Investing: Doing it Yourself Part 3 – Technical Analysis

In Part 1 of this series, I focused on the “self-search” step; where I challenged readers to take a few steps aimed at self assessing one’s affinity to risk taking. The first part of this series was based on the notion that self investing is NOT for everyone.  Part II focused on a few extras. I shed some light on investing styles vis-à-vis time-frame (Traders vs. Investors) and the importance of knowing what category you fall under based on your natural leanings. In Part III, I will begin to focus on the process of selecting stocks and making that trade– Analysis. 

Technical Analysis:

While I ‘m not a Chartered Financial Analyst (at least not yet) or a Certified Financial Adviser, I love investing / trading and I’ve been buying and selling stocks since 2003. Overtime, I have developed a very strong preference for Technical Analysis (over Fundamental Analysis). I will not invest time in this series to make a case for Technical Analysis but it is important to state my bias. It is also important to add that I apply fundamental knowledge and awareness of event risk to my Technical Analysis but the core of my buy / sell decision is based on the “Technicals”. At this stage, what’s important is to focus on methods and techniques that makes you most comfortable.

Technical Analysis involves (primarily) the use of historical price / volume information of a stock to predict future direction of stock price. In addition to past price history, it normally involves the use of charts, support , resistance or trend lines and several other technical indicators to come to a conclusion on the value of a stock and whether the stock is a “Buy”, “Sell” or “Hold”.  Watch the video below just to get a high level view of market technical analysis; then take a moment, see what you can gather from it and then I will give another specific example / step-by-step breakdown of a sample analysis using support lines / bottom fishing technique.

http://www.youtube.com/watch?v=jOOa_qFdVyg

Time to Buy: Technical Analysis using Support Lines / Bottom Fishing Technique:

The use of Bottom Fishing Technique demands knowledge of three basic technical terms:

1)  Support

2)  Resistance

3) 52 week high / Low.

Definitions:

Support: - A price or price range that has served as a floor or that appears to halt decline in the stock price over time. On a price chart, a support line / zone is visible. Prices will normally decline to the support zone and then, bounce i.e change direction higher. When support is broken, it reverses roles and normally serves as resistance.

The chart below is that of Dendreon Corporation with ticker symbol DNDN - one year scale (October 2009 – October 2010).  I have drawn two green horizontal lines at the $35 and $30 share price points to help explain price support. In other words, the green lines are support lines. Let’s focus on the first line ($35.00), the star symbol indicates price reaching that line and then changing direction. As you can see on the chart, price touched the $35.00 support 7 times over the past year and changed directions. Six times out of the Seven that line acted as support; meaning prices stopped declining and changed direction upward right around $35. Take a moment and look at the grayish stars. Now support lines, once broken, become resistance (look at the one red star).

Resistance: - Resistance line / price zone is the opposite of support. It is a price / price range that appears to (often) halt an advance in stock price. On a chart, you’ll see that price advance to the said price (resistance price / zone) and usually pulls back. A resistance line acts like a price ceiling. Just like support lines / zones, once resistance lines are broken to the top side, they reverse roles and then become support lines for subsequent pullbacks.

The chart above of DNDN  tells the resistance and role reversal story perfectly. Now focus on the second green line (at $30).  From October 2009 to February of 2010, the $30.00 prize zone served as resistance. It halted price advance in DNDN 4times right at around $30 (see grayish triangles). In February of 2010, prices broke through resistance and the subsequent march 2010 pullback was halted at the old resistance now turned support zone (red triangle). Prices then advanced to the $57.00 zone and another deep August 2010 pullback was halted right around $30.00.

At this stage, it is safe to assume that  Support and Resistance are now fully understood. Remember these are two of the three technical points we need to know while “bottom fishing”. The last is to know the 52week high and low price point.

52 Week High / Low: - The 52week high/ low as the names imply are the highest quoted price (high) or the lowest quoted price (low) of a stock during a 52 week period (1 year scale).

The 52week low is the primary search criterion used in the bottom fishing technique.  It is significant because it is very common that a 52week low also represents a major support zone or provides a lower risk reference if there are multiple support zones.  In the DNDN chart, we identified two important support zones over the past year (at $30 and $35).  To make a trade or invest in DNDN, I can either place my buy entry at $35.00 or take a peek at the 52 week low (just above $25) and move my buy point down to the $30.00 region. This technique assumes that the closer your “buy point” to the 52week low, the lower your risk and the higher the profit potential.  In other words, you want to “bottom fish” i.e close to the low (52 week). Some investors may choose to buy ½ of the position at $35 (the first support) and another ½ at $30 (the 2^nd Support) for an average long position at $32.50. This is not a bad idea because if prices reverse at the 1^st support, you won’t miss out on the trade.

Summary of Steps Using Bottom Fishing Technique:

- Search for Stocks trading at or a few points above its 52 week low. 

- On 1 year (2 year , 5 year) Chart, look for support resistance lines

- With 52 week low identified, buy at support closest to the 52 week low

Bottom Fishing Yahoo Stock Screener Steps:

The specific search steps differ from software to software but using Yahoo screener (http://screener.finance.yahoo.com/newscreener.html), follow the steps in italics..

Click on the investment tab, screen tab, select search criteria, next select share performance, then extreme price parameters, 52 week lows.

You can specify how many points away from the 52 week low you want to capture. In the case, we will say $5.00 (so we are looking for stocks within $5.00 of the 52 week low). Now it will also be good to add another criterion – and this case, I will add “Share price” as a 2^nd screening criterion. I want the screener to mine out stocks with prices above $20.00 (note that using the $5.00 , 52 week criterion without specifying a minimum share price, all stocks that are priced within $0.1 - $10 are within $5.00 of the 52 week low and will be listed).

Quote of the Day: Gratitude unlocks the fullness of life. It turns what we have into enough, and more. It turns denial into acceptance, chaos to order, confusion to clarity. It can turn a meal into a feast, a house into a home, a stranger into a friend. Gratitude makes sense of our past, brings peace for today, and creates a vision for tomorrow.- Melody Beattie

AUD/CAD "SHORT" ANALYSIS - SELL @ 0.9900 & 1.000

Eternal Market Analysis is NOT a trade alert service, does NOT trade or manage capital for third parties or on behalf of anyone. The purpose of this Blog is to share our analysis and view point on Emerging Markets, ETFs, Currencies, Stocks and Commodities.

Trading securities involves high risks, with the potential for substantial loss of capital. Do not trade if you are NOT willing to risk up to all of your initial capital. Past performance is not always indicative of future results.


The AUD / CAD pair has been trending upward for more than 12 weeks. The pair is now approaching stiff resistance zone at 0.9850 – 0.9920. The weekly chart below shows price action over a 5-year time horizon. In July 2008, the pair advanced to the 0.9850 region (Top1) and then pulled back over 2600 pips! .The next advance topped out around the same region - just over 0.990 (Top2). After the 0.990 top in November 2009, prices declined temporarily and then started advancing again in June of 2010. AUD CAD is now approaching the same resistance zone with potential for a reversal and the formation of a “triple top”. A “triple top” usually precedes steep declines or a change in trend. Whatever the case (whether it declines or AUD CAD is at the cusp of a change in long term trend), the risk reward profile of this trade makes it a very attractive short candidate.

Trade Plan:

• Entry:

Short 2 Standard Lots of AUD / CAD following the price points below

- Sell 1 lot of AUD / CAD @ 0.990

- Sell the 2nd Lot of AUD / CAD @ 1.000

Average Entry Rate (if both entry points are triggered) = 0.950



AUD CAD has a $9.7 value per pip for each standard lot

• Exit / Trade Profit:

Using “last in, last out” technique.

Take Profit on 1 lot @ 0.8600 (1400 pip potential)

Take Profit on 2nd lot @ 0.8450 (1450 pip potential)

• Exit / Risk Control:

Stops for the 2 units should be placed at 1.0100 (- 150 pip potential).

• Trade Invalidation:

This trade should be canceled if prices dip below 0.93 before hitting our entry point.

The Japanese Yen: BOJ Intervention?

On July 22nd, I shared my "Buy analysis" of USD JPY at 86.93 and 85 on the argument that the Japanese economy and BOJ could not condone a stronger Yen for sustained period; and the Yen at the 85 , 86 level to the US dollar creates the risk of sovereign intervention. The Yen strengthened  to 85 against the US dollar and then more. I was rather surprised to see the Yen break 84.00 and that break triggered our stops to close that trade at a loss. Between July 22nd when I released the Yen analysis and now, the rhetoric from the Bank of Japan threatening intervention had been deafening but speculators kept pushing the Yen higher (USD JPY lower). Today, the Yen made a new 15 year high at around 82.87 against the US dollar and it seems the Japanese have just had enough of this Yen strength.  As I write, the Yen is being sold aggressively and i'm almost convinced the Japanese authorities are intervening.  I am looking for news from Finance Minister - Noda or the finance ministry to confirm rumours of intervention after which, I'll look for a pullback to get on the long side.

USD / JPY "Buy" Analysis @ 86.93

Eternal Market Analysis is NOT a trade alert service, does NOT trade or Manage Capital for third parties or on behalf of anyone. The purpose of this Blog is to share our analysis and view point on ETFs , Currencies, Stocks and Commodities.
Forex Trading involves high risks, with the potential for substantial loss of capital. Do not trade if you are NOT willing to risk up to all of your initial capital. Past performance is not always indicative of future results.


In March, I shared my USD / JPY “Buy” analysis that resulted in a loss. The trade triggered and we were stopped out within 4 hours on the infamous “fat finger” Thursday - when the Dow dropped 1000 points within a couple of trading hours. The trade experience is a reminder that trading or investing is NOT an activity of certainty but of probability. It also highlights the importance of risk control especially stop losses.

I have been monitoring price action in the USD JPY for months and believe it is time to start buying the US Dollar against the Japanese Yen again.

Fundamentals: The fundamental reasons for my "Buy" analysis back in March remains relevant.

• Interest rate expectations - While the United States Federal Reserve (Fed) maintains its position to keep rates low “for an extended period”, US rates will almost definitely rise faster than that of the Japanese. Like I wrote in March, the Bank of Japan still has to win the battle against deflation and so Japanese rates are staying low for a lot longer. The prospects of a widening interest rate gap calls for  a rise in USD JPY from current levels.

• Threat of Intervention – The export modeled Japanese economy cannot condone a strong Yen. Yen at the 86 level for a sustained period invites the threat of intervention or even intervention. I think intervention is very possible  on a dip below 85  as it will be devastating to exports. The USD YEN is currently trading at 86.87. From a risk reward standpoint, 86.87 is a good place to start buying this pair. The risk of a dip below 85 is low, and even if the BOJ doesn’t intervene, rumors of intervention will make traders uneasy and rightly so..Japan is one country that has successfully intervened to weaken its currency in the past.


Technicals: From a technical stand point, the chart below (weekly, 5 year); highlights the 5 – wave decline in USD / JPY from 124 in June of 2007 to just above 87 in January of 2009. Then the pair has consolidated within a range -  between the mid 80s and 95. The consolidation range bottoms out 86 (with spike low down to 84.91). The 85to 87 zone has served as solid horizontal support since January 2007 and is a good buying zone.

Trade Plan:

Buy 2 Standard Lot of USD JPY following the entry points below

Buy 1 lot of USD JPY @ 86.93 (current market price)

BUY 2nd lot of USD JPY @ 85.00 (if it falls that far).

1 standard lot, 1 pip = $10.08

If both entry points are hit, average entry will be 85.97



Risk Control:

Stops for all 2 lots should be at 84.40 (total risk potential of 313 pips)


Profit Targets:

First in, First out…

Sell 1 lot @ 97.00 (1007 pip potential)

Sell Final lot @ 99.00 (1600 pip potential).

Buy Analysis: FXB: - Long @ $135.00 and $125.00

FXB is an Exchange Traded Fund (ETF) that tracks the exchange rate of the British Pound relative to the United States Dollar. For more on ETFs, you can reference http://finance.yahoo.com/etf/education/02.


Analyzing a currency ETF can be done using  different media. My personal preference is to analyze the spot pair (note that the ETF – FXB is priced at 100 times multiple of the spot rate. For example, GBP –USD spot rate is currently $1.48, FXB is priced at $148.00).

In early 2008, GBP – USD spot FX was trading above $2.00. Then the recession, coupled with a debt ridden U.K economy pushed the Pound to historical lows - below $1.35 by early 2009 (see graph below – area shaded red). The selloff from July 2008 to the lows was impulsive , talk about "falling of the cliff"  but the selloff relented  at the $1.35 - $1.40 zone which is a solid support zone. After brief retracement off support to the $1.65 - $1.70 region, the pound has resumed its downtrend and looks poised to retest support at $1.35 - $1.40. I opine that the $1.35 - $1.40 support will impede the decline again and will be a good place to start buying either spot FX GBP-USD or as in our case, buy the FXB ETF @ $135.

Entry Strategy:

While support at the 1.35 – 1.40 zone is strong and may hold, there is significant probability that it (support) will eventually give way for a new low below $1.35. When you look at the selloff from the highs above $2.00 to the $1.35 lows (ref chart above), the subsequent retracement off the lows stalled below the 50% retracement mark. Using Fibonacci analysis, impulsive downside moves like that of the Pound to $1.35 is in many cases followed by a 50% - 61.8% retracement. For the $1.65 - $1.70 retracement to fall within the 50% - 61.8% range, the move to the downside has to be projected below $1.35 to about $1.24ish (FXB at $124). Our trade plan will take this scenario into account.


Trade Plan:

**This analysis becomes invalid if FXB rises beyond $160 prior to hitting our entry points**

Buy ½ position @ $135.00
Buy ½ position @ $125.00

**Average Entry at $130.00**
Stop Loss: $119.00

Profit Targets:
Sell ½ position @ $166.00, move stop loss on remaining balance to Break Even ($135.00)
Sell ½ position @ 175.00

Quote of the Day: What we do for ourselves dies with us. What we do for others and the world remains and is immortal.- Albert Pine

Investing: Doing it Yourself - Part 2

In part 1 of this series, I opined that “doing it yourself “investing is not for everyone. I gave a few tips on steps to take and questions to ask at each step that may provide helpful insight into whether self investing is best suited for you or not. You’ve asked the questions, answered them and now..You1; the new self investor is ready to invest. We left off with the question….. Now what do I invest in or what do I buy...Typical question for any investor especially beginners that don’t have a strategy or technique mastered for picking stocks, ETFs. Some people go with that gut feeling (not a good idea), some people invest in the company that currently employs them (this is some sort of quick subconscious valuation that carries a high risk - emotions attached). Now I’m tempted to dive straight into methods of stock valuation but before spending time on analysis, there is one vital step. You need to know what kind of investor you are.

Trader vs. Investor

Naturally, do you see things in the longer term rather than the shorter term or vice versa? Do you like graphs or love numbers and financial details?

Some people fancy investing for the longer term (more than 1 or 2 year). In this case, you are a probably what I call a “pure investor”. The “Buy and Hold” Breed.

For those that see things on a shorter term basis (months rather than years)? Then short term investing (Trading) might be your forte. In other words, shorter term investors are more or less Traders and will be referred to as traders in these series from now on. One thing, it is possible to invest using both long term and short term strategies and time frames but will leave this potential complication for much later.

Investors take positions (buy stocks) in publicly traded firms with the hope that the value of the stock will grow overtime but that’s not all, Investors also invest for dividends. They care less if the price rises $5.00 one month, falls $6.00 the next month and rises $1.00 and so on, they are looking at the long term and also satisfied with the quarterly dividends (if applicable). As an investor, you do your due diligence and “let it ride.”



Traders on the other hand, care less about dividends. Traders chase yield on the basis of shorter term price behavior. As a trader, you have to be tuned-in to event risk. Traders do the initial analysis and are also plugged into the day-to-day financial ripples related to the firm and also the general financial markets. For example, BP (British Petroleum) shares have fallen in price fairly significantly over the past 3 weeks. The fall was instigated by the oil spill in the Gulf and amplified by the Greek crisis (talk about a double wammy). A trader will want to be aware of this sort of short term events. An investor might take the view that…in the long term, BP is valued higher and regardless of how it behaves relating to the spill (which is short term), the price per share will be “x%” higher than were it is now let say in 2 years or 10 years. Many traders depend on Technical Analysis to help determine what to buy and when to buy while some others depend on Fundamentals. The next series will focus on these two distinct types of analysis.

Investing: Doing it Yourself - Part 1

This is the first of a multi-series piece focused on sharing my views on getting involved in Capital Markets  (specifically Stocks and ETFS) as a “do it yourself” investor / traders.
Many friends ask me….. “How do I start investing in Stocks, Can I invest without an adviser”? How do I know what to buy, when to buy?

Curiosity is the starting point and beyond the stage of the curious mind, you may want to ask yourself if you’ll like “self investing”. If you don’t like researching stocks or investing time in knowing more about valuing publicly traded firms then you may want to make sure you have a very trustworthy financial adviser and focus on other things you may enjoy. The truth is….it is NOT for everyone and being profitable requires due diligence. The only reason you’ll want to do your due diligence is …if you really start to like it because as a beginner, you probably have no history of success to serve as that extra factor of encouragement.

Now there are people that go through the initial soul searching and cannot say for certain if they want to become “do it yourself investors” or not. Perhaps you are in the middle, and thinking….”I may or may not like this stocks thing”. If you fall in this category, the best and surest way to get a certain answer is to commit a small amount of money (let’s say $250) to invest. Make sure you commit something you can lose. Starting the process encourages you to go on and try. Find a broker, open account, deposit your start up funds. Opening an online stock trading account is fairly straightforward.

- Selecting a Broker

Today, most Brokers are based online and in many cases, you can sign up for an account online, get approved and deposit funds in your account via ACH or Back wire all in a few minutes. Make sure you use a reputable Broker. There are many Brokers to choose from e.g Charles Schwab, TD Ameritrade, Trading Direct, Just2Trade and to my favorite…Scottstrade to name just a few. I personally like Scottrade because of their excellent customer service, reasonable cost (about $7.00 per trade to buy or sell) and for beginners, they also have local offices all over the United States where you can walk-in and get help from setting up your account to having basic account questions answered

There are several things to consider when selecting a Broker. Some Brokers are known for their low fees but have low quality analysis tools. Some have higher fees but have excellent stock screening tools, great customer service, first class charts and analysis tools. Some brokers require that you keep a minimum balance at all times, some want you to open with a minimum balance and your balance after that is up to you. Scottrade for example, has a $500 initial deposit and no account minimums after that. Some Brokers have inactivity fees while other do not. For a beginner, a broker with NO inactivity fees, NO account minimums, NO account maintenance fees, good to excellent analytical tools and commission fees below $10.00 per trade will be best. For a list of online brokers and how they rank under different categories (Commission, Customer Service, Speed of execution etc) check out Smart Money’s 2009 ranking at http://www.smartmoney.com/Investing/Stocks/SmartMoney-2009-Broker-Survey/


 - Now You’ve Selected a Broker


Now you’ve selected a broker and deposited some cash into your account and ready to buy “something”. Your level of interest should start to pick up           (I hope), now you’ll start trying to figure out what to buy. If this interest translates to you spending 1 – 2 hours over the weekend reading a little more about stocks, looking at recommendations, trying to find out more about a publicly traded firm etc then you’ll probably be a “long timer”. On the contrary, if after opening an account and funding it ,you’re still NOT inspired enough to have some interest , then it’s time to get off the fence and focus on forming a great relationship with your financial advisor I will guess you may not fit well into the “do it yourself investor” Category.

If you passed the first test, and you are itching to learn more, and want to invest your money, it is important to be patient! Patience is the first key word. There are few more things to throw in the mix while journeying towards the goal of your first trade. I recommend that you read part 2 of this series.

USD / JPY FORECAST - Rated "BUY"

Eternal Market Analysis is NOT a trade alert service, does NOT trade or Manage Capital for third parties or on behalf of anyone. The purpose of this Blog is to share our analysis and view point on ETFs , Currencies, Stocks and Commodities.



Forex Trading involves high risks, with the potential for substantial loss of capital. Do not trade if you are NOT willing to risk up to all of your initial capital. Past performance is not always indicative of future results.



USD / JPY has been in a downtrend since July of 2008 when it was trading at about 110YEN to the Dollar JPY. Today (after an impressive 2 - 3 day rally from 90.00), it trades at around 92.65. The Japanese Yen has a fairly high correlation to risk and the Japanese Yen (Not the US dollar) appreciates the most in times of risk aversion (Note that yen appreciation means lower USD / JPY since JPY is the non-base pair).

Perceived resolution to the Greek problem, continued US and worldwide equity strength, and a spike in yields helped USD JPY break the downward trend line that had contained gains for a several months (See graph below). The break in the said trend line was further confirmed by the daily close and a full day candle above the dominant downward trend line. In our view, this signals a shift in trend and we believe the trend in this pair has turned up.

From a fundamental perspective, it makes sense to expect the Japanese Yen to weaken against the US dollar (higher USD / JPY) for the following reasons

• Interest rate expectations for the US dollar compared to the Yen have turned up. In other words, rate and speed of monetary tightening in the US is greater than that of the Japanese. The Japanese are still battling deflationary pressures and tightening for Japan in further down the road (and probably a lot slower) compared to the US. The deflationary battle Japan faces is evidenced by the 1.2% drop in consumer prices yesterday (ref Bloomberg article @ http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a.UD0fLMEhJk). Furthermore, as the Yen weakens, the Japanese (export modeled economy) can sustain its recovery.

• Also, we’ve said that the USD / JPY has a high correlation to risk and if you think global recovery is underway, then it is reasonable to expect USD JPY to rise . We think a rise to the 100 mark in the coming months is not out of the question.



From a technical stand point, the daily chart (1 year) clearly shows the break out that occurred earlier this week. The expectation is for USD JPY to retrace down and possibly touch (and bounce off) the broken resistance line before continuing the move upward. Right now, a retest of the old resistance should result in a pull back to the 91.25 area (the longer it takes USD JPY to retrace, the steeper the retracement since we are dealing with a downward sloping line).





Trade Plan:

Buy 3 Standard Lots of USD JPY following the price points below

Buy 2 lots of USD JPY @ 91.40

BUY 1 lot of USD JPY @ 91.00 (if it falls that far).

1 standard lot, 1 pip = $10.08

Using “last in, last out” technique.



Sell 2 lots @ 97.00 (560 pip potential)



Sell Final lot @ 99.00 (800 pip potential)



Risk Control:

Stops for the 1st 2 units should be placed at 89.90 (- 150 pip potential).

Stops of the last units should be placed at 89.00 (- 200 pip potential).

AUD / NZD SHORT TRADE ANALYSIS

Earlier today, the Royal Bank of New Zealand's rate decision came in with no surprises. The RBNZ held rates at 2.50% in line with analyst expectations; the kiwi sold off against the US dollar right after the release. A few hours later, the scheduled Australian jobs data came in lower than expected with Australia only adding 400 jobs as opposed to a forecast of 15,000. AUS/USD sold off initially from around 0.9150 down to 0.9120 but reclaimed pre data levels a few minutes later.




In the meantime, AUD/NZD has been trading in “all time” high territory for a few days now. The Pair is currently trading above 1.30 with multi year highs just below 1.32

Fundamentals:

Australia has been benefiting from steady Chinese demand for its commodities over the past 12 months and that has helped the economy rebound strongly. On the other hand, there are reports and signs that the Chinese will begin to tighten monetary policy to combat inflation and avert bubbles. Two days ago, Chinese authorities signaled that they may let the Yuan appreciate (one way to combat inflation is via currency appreciation). Lastly, Chinese CPI and PPI data just hit the wires less than an hour ago and Core Inflation came in at 2.7% versus the 2.5% forecast. A slowdown in Chinese expansion will have a significant effect on the Aussie economy. Eternal Market Analysis believes the Aussie dollar will slow its pace of appreciation and probably pull back  (at least in the near term) especially against its antipodean counterpart - the Kiwi.



Technicals:

The probability of a short trade is enhanced when initiated at resistance…remember the old saying..”sell at resistance”. As I mentioned earlier AUD NZD is currently trading within solid resistance zone / multiyear highs.

In December of 2005, AUD NZD bounced off 1.0480 (point 1 on chart below) and started an uptrend that temporarily topped out at 1.2440 in July of 2006. The correction of the 1.0480 to 1.2440 advance exceeded the 61.8% retracement down to 1.0938 (point 3) – July 2007. The next wave up began off the 1.0938 level and made a new high around 1.2950 (point 4) in July of 2008.

The next wave down in AUD NZD from the July 2008 high was aggressive and coincided with the onset of the recession. The decline retraced over 100% of the advance from 1.0938 and bottomed out just above 1.06 . The advance from 1.06 puts us at the new highs set at around 1.31 (point 5) just a few days ago. AUD trades just above 1.3050  against NZD and we believe a “multi pip” retracement in just around the corner.

Also, we expect this retracement like others with this pair over the past 5 years to exceed at the 61.8% advance from 1.06 (which equals 1.16.)



Trade Plan:



Short 2 Standard Lots of AUD NZD @ 1.3080 & Short 3 Standard Lots of AUD NZD @ 1.3120 if prices advance that high again prior to the decline.

This will put a fully triggered trade @ 5 lots short at an average price of 1.3100

AUD NZD $ Value / pip = $7.00 for each lot

Stop Loss or Risk for this trade is 300 pips = 1.3400



Profit Target is as follows:

Using Last in, last out:

Target 1: Take profits on 2 units sold at 1.3080 at 1.2480 (600pips)

Target 2: Take profits on another 2 units at 1.2200 (900 pips)

Target 3; Take profit on 1 unit at 1.1599 (1501 pips)

Total pip potential = 3001 pips

Move stop loss to break even once initial profit target its hit.

Trade Analysis: BUY USD CAD @ 1.0420

The Canadian dollar is one of the currencies with the highest correlation with commodities especially oil.


Oil prices are trading just around $80.00 a barrel (NYMEX Crude). Eternal Market Analysis believes that Oil is trading very close to its projected 1st quarter high ($85.00). The expectation is for oil to decline below $75.00 in the coming weeks.

Early this morning, USD CAD was trading slightly north of 1.0550, Canadian data came out at 830EST with GDP matching estimates at 0.4% m/m, IPPI m/m beating estimates at 0.6% vs. -0.1% forecast . USD CAD dipped 130 pips to 1.0420 on the better than expected Canadian data and higher oil prices.

Support for USD CAD is strong between 1.0380 - 1.0400, also we expect a pull back in commodity currencies as the Greek uncertainty and renewed economic and political uncertainty in the UK continues to weigh on risk. In addition, we believe oil has made its high for the week this morning at $80.62 per barrel (NYMEX) and the inverse USD CAD to Oil correlation should result in USD CAD advancing (Canadian dollar weakness) in the coming days



Trade is to go long USD CAD here at 1.0420 with a 400 pip profit target of 1.0820. Stops should be placed at 1.0260 for a 160 pip risk.



BUY 2 Standard Lots of USD CAD @ 1.0420

Trade Tenure – 1 to 2 weeks

$ Value / pip = $9.5 per lot (X 2)

400 pips = $3,800 (Profit Potential) per lot (X 2)

160 pips = $1,520 (Risk) per lot (X 2)

Trade Analysis - Buy GBP/ AUD

The Australian economy was one the first major economies to come out of a recession. For the past 12 months, Australia has been reaping the fruits of the Chinese stimulus. The last unemployment figures blew away estimates (Australia added 35K jobs vs. 5K forecast). The UK on the other hand …not doing so well; On Feb 17th UK Job claimant count was released and in contrast to the story in Australia, the surprise was NOT pleasant. An additional 23,500 people in UK claimed unemployment benefits in February vs. a forecast of a drop of 10,000 claimants. Unemployment news highly impacts the perception of the health of any economy and little wonder the GBP / AUD pair languishes at multi year lows.


The GBP AUD chart below shows the relentless GBP selling against the Aussie Dollar over the past several months. You can also see that the pair sits on multi-year support between the 1.7175 and 1.7250 which presents a good risk/ reward trade. The spot price of GBP / AUD already reflects the divergence in economic performance of the two economies and interest rate expectations. Looking forward, UK CPI printed 3.50% (3.10% ex Food & Energy) in January (YOY) – beyond target. The hot CPI will begin to pressure the BOE to start thinking about wrestling inflation by raising interest rates. This will narrow the interest rate gap between the U.K and Australia.

It is important to note that the primary driver for this trade is technical. Weekly and daily charts show that the British Pound is thoroughly oversold against the Australian Dollar and we believe a short term correction is due (at the minimum).

Trade Plan:

Buy 1 lot @ market 1.7230

Target / Sell @ 1.7730 for a total  profit potential of + 500 pips @ $0.90 a pip = $450.00

Stop Order - 1.7090 (this is the risk on this trade  -160 pips, @ $0.90 a pip = $144.00 Risk)

Trade Tenure = 1 to 3 weeks

Trade Status = in progress

On a standard account (leveraged 1:100), 1 lot = $100,000 trade of GBP AUD @$0.90 per pip

GOLD RUSH

If we had Oscars for commodities, Gold will take home the “popular commodity” awards for 2009. Gold as an investment vehicle never has been so popular. TV ads, Radio shows, Billboards were filled (and still are) with advertisements touting Gold investment opportunities, pleas to buy Gold, or sell Gold. Why the sudden Gold rush?

Well, the answer is simple. The chart below shows the price action in spot Gold for the past 12 months. Jan 2009, Gold was trading just over $800.00 (per ounce) and by December of 2009, Gold was trading north of $1220 (per ounce):- a 50% move. Yes!, moves like this will get some attention but as impressive as a 50% move is, it is not enough by itself to cause a “rush” especially when the general market (S&P, DOW) rallied significantly within the same time frame. So what fanned the flames of Gold exaltations?

Beyond the obvious uptrend, reduced confidence in major currencies like the US dollar, Euro, and Yen due to bloated sovereign debts and faltering economies served as proverbial fuel to the Gold fire.

Today, Gold has pulled back from its late 2009 highs but it is still well north of $1000 mark and investors are still jumping on board. As I write this post, spot Gold bids at $1090…so should I jump in at these levels? The answer is NO!

If anything, on a short time frame, I will be shorting Gold at $1090 and looking to cover at $1020. Looking at the longer term picture, Gold is still a good buy but at lower levels. The chart below shows the marked buy zone which begins at the 50% retracement of the 2009 move up to $1220 and bottoms at the 61.8% fib retracement. I will buy ½ of my position at $1017 and the second ½ at about $970 for an average entry price of $993.50 targeting $1,400. I will update this post if the trade triggers so we can track the move on this blog.

How to trade Gold:

The most basic way to trade Gold is.. Buying and selling of new and used Gold jewelry whether at a pawn shop or Gold party (the latest Gold “Merchanting” technique). Eternal Market Analysis does not focus on physical buying, holding, or physically selling. I buy and sell Gold via my trading platform (spot Gold) which is one way active traders invest or trade Gold, currencies and other commodities. Another way to join the Gold play is to invest via ETFs. Many Gold ETFs track the price of Gold fairly well a list of Gold ETFS can be viewed at http://seekingalpha.com/article/139775-not-all-gold-etfs-are-created-equal. A third and my least favorite way to invest in Gold; is to invest in Gold mining firms. Whichever way you chose, you’ve got to know the spot price.

Proposed Regulation of Retail Forex

What a difference a year makes; this time last year, world economies and markets were still in the process of carving out a bottom, fear of job losses was rife, and uncertainty reigned supreme. While there is little basis for any end zone style celebration (especially with unemployment still at 10%), things have definitely improved and there is every reason to believe recovery is underway. Recovery cycles are often characterized by new legislative proposals, regulations and rules to control risks and avert the next crisis. Some of these regulations are effective - almost like aces (e.g. FDIC Insurance scheme) but others are unnecessary and sometimes counterproductive. The Jan 13th 2010 proposal to impose a 10-to-1 leverage limitation on U.S retail Forex accounts by the United States Commodity Futures Trading Commission (CFTC) definitely falls in the latter category. The good news is…the CFTC is actively seeking public comments on this proposal and I give CFTC Chairman; Gary Gensler credit for affording us (retail traders) the opportunity to present our view point.

According to the CFTC, The primary reason for the proposed 10-to-1 leverage limit is to further protect consumers against Forex fraud. An excerpt from the CFTC website (http://www.cftc.gov/newsroom/generalpressreleases/2010/pr5772-10.html) reads …“These proposed rules for retail foreign exchange trading are important steps in implementing the additional consumer protections authorized in the 2008 Farm Bill.”

In my view, the 10-to-1 leverage proposal is not only needless but will result in more dollars lost to fraudsters. It simply doesn’t address the issue of fraud.

Today (with the current 100-to-1 leverage), in a standard US retail account; to trade $100,000 of let’s say GBP/ USD, a consumer will need to commit $1,000.00 whether to a genuine trading platform / Investment Service or a fraudulent one. To trade $100,000 in a 10-to-1 leverage regime (as proposed by the CFTC), a consumer will need to commit $10,000.00. This leverage cap does nothing to police fraud or protect unsuspecting investors; instead, it increases the potential amount that will be lost to fraud per incident by tenfold.

The disadvantage of the 10-to-1 leverage proposal has the potential to do even further damage:



1. It will stunt the and even regress the growth of retail Forex industry in the United States; effectively threatening several thousand jobs when unemployment is already at 10%. Many jobs are supported by retail accounts and 10-to-1 will drive several traders out of the US Forex market.



2. When traders are driven out of the US Forex market, where will they go?...offshore of course! Many accounts will end up in the United Kingdom.

So readers, I have given my two cents but please make your position on this issue known to the CFTC by sending your comments to secretary@cftc.gov.