (it may temporarily slice through the Jan. 2007 low). After it hits this level, I think it will rebound to $70-$90 over the coming weeks and months. I last posted about USO here.

The chart above depicts a longer term Elliot Wave count. Since 1998, oil has enjoyed a 5-wave bull run culminating in July 2008. Recent price action has since corrected 64% of this up move in just a few months, without a major countertrend rally. It is due for a bounce, the only question is when.

The bear trend is definately reaching exhaustion, as MACD is diverging with price and volume has been downtrending. I think $42.50 should prove to be strong support for a two reasons: first, it was the Wave4 low back in 2007, and second, Wave-c = Wave-a @ $42.34. Add to that the fact that commercial traders are more net long than anytime since the January 2007 low, and you have a recipe for a nice bull move.


Trade # 30: EUR/USD Long

I am going long EUR/USD @ 1.2700, stop @ 1.2300. I will also have a secondary order to go long @ 1.2900, stop @ 1.2550. My initital target is 1.3300, but I believe price should rally above this level.

Notice that price corrected the initial upmove from 1.2333 in 3-waves without making a new low. This is corrective price action, so I think price will break out to the upside very quickly. This will either be Wave3 or WaveC from 1.2333. I believe it could be a very strong upwave given that retail traders have recently flipped to net short and commercial traders are still very long EUR. Price should not take out 1.2333 for the scenario to be valid.

Trade # 29: EUR/JPY Long (Update)

Owwww, that hurts! I was stopped out for -230 pips only to see price rally 800+ pips in the following 24 hours. Currency trading is rough stuff! Anyway, I think the Euro should continue to stay strong over the next few days, so I will look to go long EUR/USD or EUR/JPY on a pullback.


Trade # 29: EUR/JPY Long (Update)

I last posted about this trade here. Price reached my downside target, so I am long from the 120.30 region. I will trail my stop as this trade unfolds.


C's basing continues... get ready for a blast off!

I last posted about C here. It looks like Wave4 in this nearly 2-year downtrend formed as an irregular flat. Even though C is quite a bit lower than where I bought it, I still think it will soon have a very strong bullish move, to $25-35.

Notice the irregular Wave4 pattern where price action shakes out bulls and bears. This has been followed by what I believe to be a 5th wave ending diagonal. Notice that MACD divergence is very clear and that volume has been downtrending in the past several weeks. This evidence makes me conclude that these low prices are not going to be around for much longer.


Looking to buy AFAM on a dip

I am looking to buy AFAM (Almost Family, Inc.) @ $47.60, stop @ $39.85. My initial target will be $52.50, but if price rallies strongly in the next week or so, I will stay in longer. AFAM is a CANSLIM winner, so relative to the rest of the market, it has very strong fundamentals.

It operates in the home health care service (visiting nurses and personal care), which should benefit strongly as the boomer generation retires and ages.

It meets each criteria in the CANSLIM screening process:
  • Current earnings growth: 140%+
  • Annual earnings growth: 80%+
  • New: it is making new prices highs as the rest of the market is near it's lows.
  • Supply/demand: the small 8m share float will allow it to rally quickly as investors realize its fundamental strength
  • Leader: 12-mo relative strength is in the 100th percentile
  • Institutional ownership: 40% of float is held by institutions, indicating support for the company, and which leaves enough room for new institutions to bid up the price.
  • Market: the S&P 500 index posted a follow-through day on 10/16/08. There have been some distribution days recently, but as long as the market holds the recent lows, the uptrend is intact.

The chart above shows AFAM's picture perfect breakout from a double-bottom base. Notice on the breakout day, volume was 50%+ greater than average, showing strong institutional buying into new highs. Since I missed the correct buy point at $43.20, I have to sacrifice a bit of upside. However, I like the base and the stock enough to enter at a higher price. I will adjust my trade size in order to risk as much as I normally would had I gotten in at the correct price. My stop is 7-8% below the correct entry price, around $40.

If the overall market holds up, this stock could continue it's strong breakout rally.

Trade # 30: EUR/JPY Long

I am going long EUR/JPY @ 120.30, stop @ 118.00. My target is 131 and higher.

It looks like the rally from 113.60 is impulsive (5-waves), so perhaps that insane selloff last week marked a capitulation low. After rallying to 131, EUR/JPY has been correcting the rally in a pretty choppy fashion. I think a 3-wave flat is forming, indicating that price should undercut Wave-a to complete the pattern. Wave-a = 1.25*Wave-a @ 119.90, where the 61.8% fib lies. There are two pivot points at 119.56, so I am placing my stop below this zone.