Update from yesterday trades

Here is the updated positions. In addition to the limited out trades, I am currently sitting on $254 of unrealized profits. All of the stop adjustments in yellow are very tempting to get out and take the profits as it got so close to the limit target and are showing some signs of pull back. I will look to place more trades on Monday morning, possibly pre market open.

Though it has been win a little lose a little win a little more lose a little more, I am very content with the results so far. It has been a rough market of sudden swings and changes. The fact I am up slightly taking so many intra-day scalps makes during a volatile market give me confidence when we see some directional days we should makes some good, solid returns.

OUCH what an ugly day

The gbp surprised and rallied on good retail sales, the dollar got crushed a lot of surprise reversals set us back about $300 for the day so far. I will get that update shortly but here are the new trades for today.

Back from NY

Just got back from NY late last night. To catch you up on the scalping methodology, we had some winners and some losers and we are back to about break even, rather than trying to catch up 5 trading days and 60 trades, we will start again with tonights. All of these are market orders to get us going. Just look at the hourly charts from roll over to determine that you haven't moved too far from the daily roll over rate.

Here are the trades

pre market adjustments

stops and entries adjusted pre market open in the US

New trades and yesterday trade updates

Here they are, 24 hours later, 12 new trades, 10 exited trades from yesterday and 2 trades still open. If you have questions about how I am tracking them, please put it in the comments.

Morning update of Feb 12th positions

Just to clarify again, the yellow shows changes. In other words we tightened our stops on two trades. The USD/CHF entry was a typo from yesterday, it was suppose to be 1.1030 entry limit long, similar to the other trades. Now if you had typed it the other way you would not have been entered in the trade. If you were following along, this is one to kill and not chase.



This system is built on creating numerous long and short positions on similar pairs and counter positions on specific currencies.

Some of the trades are not closed out as of yet but those that are closed out are up $100. I know this is only about $12 per trade net profits but it is $12 per trade after all the losses and $100+ for one day and about an hour of week.

Later I will post the new trades for today and I will include a separate running total of gains and losses(just the dollar amount, not a recurring list of the trades). There are some interesting dilemma with this methodology but I will address them when we encounter them.

New bracket trading methodology

The long term trades are trying to shake out. With volatility in the stock, bond and futures market, many traders are uncertain. While the world wonders what will happen next, I am adjusting my trading process to fit the current times. While waiting for long term trends to continue, I am trying a methodology that is based on bracket trading for shorter term targets and profits.

I will post the initial trades and adjustments as shown in the colors below. If you can figure out my methodology, more power to you. In the past month the methodology has worked great in intermediate trends and has been close to break even in rough times (meaning this past week for me). You should be able to click on the image and view it bigger.

Diverging dollars and $145 billion stimulus

I would guess that most of the intelligent readers that visit my blog are fairly intelligent and probably already know the meaning of diverge and divergence but just to be sure. di·verge / [ di-vurj, dahy-] verb, -verged, -verg·ing. –verb (used without object)

1.to move, lie, or extend in different directions from a common point; branch off.

2.to differ in opinion, character, form, etc.; deviate.

3.Mathematics. (of a sequence, series, etc.) to have no unique limit; to have infinity as a limit.

4.to turn aside or deviate, as from a path, practice, or plan.
–verb (used with object)

5.to deflect or turn aside.

I am going to use the first definition to describe what I believe happened and the other 4 I will use in a sentence and reference the definition by # at the conclusion. What happened this week? The dollar strengthened against most pairs (except for the yen) why is that? I have heard many people say the dollar is over extended, I highly disagree.

The commodity market pulled back significantly. There have been a lot of concerns about inflation, so when the market sees a5% pull back in gold a 10% pull back in oil and an almost 13% pull back in the commodity related indices, many have felt, wrongly as it may be, that the inflation concerns may soon be over.The dollar move was driven by commodities falling and nothing more.

The bearish dollar trends are continuing and the antidollar fundamentals are still strong. This week alone, the US economic data was mediocre at best. The "good" new or upside surprises were nothing more than someone trying to lose weight and saying "hey, sure I ate three big macs but I had a diet coke, that's a positive right?" The economy is slowing (probably due to eating those extra big macs and falling asleep at the wheel), the housing market is still pulled over to the side of the road blowing chuncks from the nasty hangover from last night's party(think real estate boom, you know the climbing housing prices had to be alcohol and drug induced) and paramedics are still trying to use the jaws of life (see FOMC rate cuts and Presidential Economic Stimulus package) to get our credit market out of the tangled wreckage it is trapped in.

If the dollar is gaining strength when the dollar should not be gaining strength this is a divergence (1). It has extended in a different direction then where it should be. Add to this the FOMC rate cuts and Presidential Economic Stimulus Package. What is going on here? Fed Fund Futures show 50 bpp cut in Jan and a 100% of another 25 bpp in Feb and an almost 30% chance of a 50 bpp cut. Add this to the announcement by President Bush today. Our executive branch has asked for a stimuli package to the tune of 1% of GDP, in case you didn't know GDP is over 14 trillion, therefore a cash injection into the market of about $145 billion dollars.

***DRAMATIC PAUSE***

That's right, flood the market with US dollars, weaken the dollar further, in the midst of inflation concerns, go the wrong direction, cut rates which will drop demand for theUS dollar (first time in 15 years the US rate will be lower than the european interest rates) which will further weaken the dollar, making everything that much more expensive, making it less possible for us to have expendible income (despite the capital injection, $800 won't go very far when the dollar's value is cut in half) making us Americans buy less things, making companies produce less which will induce them to lay off workers, and further increase unemployment, drop GDP, and put the final nail in the coffin of the economy ("put away the jaws of life boys, there is no hope, time of death…").

OK enough already, the other definitions.

If you diverge (2) from what I have just written, you need to understand my intelligence is divergent(3- that's right having no finite limits). So ifyou so choose to diverge(4) from truth it will be very easy for me to diverge (5) your poorly backed opinions.

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.

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.

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.

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)

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.

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 down..no 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 spirit...no 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.

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