Friday, November 09, 2007

The Proof is in the Pudding

The phrase ‘The proof is in the pudding” is a shortened version of “the proof of the pudding is in the eating”. This phrase comes from an old parable where we are taught that the real proof is in the test. Last week I stepped out on a limb and stated that there was no real job growth that the non-farm payroll numbers were reflecting second jobs more than new jobs and more employment. I had a number of comments on this matter, many complimentary but there were some that weren’t confident in my analysis. To those who were not confident and to those who want a second serving, open up here comes the pudding.

First of all price, how can you argue with that. The dollar hit record or multiple year lows against the euro, the pound, the aussie, and the loonie (by lows I mean as compared to these currencies no forum posts pointing out the obvious record highs on some of these pairs, it was the dollar weakness or lows that caused it). If the economy were strengthening, GDP were truly rising, and new jobs were everywhere, would the dollar continue its collapse?

Second, Ben Bernanke backed me up yesterday, giving clear indications of economic slowing and probability of further more “severe” problems in the housing and credit markets’ already poor situation.

Not enough?

Third, and the one none can argue with, the actual data. Last week the non-farm payrolls report surprised everyone. Septembers new jobs were 110k new jobs, October was expected to be 82k but the report came in at 166k, 84k more jobs than was expected. The Burea of Labor and Statistics October report for multiple job holders over the age of 16 came in at 7852k (that is right a ‘k’ meaning thousands) which is up 231k from September (0.2% higher).

Now for some simple subtraction 166k new jobs minus 231k more people with multiple jobs equals -65k jobs or in other words, less total people are employed and more people are picking up second jobs. You may be thinking ah-ha I caught you Blake, they said that unemployment didn’t go up, true the percentage didn’t but the number of employed individuals went down 250K people in October. This is off 11k, but notice I said there were 250k less employed not 250 more filing for unemployment, that is a different number. Unemployment filings went up in October by 38k, not enough to change the 4.7 rate to 4.8.

Mmmm, tastes like pudding.

Suspended Account - I think not

If you have tried to stop here this week you may have been redirected saying the blog was suspended. Well, "they" can NEVER SILENCE THE TRUTH!!!

Oh wait, it was just a java script in the pivot point that was crashing. So no more pivot point calculator here and things should be fine again. I am writing a post similar to last week today so if you can suffer through a long post then come back later on.

Oh wait, before I stop for the moment, let me point something out to the nay say-ers. Remember the Gbp/Chf trade??? You may have forgot, it has been a month now. On October 4th I said that no comment was not a good thing out of England and it would hurt the pound and I liked the Swiss Franc as a counter part. A number of people questioned my logic and sanity in chats, emails, and phone calls. Well, this is just another one of those I was right situations isn't it? He He and Ha Ha, laugh my way to the bank.

Now were are we? At a support level. If we see consolidation or a bounce, get out. If we see a break of the 2.35 level hang on for a couple of more days to see where it goes. It took a month but for 500 pips, that is alright.

Friday, November 02, 2007

What really happened with nonfarm payroll?

This is a longer post but it needs to be said.

I have heard a lot of people questioning why the dollar weakened when the nonfarm payroll jobs data was so strong and such a positive surprise. You may find an article by John about the nonfarm payroll last month, interesting as well. In John's article the basic conclusion was the number is not just the number, we need to dive a little deeper.

To do this let me point out a couple of specific announcements from this week that tell a very interesting story.
First ADP gave a glimpse of up and coming nonfarm payroll with expected 60k actual a whopping 106k
Second annualized GDP q/q with expected at 3.1 and actual coming in at 3.8, healthy growth and a surprise.
Third nonfarm payroll expected 82k new jobs, actual 166k.

That is the positive I want to focus on. The neutral is unemployment rate, expected 4.7 and actual 4.7

With all of this good news, why did the dollar weaken and what is really happening with the economy. Keep all the above in mind and remember what you already know.

In case you don't know what you already know, let me remind you. You know that the economy appears to be slowing (in spite of the above information), you know that the housing market is collapsing and you know that there is a significant credit crunch. You may be thinking, "yeah and..." Well let me give you a couple of additional numbers also from this week.

Fourth, Interest rate decision cut to 4.5 as expected (sign of slowing econo-credi-housing industry needing a boost)
Fifth, Personal spending expected 0.4% actual 0.3%.
Sixth, Average Hourly Earnings expected 0.3% actual 0.2%

OK, so with what you already knew, we added 3 positive surprises, 1 neutral, and 3 negative surprises. Those all should cancel out and we should be able to just go with what we know right? Maybe.

Let me paint a picture: Bob Jones is an average guy with an average job that last year decided to buy an above average cost house (market conditions last year) with a below average (subprime) loan just like the average Joe.

He has one of these ALT A subprime loans. This loan not only doesn't require any principle paid but has a variable minimum payment very similar to a credit card payment. His intent, like the average Joe, is to make the minimum payment and invest the rest. Like an average Joe, this didn't actually happen (see articles with titles like, "Falling into the Real Estate Trap", "I'll Invest the Payment I Would Have Made and Other Lies We Tell Ourselves", and "Real Estate's Sucker Bets").

Bob buys his $300,000 house with a monthly minimum payment of $700. The payment on a normal amortizing loan would have been $1700 and the interest on this payment would have accounted for $1300 of that payment in the first year. During the first year Bob only makes the minimum payment, makes no extra payment and invests no money. The amount of accrued interest equates to $7200 for the year and is added, compounding each day, to his $300,000 principle balance.

Because of the credit crunch, Bob's minimum payment jumps to $1400 (still no principle payment) and he decides the payment is getting too rich for his blood. The housing market around the United States has corrected/dropped 15% on average (some places less some places much much more) making the market value for his house $255k. He owes 307,200. What are his choices? Under new bankruptcy laws he can't just walk away from his negative equity. He could sell it for a loss and negotiate payments on the $52,200 or he can try to continue to make the payments. What to do what to do? I know, get a second job.

Bob goes and finds a second job. What are second jobs usually? Usually a second job is a job that is not in a "professional field" that is why they call it a second job. Second jobs usually pay less than principle jobs. Where do you find a second job easily? The service industry (retail, sales, construction, food, grocery, etc). Which sector contributed most to this month's nonfarm payroll? Service...hmmm...a connection?

So more people get second jobs, more service jobs are created, we see that in the numbers. Do we see more spendable income? No, less consumer spending, where is the money going, to pay for our over leverage debt ridden society. Average hourly rate goes down, due to second jobs (primary job pays $20 an hour second job pays $10 for 20 hours a week, average hourly? $16.66, lower average hourly rate). Production goes up (GDP) because everyone has second jobs and are working more. This is not good job growth, it is not good GDP growth because all of the growth and improvement is being spent on keeping the econo-credi-housing industry's head above water via paying our outlandish credit payments on the exorbitant debt.

Did I miss anything? I don't think I did. Basically, as a society we are scrambling not to lose our homes that are upside down because we would rather do that than pay for something we don't own and yet 1 out of 65 homes in Nevada are in forclosure (3% of all homes in Las Vegas are in foreclosure) so we still aren't doing that well at it.

Conclusion, the jobs data was great data if you understand it wasn't positive for the economy, in fact it was similar to a drowning man's head coming above water for the third time(maybe only the second time).

The moral of the story, stay out of debt and sell the US dollar.

Wednesday, October 31, 2007

Scared out of the USD/CAD trade?

I told you I tightened my stop and my limit and today I was limited out of my trade at .9450 for a total gain of 551 pips. The pip value had an average value of about $1.02 so we gained 563.70 minus a little interest of $13.70 so we netted $550 and the trade lasted 27 days (sold the pair on October 4th at 7:24am). So here is the big question. Were you patient enough to trade this trade? Were you willing to risk $80-$100 to make $550 and sit on the trade for 3 almost 4 weeks? Were your stops too tight and you got stopped out. Did you get bored and walk away from the trade early? Did I get out too soon? Do I like using question marks? Well do I???????????

Happy Halloween everyone.

Tuesday, October 30, 2007

On a related note.

Usd/Cad up against support now as we see oil possibly rolling over. Remember that a sell off in oil will jointly hurt the USD and the CAD. Why you may ask? Canada exports a lot of oil, falling oil prices will reduce the amount of oil being purchased, therefore less demand for Canadian dollars as the prices fall. Oh but wait, oil is denominated in the USD, the oil standard currency. So if less oil is being purchased or even shorted, the dollar will feel this as well. What does this mean? Who will take the bigger hit? The CAD should take the bigger hit but the pair should become more volatile if there is more profit taking. CAD due to falling oil prices, USD due to falling demand of the currency that dominated or denominates oil prices. Higher volatility with oil prices, higher volatility with FOMC talks tomorrow. Watch for the pull back.

Oil also has a lovely divergence formed today. I believe this last push was likely an over extension of the oil prices, making me believe oil should pull back near $90 a barrel over the next day or so if not $87.5o. I could be wrong and oil could find support, kill the chance for a bearish divergence to play out and move to $95 but.....I am not holding my breath. If oil drops, expect that GBP/CHF trade to play out. I think we could see this pair finally move with the pressure it is under, it has to break sometime.

Usd/Cad resistance levels?

I had a question of where I see resistance for potential sell or add points for the USD/CAD as the negative news from the FOMC tomorrow may see some volatility but no real trend reversal. Here is what I see.

Short term resistance at or near .9700
Next level resistance at or near .9810ish
Most significant level of resistance 1.0000

These are not guaranteed but I certainly feel that the trend, the fundamentals and the monetary policy of rate cutting will keep the downward pressure on the USD/CAD.

I also like the idea of playing the CAD/JPY long as the USD/JPY is having trouble going beyond the 114 mark. If the USD can maintain strength and support versus the JPY and the CAD is stronger than the USD, I like the CAD/JPY long positions (include the AUD/JPY with similar analysis of the AUD to the USD to the JPY)

Monday, October 29, 2007

I didn't like that picture

So here is a new picture that goes in to my profile. We took it a few weeks ago with family pictures up the canyon by the river with all the amazing fall colors (though you can't see that in this picture.
I am tightening my stop and my limit on the USD/CAD. Stop now at .9620 and limit now at .9450, I may change this to .9500 to book these profits. As I said before, I am expecting some volatility over the next couple of days.

Great move by the CAD and upcoming Fed Announcment

The USD/CAD pushed to record lows again today. I hope some, if not all of you are still in the trade. The money I manage is still enjoying a great run on this pair and will account for nearly a 10% move on the entire balance for the month. I'm good with that.

Now the concerns, the Fed announces rate decisions this week and my anticipation is obviously a rate cut, me and the rest of the bond commnunity. If you want a glipse of what is coming based on the bond trader's perspective (which I might add is very effective), check the CBOT for the 30 day fed funds rate.

07Oct 95.2550 4 3/4%
07Nov 95.4900 4 1/2%
07Dec 95.6100 4 3/8%
08Jan 95.6650 4 3/8%
08Feb 95.7900 4 3/16%
08Mar 95.8350 4 3/16%
08Apr 95.8950 4 1/8%
08May 95.9600 4 %

The Fed cuts rates in 1/4% or 25 basis point increments. With that in mind the expected rate should be near 4 1/4% by first quarter next year. We are not dealing with just one rate cut but many.

This should all mean weaker dollar but I am expecting some volatile times over the next 2 weeks, possibly volatile like August and September again.

Two choices: Keep your stops really loose so you can ride out the storm and stick with the bigger trend or tighten your stops, get stopped out of your trades and wait for the wind to stop blowing. If you are more agressive, there could be a lot of scalp/intraday trades with the potential volatility.

Side note, GBP/CHF is still channeling in the same rough range.

Thursday, October 25, 2007

When is the end of this scalp trade?

Watch for the down trend to end? Simple enough right? Wrong? Which down trend? The fib fan line? The longer term trend line? Here are the lines I am watching right now.

A continuation here is expected but a strong support lies at .9630. A sold resistance sits near .9700 and the longer term resistance stands at .9800. Keeping with the terminology here, put your trade to rest at support where it lies. Sit tight at the intermediate resistance and stand and run away if we break above the .9800 from along term point of view (or stand firm at .9800 for another selling opportunity, whatever you like best there).

This is a fun little exercise of analyzing a short term trade. The way I look at trading in general is this... it took me as much money in spread and even more time, focus and energy to trade this scalp as it did the trade I shorted at 1.0000 a few weeks ago. So for my time, focus and energy, and really for my money, I'll go with the long term trade. Some of these will line up in the future as this has but I won't be discussing them nearly as much.

Rocky VI - "Never Say Brain Damage"

He's he's up... he's down. The Usd has taken it's lumps over the past weeks and like a tough hardened boxer...he doesn't know when to stay down. And you thought I would say something about it being strong and never ending just too many hits to the head to know better. So the USD/CAD has been down and up and down and up again over the past 3 days. A break and close above the .9670 mark would make me think a move back to .9710 would be very likely. Another bounce and I think we could see the break below .9620 which has acted as support at least 4 times already.

Wednesday, October 24, 2007

What did I tell you?

It is question day here at Random Acts. I feel like I am giving out all the generic chastisements. First what do you want and now what did I tell you? So what did I tell you? I told you to sell the Usd/Cad about 4 1/2 hours ago at a price near .9720 for a scalp trade. The price is now at .9688. If you listened and followed the trade you have two choices. One get out near .9680 for a quick 40 pip trade or if it moves through .9670 hold on to it for a move down toward .9615-ish by sometime tonight or early morning tomorrow. It could happen quicker but it is hard to predict both price and time of day.

In essence I am watching for the cross below the fib fan for a continuation and a move down to a collision of longer term trend lines and older fib fan lines as the next target. If it bounces here, I would consider an exit of the scalp trade.

Longer term traders following the previous posts, disregard this post. This is a scalp trade. Don't confuse the two.

What do you want?

So here is the question of the day, I would like responses in the comments, as many as you would like to place is fine, anonymous or otherwise. What would you like to see here. I am going to continue to add my trades and my analysis, but what is it that interests you as a individuals and as a group?

Are you interested in the in depth fundamental pontifications like the deciphering of the BoE? Pure technical trades? Scalp-ish trades ?( I usually won't post too much that way but sell the USD/CAD today off the .9720 level). Longer term trades like I usually look at?(5 weeks on the 2 trades we are in for a lovely profit right now). Wise cracks with pertinent commentary? (I like doing that but some don't like reading it)

What do you want? Post it the comments please.

and Thank You

Wednesday, October 17, 2007

Deciphering the Bank of England

The Bank of England released the minutes I have been waiting for. What could all of this mean? If you want to read it yourself, go to the Bank of England site at and then click on minutes. Or you can read this highly informative and even higherly (new word) biased view of the minutes.

Information item #1: The Bank of England (BoE) voted 8 to 1 to leave rates alone. If you were to read this, your first thought may be to assume that this is very bullish for the GBP for the fact they were so united (there is always one rebel mixing things up). But to know why they voted to leave it the same is even more important.

Information item #2: The BoE said, "The preparation of the November Inflation Report and its projections would give the Committee more opportunity both to assess the impact of market turbulence and other developments in order to reach a more considered judgement and to explain its policy stance." -Translation: We need more information so we can make an informed decision. In fact in the minutes they specifically said they wanted more time and information before they take a rate cut. No discussion of leaving it long term, no discussion of raising rates, just timing a cut.

Information item #3: CPI has now reported in under 2% for 3 months now. This is not growth, this is slowing to a point that is teetering on recessionary if the CPI can bleed into GDP.

Information item #4: The BoE said, "It was possible that a cut in rates this month could be misinterpreted as a signal that monetary policy was focused on supporting the financial system and not on meeting the inflation target." - Translation: We wanted to cut rates because we thought it would be a good thing but we were afraid that it cause a misdirected focus on the balancing act we have to follow as the BoE, hence the "No Comment" two weeks ago.

Information item #5: The BoE said, "A reduction in Bank Rate this month was not widely expected. There was a danger that such action would be misinterpreted as a signal that the outlook for growth and inflation had shifted decisively to the downside." -Translation: The market didn't expect it and this would have been a huge shock, so we didn't do it. Note, the outlook for growth and inflation has shifted decisively to the downside.

Information item #6: Oil record highs, from August 1, crude oil has risen 13%. The GBP/USD is no higher today than it was on August 1. If 10% of what drives this economy growing at 13% can't help the GBP what can. Dive a little deeper, if you assume that oil prices account for 10% of GDP for the GBP and oil prices have risen from 40% since January 1, near $55 at the beginning of the year to $87 a barrel, then there should be a similar move in the GBP. Just in the past 2 months the 13% would equate to 1.3% growth of GDP based on oil alone. GDP for the entire quarter reported in September was 0.8% and expected to come in at .7% for the October quarter over quarter report. Take out oil growth and what do we have? 90% of the GDP is shrinking or decreasing by roughly .5%. Two quarters of negative GDP is considered a recession.

On the surface it appears there is growth and concern about inflation. Diving deeper, adjusting for climbing oil prices, the British economy may be in a hidden recession. What do I expect...weakening pound. This is why I still would expect a GBP/AUD short to play out if time right, a EUR/GBP long trade if timed right, and the GBP/CHF trade as referenced earlier in this blog to play out.

~~note: anything underlined in this blog is a hyperlink to view more information.~

Tuesday, October 16, 2007

Leverage and Margin Examples

My friend posted a great video on explaining leverage and margin and common pitfalls. Here is the link to view the video.

So when you are thinking of Leverage And Margin Examples or of my friend John, just remember this handy acronym---LAME

You are my hero John.

~~~It appears that many of you felt my playful jab at my friend was an indication of the video. The video is very informative and not really lame, it was a joke, I was laughing anyway. I don't know if John was, maybe I was the only one... oh well live and learn and learn some more. Go watch the video by clicking the underlined link above.

Big winner and another chance?

A few weeks ago, I published a trade with both the spot market and the CDD ISE options looking for a bounce off of the 1.00 mark for the USD/CAD. If you would have bought the 100 November puts as described in the post, your position would have moved from 1.35 to 2.45. You would have had a maximum risk if $135 per contract and based on your risk you would be up $110 or 81% return on your maximum risk. Not too shabby. The spot market, if sold at 1.00 would be up $220 with variable risk available based on where a trader determined was the appropriate stop loss. Does this sound like you? "I frequently am right about direction but get stopped out of my trades." If so, lean to the options, if you are frequently right and don't get stopped out, go with the spot. If you are frequently wrong and always get stopped out, please send check to Blake Young's Tahiti trip fund, this way at least one of us will get benefit from your money.

I hear it frequently, if you set your stops too tight, start looking at these options, if you are giving yourself enough room in your trades, the spot usually makes them most sense and money.

Today, what are we looking at? The USD/CAD has pulled back to a short term resistance level. The pair has not moved a lot when it probably should have. So here is the trade and the fundatechnimentals behind it. Oil- record highs, should benefit the CAD. No rate change from the BoC, this is better than the FOMC cutting rates, should benefit the CAD. TIC data for the US not only didn't show the expected $60 Billion of foreign investments coming in to the US but showed a withdraw or fleeing of $69 Billion in foreign monies, bad for the US dollar.

No significant move from the pair, this could be a chance to sell will minimal risk or buy in to the CDD put. I like the December 97.50 put for $1.35 or $135 per contract. Fixed risk lots of potential 8 weeks of time to play with. The USD/CAD would probably need a little wider stop on this one 99.15 or even back above the $1.00 mark. Pick your poison.

Thursday, October 04, 2007


OK, think this through with me. When is the last time on television or radio or in the newspaper, any where for that matter, you heard the phrase "No Comment". Now, when is the last time you hear the phrase "No Comment" and that was a good thing? Let's imagine..."You just won the Superbowl, what are you going to do now...(reply) No Comment"..."Oooohhh, how cute, congratulations on the birth of your new baby...(reply) No Comment"...Doctor Rosen Rosen invented a cure for cancer and won the nobel peace prize and as he goes up to the podium he modestly says, "No Comment."...

None of that makes sense. The term "No Comment" is primarily reserved for the accused, politicians, and attorneys (just typing that makes me realize those three groups share a similar lack of scruples) or someone that is hiding terrible news.

This morning at 7am Eastern, the Bank of England left rates unchanged and said, "NO COMMENT". What is the likelihood that it was No Comment because they didn't want the world to know that it was a unanimous vote to leave rates unchanged, they didn't want to tell the world how great the British economy is doing or they had no concerns of the credit crunch and housing market? Could it be they left a no comment because they are concerned about how bad the news is and how much it would shock their currency if they exposed the whole truth of their decisions (minutes will be released on October 17th). I am betting on the second and I am a little surprised that the world market didn't read between the lines on this one. Lots of bad news and a weakening pound but No Comment must have been because they were tired and didn't want to say anything today.

Looking at the previous blog on why I thought the pound should weaken and why we should have heard dovish comments out of the Bank of England, I began my search for the right pair to trade and I found it in a peculiar place. I found it on the Gbp/Chf. This is not necessarily because I think this will be the most profitable trade, more that it is one of the easiest pairs to analyze and control risk. In the chart you can see a nice down trend over the past couple of months with an approach and likely bounce off of resistance.

Risk can be controlled with a 200 pips stop and a potential reward of nearly 500 pips if not more. As time goes on and if the lower trend line is reached, the lower trend line could be as low as 2.32 for a 750 pip move.

The problem with this trade is that the CHF is a weak currency. The benefit is, if I am right about the GBP, the minutes will reveal the dovish sentiment and further unwind "carry trade" pairs including the GBP/CHF pair.

Tuesday, October 02, 2007

Falling Ethanol, Diverging Oil, and the pound getting pounded...Maybe?

I am going to make this a brief analysis and looking at 3 correlations occurring right now. Starting with Ethanol, Ethanol is a corn based fuel that acts as a direct substitute for oil based products. Looking at the December 2007 CBOT Ethanol Futures, there are two things to note. First note, a high point in March/April time frame and second, a consistent downtrend to today.

If the demand is decreasing for the primary substitute for oil, this causes me to believe the demand in general has been falling recently for oil. What has oil been doing in the time from March until now? Climbing, surprisingly enough.

Oil has climbed up and hit record highs over the past couple of weeks. If you look at the price at the pump, at least here, retail gas has not increased while oil has climbed up approximately 26% or climbed from $65 to $82.50 a barrel. Retail prices should have increased by about the same or higher. Why hasn't it? No increased demand while price is rising. This is a divergence in the inter-market analysis.

As seen in this image, both the CCI and the RSI (differing times) are diverging from the price. In most cases the price snaps back in line with the indicator, if this is one of those times, I would expect oil to fall.

The pound has not really benefited as of late on such a significant move on oil. Why? Possibly the concern of the housing market, slowing global economy, maybe the fact that the price is going up but demand is not means less purchases from British Petroleum.

Now what does that have to do with anything going on right now? This week we are going to hear the Bank of England rate decision. If I my assumption of slowing demand and increasing price is correct, the lower than expected trade balance we saw 3 weeks ago from Britain would be correct. If the GDP is slow, PPI has been low and housing is still struggling than the economy is not growing enough to be concerned about inflation. Sound familiar? It should, this is not far off from what the FOMC was looking at, slowing economy, inflation not as much of a concern as housing and BLAMMO, a rate cut.

I don't expect a rate cut from the B of E, but I wouldn't be surprised if they became very dovish in the comments which could weaken the pair near a resistance level. Look for a short oportunity, not necessarily against the USD but maybe against the AUD or the EUR or the CAD or anything that has shown recent strength. You have between now and Wednesday night (US Wednesday Night) to find a good risk position...

...or what about an option on the BPX?

How did you know?

I received an email this morning asking how I knew not to chase the USD/CAD and that it would retrace early in the week to test 1.00. Simple, buy good hardware.

Remember the 1.00 is a strong psychological barrier and likely will hold. At this point simply watch for it to stop going up, look for a peak with low risk and trade.

Thursday, September 27, 2007

$40 billion for swimming lessons

I compared the move by the fed to dump $40 BILLION into the market to add liquidity like having 3 drowning people in shark infested water. The housing market, the economy and the dollar are all drowning simultaneously, offering $40 BILLION in essence has the housing market and the economy trying to climb on top of the dollar to keep from drowning. Not only does this force the dollar to drown quicker but the life saving benefit is so temporary only offering maybe one or two more breaths for the two at the expense of the third. In the end, if nothing or no one can save the three of them, they will all suffer a similar watery, shark bate-y death.

You would think for $40 billion you could buy some pretty sweet swim lessons. Watch the fed with the $40 billion in swim lessons below.

"So, how do you like my swimming?"


I am very torn on this trade. We discussed the USD/CAD from the view that it could be in a bear flag but I expected a bigger move to the top side. Well it broke out of the bear flag we were watching and bounced off the 1.0000 level, proving a worthy foe to my bearish stance. Now that it has bounced, what do I really expect? A retest, maybe. A break down, probable. A bullish run, not likely but possible.

The interesting thing about this trade is that even though the price has dropped nearly 40 pips from yesterday, our put doesn't really cost us anymore than what we were looking at. So there is the dilemma. Do I take a short position now or wait for a bounce higher. I favor a bounce higher, this bear flag confirmation with a bounce off of the 1.000 level is exactly why I don't like trading break outs. I like selling resistances. The put would allow me to just buy the put, take the same basic trade, allow it to run for nearly 8 weeks with no more worry than a 150 pip stop max. That is very promising but now I have to wait until the morning to buy my put.

Fundamentally, New Homes came in worse than expected and the Fed dumped 40 billion on the market, both should have trounced the dollar, but instead the dollar held it's fleeting foothold. Tomorrow GDP for the CAD comes out, I wouldn't be surprised by a better than expected GDP and a worse than expected on the CPI from the USD both potential catalysts to break this pair out for another run, to be seen in the morning. If you are going to trade the put you will have to be right at your computer when the market opens, if you are trading the spot, watch for a retest near 1.0060ish.

Wednesday, September 26, 2007

No registration necessary

I have removed the need to register to add comments. This is for all you "anonymous" types, you know the kind that like to make anonymous phone calls, anonymous letters, anonymous subscriptions. You know who you are. At least now you have one more outlet to hide your identity yet let your voice be heard.

Just click on comment, write up your comment, and submit. Don't be shy and don't be over sensitive.

Longer term fib fans and estimated times to sell UsdCad

So here are the slightly longer term fib fans I am watching. How close are your line's to mine? Trade yours, not mine, yours will be more accurate for your trading.
I changed this to an 8 hour candle so the image is more visible but let me tell you the times that these fan lines cross the resistance levels as potential times and levels to sell into this trade.
The times I see on the 2 hour chart show 8am Eastern tomorrow morning at a price near 1.0100. The next cross happens at the same time, 8 am Eastern on October 1st (Monday morning). How predictive will these be. Are you feeling brave or disciplined enough to buy it now with the hopes or expectations of the price going up to 1.0100 by tomorrow morning.
I want you to be disciplined and not brave and I want you to be expecting the specific move and not hoping. Yes there is a difference. I personally am willing to wait until it gets up a little higher and then trade it rather than taking the short term trade. If you drop it down to an hourly chart there is plenty of opportunity to trade this in the channel, just make sure you are getting out of the trade at the right time.

Predictive power of forex options

The price has remained fairly stale in the past 18 hours. This doesn't mean there aren't some messages being put together in the mean time. First look at the changes in the price and where it to and returned to. What does that mean? The price has pushed beyond our short term fib fan line, a longer term fib fan puts resistance levels meeting fan lines near 1.01 and 1.02. Try it yourself and see if you get similar levels, I will post my long term fibs later.
If the bear flag confirms as indicated by the yellow line, 0.9750 is a fairly easy target that could play out in a matter of a couple of days. I have commented to those I work with a number of times that I think the Usd/Cad could trade in this range for most of the week or longer. So far so good. This leads me back to the idea of using an option trade. Before we get into the intricacy of option pricing, note that the at the money, and you can't get much more at the money than one one hundredth of a penny, is the same for both the November 100.50 call and put.
Call Bid Ask Put Bid Ask
CNJKA 1.35 1.50 CNJWA 1.35 1.50
So the 'at the money' costs the same. In theory the market has it priced equally the same risk wise. This is true but not not true. Looking a little deeper at the implied volatility shows nearly double the implied volatility on the puts than on the calls. This is not normal. The open interest is 8 times more on the call options too. How can implied volatility be higher and not price for the same options. I like the idea of selling a call or buying a put. What are your thoughts. Put them in the comments.

Tuesday, September 25, 2007

It's the CAD or the CDD

The chart was the Usd/Cad intra-day. As you can see I told you not to chase the trade because I expected it to come back up. Because it has come back up, is there a buy or a sell in this trade. I don't think we have seen any reason to be looking for a long trade on this pair. It is a pull back that can make money management difficult but could be a great longer term trade. How far will it pull back? Since I did this screen shot the price has risen back to 1.0035 and is still climbing slowly. I would like to sell this again but at the right time. Maybe near 1.0050 or 1.0075 but I wouldn't be surprised with a pull back to 1.0100 or even 1.0200. I seriously doubt a move to 1.03 before a drop.

So here is the trade I am looking at...a put on November 100.00 CDD. What is that? CDD is the International Security Exchange (ISE) option that trade the major currency pair. As you can see on the daily charts of the CDD, the price is in line with the spot market. The stochastic is possibly setting up for a short term divergence to sell of this pair. The advantage of the CDD over the spot market in this situation is being able to sell with a max loss, similar to a stop loss but the price can move beyond a traditional spot stop loss and still come back down and make you money as it move toward your price.
Currently the price is sitting at 1.0040, as I type the price is rising slightly, if I sold the pair now in the spot market with 150 pip stop, the pair could move to 1.0200 and push 10 pips past your trade and then move all the way back down and through the key 1.000 mark and potentially down to 0.9800 or lower.
For the CDD position, first let's recognize that the 1.35 price of the 100.00 put will cost $135 per contract because we buy them in 100 unit contracts. So when I reference pennies and dollars on the options contract, multiply it by 100 to get the per contract value. Now, let's use the 100.00 put this is the same as the 1.0000 price level on the spot market. If my anticipation is that it could go down to .9800 the value of the put at expiration in November could be worth 2.00.
The difference between the purchase (1.35 for the November 100 put) and the estimated value at expiration is only .65. That may not sound that great, but remember I am saying at expiration it would be worth that. Hopefully as it nears your limit you will step out with more than the 2.00 per option price. If you set this up as a bear put spread and sold the 98 put and bought the 100 put, the net difference of the spread is a cost of .85 with a max gain potential of 1.15. It nearly doubles the expected gains but it does cap the trade on both sides.
Max loss .85 (similar to a 85 pip stop but it can go beyond the level without getting stopped out) and a great target. Take a look at the prices here and we will watch this trade over the next couple of weeks. We will track it both as a spot trade and an option trade to measure both risk and reward for both trade potentials.
Good luck, more tomorrow.

Come on now, be brave, we're all friends here.

Answer the poll and put in comments. What would you do with this chart. I am going to put together an option trade in the next few minutes but I want your views and comments.

Can you guess what this is?

What chart is this? How would you play it? What does it mean in the short term? What does it mean in the long term?

Friday, September 21, 2007

Break and test

The Usd/Cad did what I said I thought it would yesterday, it bounced a number of times off of the 1.0000 range and then broke and has come up to test that level as resistance. It may be a little early to tell as we could see further consolidation near the 1.0000 level but it is responding as one would expect and a sell near here could be a good play. The big question I have is whether the divergence in oil will confirm and bleed down into the GBP and CAD trades as oil readjusts.

Another great article today by John on the divergence in oil is available. To see it, go here.

Thursday, September 20, 2007

Don't Chase It

I posted this image a while back in the blog, I wanted to find a picture of a little fat kid chasing the bus and having his friends laugh, but because my mom loved me enough she didn't take pictures liked that.
The Usd/Cad is very likely a school bus. If you missed it, don't chase it. I think there is a very good chance that we see a bounce, a psychological bounce, here at the 1.00 level. Even if I am surprised and it breaks through to 0.9800 then I still would expect a pull back to the 1.00 level as a retest of the psychological level. Either way a bounce could be a better sell opportunity and a break would put still give you a chance to short this near 1.00 again. I personally am trying to decide to exit and take the profits. Decision made. Stepping to the side and watching for a bounce or a break and retest.

PARITY!!! PARITY!!! PARITY!!! (yell this like your yelling sanctuary)

We have hit it at last, parity for the USD/CAD. The low in the last hour reached .9998. Let us review the last week and then what that means. I was looking at the pair last week and even prepared an image on the 12th to discuss that this was going to be the run down to parity. Too bad I didn't get this posted then. As you may be able to tell, I got in the trade at about 1.0480. Not too shabby. Today the pair is just a continuation of that move. Rather than looking at the daily candles showing you the last week of the price dropping, here is the intraday chart looking at the hour candles so you can see the magic of hitting the $1=$1 mark for the pair...a moment of silence if you don't mind... Ok that is enough, back to work.
What does it mean? Why have I had a focus on this level? Why can't I think of anything witty to say? The whole world is full of puzzling dilemmas today.
Here is a historic perspective and a trivia question that will make you look smart at the water cooler or your next dinner party. When was the last time the USD and the CAD were at parity? Many of you may be saying never, you're wrong. It was 1976. Now I need you to start thinking of what was happening during the mid to late 70s. If you are not old enough or informed enough, let me help you. The mid to late 70s were riddled with high inflation, high gas prices, high interest rates and rising unemployment. Could we be heading toward similar times? Let's see, inflation and commodities are high, check. Oil is near record highs as well as gas, check. Interest rates were cut by the fed by home interest rates are on the rise, check. Unemployment...we are still OK but we did see our first layoffs in the non Farm payroll numbers this past month. hmmmm interesting.
What does the future hold, short term doesn't look so bright. Future could be "totally awesome to the max." More on that in my next post.

Tuesday, September 18, 2007

Great information and big day today

I was watching my good friend, John's, video post today and thought all of you should take the time to go and view it, if you haven't already.

Watch this about trading options and today's 50 bpp cut by the fed.

Also, I made some good returns today but now I am watching for an add position and new position on many trades, especially the carry-ish trades. Keep an eye for pull backs to key positions and then watch for a couple of longer term trades.

Wednesday, August 22, 2007

...Hello Friends, the game continues...

I have been away on vacation last week and out at a conference this week. I am back in the saddle and things are looking great. Could I have taken a better time for vacation, I think not. I got stopped out of 2 trades with reasonable losses and then haven't got back in to chase this volatility. After these past 2 weeks, I have looked at the fundamentals and the fundamentals have not changed the overall trends we have been watching. Prices appear to be testing similar channels or echo channels as I have called them in the past, still matching up to longer term support and resistance. Look at the 5 year charts on about any pair and determine your trend from the long long term view, if you see the same trends I do, then you will see great longer term opportunities setting up over the next couple of days.

I hope your accounts are doing ok with all the excitement.

Wednesday, August 08, 2007

How do you like them apples?

I said that the 100.75 to the 101.25 range was a good time to buy. The Aud/Jpy is playing well off of the support as the trend continues from prior. If you got in mid point you should be up about 240 pips as of today. Not too shabby for a few minutes of reading.

Now with the USD/CAD. I have been pro Canadian for months now and the pull back has played out well. We talked about selling off on August 1st, price was near 1.0600 but I didn't get any graphs posted. Now we have had a good move and a pull back. I think 1.05 is a good resistance and shorting point. 1.0630 is the next resistance level with some wiggle room to watch out for. We may see some consolidation and slowing near 1.0400 and again near 1.0350. If we can clear these levels, the 1.02 and even parity is possible. This graph is a 4 hour chart.

Gbp/Nzd is close.

Tuesday, August 07, 2007

Pivot Points and the Gbp/Nzd

I found a pivot point calculator as a widget I could install. What I like about pivots is the ability to take discretion out of support and resistance. Here pivots are calculated using the high, low and close of a specific time period. I have punched in the high, low and close of last week on the Gbp/Nzd. As you can see the values are:
Pivot 2.6638, R1 2.7037, and S1 2.6413 , where R1 = Resistance and S1 = Support.

Looking at these values and dropping down to the shorter term daily or 8 hour chart, you can start to see how these values apply to the chart pricing. The prices will not hit exactly the key points but if you have trouble defining support and resistance levels, give pivots a try.

At the bottom of this page you can input any values from any pair. It works well on monthly candles, weekly candles, daily candles and intra-day candles. The basic premise is to expect the price to be bullish above the pivot to the resistance levels above the pivot. The other side of the equation is to be bearish below the pivot and use the values below the pivot as potential support levels.

As those who have followed the blog know, I like to buy at support levels and sell at resistance levels. As i look at the GBP/NZD, I generally use my own support and resistance levels but looking at the pivot points they match very close to some of the key levels I am watching. It would have been great to sell of the 2.7037 level and a close below the 2.6638 level could be an indication of bearish sentiment to the next level.

The key with these levels, in my opinion, is use closed or completed time frames for the values to start the calculation and then remember to control your risk by selling off of resistance levels and buying up support levels. Add some of your own discretion and some fibs and I think you have a decent trading plan.


I typed all of this up an hour and half ago and hit post and then went into a meeting. Unfortunately, it didn't post. In the end I was right about the fed decision but the volatility could have given you some sort of a mean shake if you took the chance on the trade. The Aud/Jpy has benefited from the recent moves as well as the USD/CAD.

There is surprising amount of buzz about the Fed interest rate decision today. I have looked at the CBOT fed fund futures and it appears we have a rate cut priced in toward November or December. My first response based on what the futures show would be, we could hear dovish comments from the fed. My next response is, the fed is stuck between a rock and a hard place. We are finally seeing some slowing in the economy and the real estate market is being further hammered as well as a significant credit crunch. By lower rates that would definitely stimulate the economy and some spending but it could also spurn stagflation. Stagflation occurs when inflation is going up while economic growth is not. That is what we have setting up now. Commodities are still high, sure we have seen some pull back but it is still in a growth market. The best choice from the fed would be to leave things alone. Ben Bernanke has shown he is willing to stand his ground on

In case you missed them

The Aud/Jpy has pulled back again and all the prior analysis still stands. The buying range as I see it is somewhere between 100.75 and 101.25. We are at the top of this range but I don't know how deep into this area the price will go.

Usd/Cad has given a pull back and I like the idea of selling it.

Gbp/Nzd... not as convinced. It is stalling out at 2.6540 and has been within 50 pips either direction for the past 16 hours. 100 pips is a large "stuck area" for most pairs but not for this pair. That is hardly a shadow worth noting when the pair can move 600 pips or more in one day.

More on these developing events...

Thursday, August 02, 2007

Follow up on the Aud/Jpy

Yesterday I commented I like the Aud/Jpy when the price was near 101.30. Right now it is at 102.36, do I still like it? Not as much frankly. We have slowed just outside of the past 3 day highs which also match up to our Fibonacci retrament levels. If I am going to be comfortable with a position I want to get in closer to a bounce or support or after we break above this short term level with a bounce above the level. I wouldn't be surprised if we blast right through and make the previous trade very profitable but I certainly not looking to add a position here. Not yet anyway.

Now if we can get that upward mobility, 105 is certainly not out of reach and possibly back to the 107 level as we discussed a couple of days ago. Potential bounce levels? 102, 101.40, 102.70

Wednesday, August 01, 2007

Usd/Cad Short, Aud/Jpy Long?

Both of these are looking good. Short term we could see a little pull back on the Aud/Jpy to keep our risk in check. Usd/Cad is looking good to me. I will post with graphs later.

Tuesday, July 31, 2007

Aud/Jpy Trade

In the comments from of yesterday's post, I mentioned the idea of not chasing the trade. Let it come back to you. So here it is back to us. To gather further insight to the trade set up, first look at John's posting at Forex Factory on the AUD/USD. Half of the trade I am looking at is tied up in the strength of the AUD.

Next let's look at the long term view of the AUD/JPY. The pair is still trading in the channel that goes back to Feb/March time frame. It is testing the channel support, approaching the 100% fib retracement level and the 38% fib fan "supports" the trade for the same time frame (groan... I can't believe Blake went for the cheap pun). All of these favor the setup of a long position. From the risk and reward stand point, a 100 pip stop could allow you to trade the pair back to 107.50 level. Risk 100 pips gain 650. Mmm tasty. But the upside trend line is moving higher as time goes on so the target could becom 110.00 now we have a 900 pip target for the same 100 pips stop...yummier.

I have talked a lot about giving yourself more room to trade than you think is necessary. What about a stop in the 97.50 level. We now risk 350 pips for the same 650 or 1000 pips. Though the risk to reward isn't as appealing, I think the view of taking bigger stops will make you more right more of the time. It only takes one more winning trade in 8 trades to make up for the additional exposure.

To be more conservative and time the trade, let's drop down into an intraday view. Waiting for a move to break the 102.50 level for confirmation of the break of the fib fan and getting back into the fib retracement from prior would be a good idea. BUT, WE SHOULD BE MUCH MORE WORRIED ABOUT THE LOWS AND NOT THE HIGHS. If we are going for a long or bullish trade then we concern ourselves with the lows or support levels. If those support levels are broken then our trade is over. The reverse is true in down trends. If we bounce off of the 101 level then we have a higher low and continuation of our trend. I will then use a fib fan and the 61% line to draw a support line off of the bottom of those two lows. The fib fan will give me a quick controlled out of the trade as well as a target for the next high. After we see a bounce I will post again.

Monday, July 30, 2007

Added insight

Adding to my encouragement for you to look at GLD, and the AUD/JPY, take a look at the video and blog on the Profiting with Forex home page and today's blog title Watching Stocks to Trade the JPY. Add that to the Aud/Usd analysis and put all the pieces together.

I am not kidding, take a stand, make a comment, show you have an opinion. No one is wrong, some of us will just be "righter" than others.

No time for graphs

See if you can see what I am seeing. I like the idea of a buy on the Aud/Jpy near 100.70-101.30.

Look at the long term trends, look at fib levels, look at gold... then post in the comments and let's talk about this one. What is the appropriate stop level? What would you expect long term? Is the pull back over? Is it time for a trade? Am I a few sandwiches short of a picnic?

This and more in the next blog post.

Tuesday, July 24, 2007

Stopped out?

Were you stopped out? We have experienced a shadow up to 2.5738 which, depending on if you gave your trade any room from the 2.5700 resistance, you could still be in the trade but, more likely than not, you were stopped out.

Now What???

It's payback time of course. That's right get mad, show the Gbp/Nzd who is boss. Throw your money at it and see if it bleeds... oh wait, that's your blood...hmmm... scratch what I just said.

I am still bearish on the pair but now I have to wait for a good risk to reward again before I take the trade.

Is it here at the 2.5650 level? Only time will tell. Exactly 2 hours and 3 minutes to see if the close price takes me outside of my fib fan level and the resistance level. If not, I am good to watch for another entry. If it is closer higher, I like 2.5800 as a possible new short.

As fortune would have it, I am still in the trade and it got within 12 pips of stopping me out. If we close higher I will exit the trade with some profits and watch for the new entry.

If you got stopped out, cry me a river and wipe your eyes with dollar bills. You made about $140 per mini contract for a couple days of reading my blog.

Happy trading

You have two choices

To quote Morpheus from the matrix, "This is your last chance. After this, there is no turning back. You take the blue pill - the story ends, you wake up in your bed and believe whatever you want to believe. You take the red pill - you stay in Wonderland and I show you how deep the rabbit-hole goes."
So here are your choices, the trade is profitable and you can walk away with 170 pips or you can tighten your stop and risk 100 pips of your trade to see how deep the rabbit hole goes.

I see a short term resistance level right where we are at and the next suppor level is our low we were at earlier today with a potential move closer to 2.5300. So even treating the trade as a new trade we are close to a 3 to 1 risk/reward ratio. A potentially good trade set up... or is it.
If you forget why we got in the trade and what were were looking at prior you can see the Gbp/Nzd short, original blog posting here.

Fixed Link

If one of my links doesn't work, please put it in the comments and I can fix it. Here is the link to the special report that probably didn't work for you you yesterday.

Click here for the special report page with the protective puts article.

For you options fans

The options addict link to the right is a great site for options traders. I personally stick to the forex in about 85% of my trading. If you want a fun site and good in site into the options world, consider Jeff Kohler's option addict blog.

Holding steady.

Dropping the stop loss to 2.5700. A close above 2.5600 will push me to a close or a break below 2.5450 will get me to stick to this trade for days and weeks to come.

Monday, July 23, 2007

Tightening one more time tonight

It's running nicely and I am using a fibonacci fan for the recent run and one from the last week and I am adjusting to where they cross roughly and where you can see my cross hairs. Stop tightened to 2.5800. I know this isn't a big adjustment but the previous stop tightening was temporary until I could further analyse the trade. I didn't like risking over 500 pips from the current price. I will be adjusting it again as soon as we get a 4 hour bullish candle.

Article on Protective Puts

Are you interested in hedging your long term trading strategies in the FOREX? My friend, John Jagerson, wrote an article on protective puts.

You can get to this free special report by clicking the link here or by going to the link on the right side of this page and then going to the special reports section of the PFX Global site.

If the links in the web page don't work for you , you may need to copy and paste the URL here.

Tightening the stop

I am not expecting to get out of this trade quite yet but I want to be protected from a big surprise. I am tightening my stop to 2.5830. This will lock in about 50 pips but remember the amount of profits locked in has nothing to do with where I am moving my stop loss to. I am moving the stop loss based on seeing the break out, going to the trending resistance line at the point of the break out and making it a tight stop to the candle just before the break out occurred. We will update this later after we see where this plays out over the next day or two.

Saturday, July 21, 2007

Never Never Never let them see you sweat

Were you sweating before the weekend. Looking at the 8 hour chart you can see a range of 180 pips in the 8 morning hours. watching your potential or initial gains go from $100 down to a loss and then back to profitable in that short time period can make you nervous and make you sweat. Remember your initial analysis. The arrow is roughly where most of us got into the trade. The "small" intra-day moves don't matter in the big picture of your trade. If you are going to take a stand, stand your ground. Things are looking about where I would want it to be or expect it to be at this point. Have a good weekend.

Thursday, July 19, 2007

Kiwi video at the bottom of the page

For a 3 minute break check out the video at the bottom of the page.

mmmm Golden Kiwis

The Gbp/Nzd trade continues to test both upside and downside in the short term. I will feel much more confident of a big profitable trade if we can get a solid close below the 2.5700 area. Gold is on a move and has done so strongly finding support and breaking the downward resistance trend line. This could be a bonus to the Gbp/Nzd trade as well as the Aud/Jpy, Nzd/Jpy, Aud/Chf, Aud/Usd or just gold. There is still room to move to the top side.

Any other Gold traders out there besides me???

Wednesday, July 18, 2007

Letting my mullet down

Back by popular demand, here is the trucker picture. Yes that is me, yes that is my real flannel, yes that is my real stash.

How 'bout now?

How 'bout now, can I trade it how 'bout bout now...and now?

So what do you do when it is near either a break out in a short term uptrend or resistance in longer term trend. GO WITH THE LONGER TERM TRADE!!!

I like the risk level now. It is about where it was yesterday as it is testing this 60 pip range going back and forth. A short position near 2.5880 with a stop up about 2.6100 seems like huge risk. Remember that the risk is 220 pips at about a 80 cents per pip or $176 per mini contract and realistically if I see a solid move beyond 2.5900, I will watch for an early exit. There is a solid resistance near 2.60 as well. These are all key levels to moderate risk for the potential target. If you are only risking the move to 2.60 that is about $100. Potential target...2.5560, 320 pips, $256. 2.5:1 risk to reward.

Tuesday, July 17, 2007

It is time we met.

If you would like to sign up for this community, we can share pictures, thoughts and trades. Join the community down at the bottom right and let's meet.

GBP/NZD still a good short?

I had an email questioning whether someone in GBP/NZD trade short could hang on to the trade. It is easier for me to show my point using my blog with some images so here we are.

First, it depends on where you got into the trade. If you went short and sold near resistance (at 2.6100) you are still very profitable, if you got in the trade lower and losing money you are probably struggling right now and looking to get out.

Second, it doesn't matter where you got into the trade, either it is a good trade now or it isn't. If you are in the trade now where do you see resistance. Money gained or lost in the trade at this point has nothing to do with the current set up.

I see the resistances at 2.6100, 2.5870 and 2.5880. Any of these points could be considered for shorting opportunities. You may note that we are at or near the lowest resistance level listed which correlates to the consolidation and resistance level 4-5 days ago and the support level tested on June 28th. I like this position from a risk stand point but I like this pair has a tendency to give large shadows and test your tolerance of larger stop losses. If you aren't short a position here with a 125 pip stop seems appropriate. If we close beyond the fib fan and the 2.5900, I would still be comfortable selling it near the 2.6100 again. Low risk--Great Potential.

This pair is great for practicing your long term trading strategies and getting better at understanding risk to reward ratios.

Good luck and Good Trading.

Monday, February 12, 2007

Just checking in

I am just checking in as I have been able to free up a little of my time. If you are out there and still checking this blog on occasion or consistently, will you please email me at or post a comment to this post?