Profit Mongers @ 12:59 AM, Wednesday May 05 2010
Hey folks,
Obviously, the sovereign debt rumor mill kicked into high gear Tuesday thwarting all technicals and sending stocks, risk, and the Euro into a tailspin. At this point with the break through 1.3000, that dramatically shifted the odds away from a sizable bounce into further capitulation downwards. After I called the risk/reward dip long last night, we pushed higher for about an hour, but then caved into this overwhelming pressure from the downtrend resuming. It doesn't get much more impulsive than what we saw today, which makes it quite likely we've begun a large wave 3 decline that should take us at least to 1.1800 and lower (well below March 2009 lows).
Obviously I wanted to hop on near an ideal peak on the EUR/USD and ride this thing down with a long term trade, but now that it's confirmed more resolutely that the downtrend has reestablished, the more prudent trades are grabbing pieces of the momentum. The way I prefer to do that is using the 10 and 20 emas (on a chart that makes sense, like the 15min chart today). As long as we're pointed lower steadily, just sell on a pullback to the 10 ema, with an SL a few pips above the 20 ema and look for a sensible TP while maybe keeping a small portion of the trade to build a short position. As you can see, using that strategy would have had no losers all day yesterday and should have some good moments today as well.
As far as a swing trade is concerned, it's never prudent to chase price action as it's falling with a wide SL, so the best reasonable option I see is to short on a rally back up to around 1.3060-85 with a 120-180 pip SL and some ambitious TP's. If we extend a lot further without a decent bounce, we'll have to lower that target short entry tomorrow or later in the week.
Stocks not only headed lower, but shot downwards with conviction and confirmed the significance of the move with the break of 1176. Stocks are a great short right now (1171.50 on ESM0) with a 20-40 point SL and 90 point initial TP (final TP could be good for 100's of points lower). As the move develops futher, I'll be able to narrow down those levels better, but those are good enough ballparks to get into a long term trade. I've been telling my coworkers for months now that this European debt crisis will probably fuel this next major wave of the rececession just like the US housing market fueled the first, and the markets are realizing it more and more in a big way.
In news Wednesday:
0815 US ADP Employment Change (30K expected) - Last month we finally had a decent deviation and it caused a solid 50 pip move on USD/JPY. With all the tension in the markets, hopefully this will drum up some order flow one way or another.
If it comes out at 80K or higher, USD/JPY should rally 40-50 pips.
If it comes out at -20K or lower, USD/JPY should fall 40-50 pips.
1845 NZ Employment q/q (0.2% expected) - With the market unsure of the RBNZ's timeline for starting to raise rates, a surprise here should be worth trading.
If it comes out at 0.4% or higher, NZD/USD should rally 40 pips.
If it comes out at 0.0% or negative, NZD/USD should fall 40 pips.
2130 AU Retail Sales m/m (0.7% expected) - With the mixed statement from the RBA the other day, we're going to have to see strong numbers out of Australia to justify continued interest rate hikes. Reports like these can help shift interest rate expectations and cause a decent move on AUD as a result.
If it comes out at 1.3% or higher, AUD/USD should rally 40 pips.
If it comes out at 0.1% or lower, AUD/USD should fall 40 pips
That's all for today's update. If you'd like to learn more about trading or trade along with myself and my collegues, come join us at Profit Mongers. Our subscription is very reasonable at $179 per month, and right now you can sign up for a 2 week trial to get started for only $29. This offer is for new customers only. Feel free to email me with any questions at sirpipsalot@profitmongers.com
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Sir Pipsalot
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