Post-Bernanke Reflection / Risky Assets Short-Term Bottoming

After Fri's Bernanke-fuelled rally on risky assets, these markets violently pulled back, more than I had expected.  In some cases, the retracements were greater than 50% of the Friday rally, and began calling into question the reversal signals that triggered on the Friday rally.  The degree of the reversal was particularly surprising, in light of the daily chart patterns observed on the risky assets and USDX Monday and this morning (Tuesday).  An hour or so before writing this post, I decided to average down by taking long positions in a few other risky assets: QM (crude mini), ES (S&P500 mini) and the AUDUSD. Of the markets on my watchlist, QM has retraced the least of its Fri rally, sitting just above its 38.2% retracement support (~73.75).  Instead of patiently waiting for the 73.75 entry, I decided to enter at 74.1 as the AUDUSD and AUDJPY began showing further signs of bottoming on their 5min charts.  Sure enough, soon after entering my QM long, QM fell to as low as 73.9.  Of some comfort is that the MACD appears to be bottoming, and the upsloping channel that began on Aug 24 implies channel support at around 74.  Not one to pinch for pennies, I felt that the risk-reward justified entering QM at 74.1.  The ES long meanwhile, was entered at roughly the same time, at 1045.75.  The ES is more oversold on the 60min than the QM if the RSI (of 30.7) is to be believed.  QM's 60min RSI is roughly 41.  The AUDUSD is more oversold than the QM from a Fibonnacci standpoint, sitting between the 50% and 38.2% support lines, but is rather neutral at 46 on the RSI.  Additional justification for going long the AUDUSD came from the bottoming MACD action on the 60min, where a positive crossover was just about to occur, coinciding with a breakout above the downtrend from the last 24hrs.  On fundamentals, the Aussie data that came out this morning around an hr before I entered my AUDUSD long was better than expected.

A quick reflection on Friday and Monday's pre/post-Bernanke market action is probably also in order, as my decent trading performance in the 2hrs following Bernanke's comments on Friday was reversed in the next 48hrs.  On Friday, pre-Bernanke, I observed that the USDX was toppish (on a daily chart), and prepared to go long risky assets like the EURJPY, AUDJPY, QM, ES, etc.  In the hour preceding Bernanke's comments, I tempered my enthusiasm for going long by setting stop sells on a few of these risky assets in case the comments drove them even more into oversold territory.  My first mistake was that once it became apparent as soon as Bernanke began speaking, that these markets were heading lower, I lowered my stop sells to avoid getting filled on the shorts.  The last thing I wanted was to be net short on the noise preceding the market's digestion of Bernanke's speech.  Despite lowering my stops several times, I eventually was filled on a few shorts.  Realizing that the markets were begin to show some bottoming action (as per the 5min chart following my fill on the shorts), I quickly looked to flatten my positions and to prepare for going long.  After perhaps 5min of being short, I successfully exited at slight profit.  Rather than go long immediately after, I waited for another 30min or so, as the price action on the 5min was rather indecisive immediately post-Bernanke.  Within another 10min or so though, the price action was decisively bullish.  Having just been short, I was slow to switch gears, and didn't go long until a reverse head and shoulders on the 5min charts became close to completion.  On the neckline break, I finally went long, which was better than not going long at all.  By around 1115am EST, I was up over 150pips across my long risky asset positions, and proceeded to flatten all positions.  At that point, I should've called it a day.  Greed took over though towards noon EST, and that was when I decided to get cocky and go short.  Of course, those who watched the risky assets  Friday know that they continued rising right into the close.  By 5pm EST (5am Saturday my time in Singapore), I was tired, and frustrated over having given up a third of my gains in the 1st 90minutes post-Bernanke.  I stubbornly held onto my shorts, convinced by the 5 and 60min charts that my risky assets were about to plunge.  Of course, they did eventually, but not until Monday, immediately following the disappointing announcement out of Japan.  I eventually recovered some of my losses on the shorts Monday, but prematurely flattened the short positions, thinking that the daily chart bias (of going long the risky assets) would take over, and limit any gains on my shorts.  Boy was I wrong.  During the fall in the risky assets, I repeated the same mistake of being overly zealous in anticipating reversals, by going long the USDJPY at 85.1, the AUDJPY at 76.6 and the EURJPY at 108.37.  I should've waited for a 50% retracement.  In practice, the 38.2% retracement level had not even be reached for a few of these positions!  The risky assets have since continued plunging into Monday night (EST), and as of the time of this writing, are only beginning to form a meaningful bottom, as suggested by the oversold daily and 60min charts. 

My ongoing struggle continues to be anticipating reversals, and trading on breakouts, rather than allowing new trends to develop (and for retracements to occur) before jumping in.  Time and time again, it can be observed that markets can remain overbought or oversold for longer than rationale or expected.  It is absolutely critical that I discontinue this hazardous style of trading, as it drastically reduces my profitability and consistency.

USDX Topping in Short-Term

The rally in the USDX since Aug 10 seems to be nearing a short-term peak, particularly with the ascending wedge (that it's been in since Aug 10) nearing its apex.  From the daily chart, one can see that the last 2 days of price action have been tightly confined, forming dojis, that suggest a reversal may be at hand.  My near-term forecast (next 3-5 sessions) is for the USDX to pull back, and this can be seen in the bottoming action seen in the EURUSD and EURJPY.  The EURJPY was particularly oversold, having fallen from above 114 in early Aug to just above 105 2 sessions ago.  Its daily RSI also went below 30, and bullishly just crossed back above 30 yesterday.  The USDJPY has been particularly difficult to trade in the last few weeks, as I've prematurely called a swing bottom on this pair repeatedly.  Fortunately, stops have been placed in a somewhat disciplined manner.  I will revisit this pair once it truly breaks its downtrend on the daily chart, as opposed to trying to pick the bottom.  That being said, I do continue to believe that the USDJPY must be near a bottom, as its daily RSI has been hovering b/w 25 and 40 for 2 months now!

Looking at the 60min chart, I was fairly comfortable going long the EURUSD at 1.2699 and EURJPY at 107.4 when I did.  I observed the EURUSD break above a downtrend resistance line (from Aug 6 - today) on the daily chart, and also noted the higher high of 2am EST today versus the highs from the previous 48hrs.  The EURJPY has exhibited similar action, although as mentioned above, was more oversold than the EURUSD.  The EURJPY on the 60min chart did not appear to want to pull back from its high a few hours ago, suggesting that the break in the daily downtrend resistance was significant enough to pull in the bulls on any brief pullback.  At the time of my long entries, the 5min charts were looking good, w/ both exhibiting downtrending resistance line breaks, just around the time of my trades.  The main concerns now to the very short-term thesis is how the 60min chart shows RSI approaching 60, and MACD lines that appear to want to crossover negatively.  Of course, what I've observed time and time again, is how MACD lines can appear to want to cross negatively (or positively), only to resume their previous slope before approaching the crossover point.

I currently have a stop at 1.2705 on the EURUSD and 107.5 on the EURJPY.

GTC USDJPY Limit Buy @ 85.5

As of 1220am, I have a buy limit to go long at 85.5.  Should it fill, my stop would be at 85.3, and the limit sell at 86.5.  I was about to place a stop buy order at 86.1, but going long at this price is dangerous, considering where the USDJPY sits within its 1 day upchannel.  On the 60min chart, you can see that we are currently overbought.  In other words, even if we break 86 in the next few hours, we're likely to have to pull back soon after, as we're near the top of our 1 day upchannel.

None of the other FX pairs are attractive swing longs or shorts at current levels.  I missed out on much of the action in FX yesterday, being relatively tied up at work.

It's way past bedtime here, so I'll leave it at that for now, and will update you tomorrow on which of the 2 buy orders triggered.

Short Trades (EURUSD, GBPUSD) following Post-Fed Rally

Being in Singapore, please forgive me for jumping into bed shortly after entering my shorts on EURUSD and GBPUSD post-Fed @ 226am and 239am Singapore time, rather than updating this blog.  From now on, assume all blog references to time are in Singapore time, which is 12hrs ahead of New York.  Going into the Fed rate announcement, I decided to be flat on both the EURUSD and GBPUSD as their 5min charts suggested that they had still not sufficiently retraced the prior day losses, and were therefore more likely to rise (on the Fed news) from their still somewhat at the time, oversold conditions.

EURUSD
Having observed the break in the EURUSD July-August 10 uptrend support around midday yesterday, and the rise in the EURUSD daily RSI above and back below 70 on its daily RSI, the EURUSD was setting up perfectly as a short candidate.  Before shorting though, I wanted to wait for a 50% or 61.8% retrace of the 1.3335-1.3074 fall.  Sure enough, w/ the 215am Fed decision, the EURUSD began rallying, quickly approaching the 50% retracement level.  Because it was getting awfully late in the early morning my time, I grew impatient on the retracement, entering my short at 1.319 at 226am, which was just shy of the 50% retracement level of 1.3205, and the ultimate peak in the retracement at 1.3225.  In other words, I was wearing a 35 pip loss at the peak of the retracement.  Fortunately, the trade returned to being in my favor shortly after I went to bed.  The EURUSD peaked in its retracement soon after my short, and had I been more disciplined in waiting for the retracement to show clearer indications of ending, my short entry would've been achieved lower than my 1.319.  As of this writing, I have closed my EURUSD shrt (at 1.3044 (150 pip gain avg across my 2 a/c's), as the 5min chart suggests we've hit a short-term bottom ahead of the 430/530pm UK figures.  Will sit flat and await a short re-entry once we've retraced 38-50% of the down move of the last 48hrs.

GBPUSD
As remarked in yesterday's post, the GBPUSD was the most overbought of the 3 short candidates on my radar (EURUSD, GBPUSD, AUDUSD).  I based this observation on the fact that the GBPUSD held the distinction of being the only one of these 3 pairs to have climbed above its Jun-Aug 10 upchannel resistance. Similarly to the EURUSD, the GBPUSD 5min chart suggested that it was more likely to rise immediately following the 215am Fed announcement.  I decided to patiently wait for the shorting opportunity on a 50-61.8% retracement of the down move from 1.6.

USDJPY
Going into the Fed @ 215am (215pm EST), I was flat on USDJPY.  I earlier entered at 85.8 (11:49am), and closed my long at 85.86 (318pm), eeking out a slight profit, after noticing that the technicals on the 5min of the USDJPY weren't terribly in favor of a long going into the Fed decision.  Today, I've sat on the sidelines on USDJPY, preferring the far clearer short signals on the EURUSD and GBPUSD.

Game Plan for 430/530pm and 830pm
I'll sit flat going into 430pm, and will watch the GBPUSD carefully for any 38.2/50% retracement of the downward move since 1.600.  For the next few trading sessions, I'll likely only be taking opportunities in the new intramonth trend which is down.

The 830pm US figure'll be more important for my EURUSD, AUDUSD, EURJPY and ES (S&P500 mini) short ideas.  As w/ the GBPUSD, I'm waiting for a 38/50% retracement of their downmove of these last 48hrs, before initiating fresh shorts.

USDX Continues Short-Term Bottoming

The USDX is looking increasingly attractive on the daily chart, from a price action, MACD and RSI perspective.  The USDJPY should see some fireworks as soon as the BOJ makes its announcement (any moment in the next few hours).  Regardless of the BOJ announcement, the USDJPY appears to be technically oversold on the daily and wkly as mentioned earlier.  Fri's NFP saw a selloff on the USDJPY which brought it within a hair of the 84.8 15yr low.  Fri's low just shy of 85 may've been the major double bottom that'll propel the USDJPY significantly higher.  Fri, right before the NFP, my raised stop on my USDJPY long was taken out at a slight profit.  I'm currently looking to re-enter my long just below 85.85, and am waiting for the USDJPY to bottom on the hrly and 5min.

As for the EURUSD, it's looking increasingly close to a trend reversal, as is the GBPUSD and AUDUSD.  The EURUSD has just in the last few minutes broke its July-today uptrend support line.  It is oversold on the hrly and 5min though, and I am now awaiting a 1/3 to 1/2 retracement (of the losses from these last 24hrs) before going short.

The GBPUSD and AUDUSD are also oversold on the hrly and 5min charts, and need to bounce before they become attractive shorts in the next day or so.  The GBPUSD is the most overbought of the 3 short candidates (see daily), but is nowhere close to breaking its June-today uptrend support.  Keep a close eye on the AUDUSD daily as it approaches its uptrend support line at 91.  This will probably be the last short among the 3 short candidates.

USDJPY Long Established

I am now long the USDJPY as of 1107 this morning (Singapore time).  Entered at 85.988 w/ a stop initially set at 85.88 and since raised to 85.95 (just below the rising channel support).  On the hrly chart, USDJPY is currently just shy of the resistance line connecting Jul 28 to Aug 6, but looking slightly bullish on the MACD and RSI.  The 5min chart looks somewhat overbought, but appears to have enough juice to power a breakout above resistance on the hrly.

NFP releases tonight at 830pm (Singapore time).  Should USDJPY hold above 85.7 within the 1st hr following NFP, I will add to the USDJPY long.  If not, wait until the USDJPY falls to 84.8 (15yr low), and observe whether this level holds.  If so, add once a recovery above 85 (and retracement back to 85) is made.

Short-Term Bottoming of USDX

The USDX appears to have formed a short-term bottom just above 80.  As mentioned in yesterday's post, the 80 level should offer some near-term support, although on a wkly chart, you can see that the USDX is not oversold just yet.  W/ the EURUSD closer right now to its Jul-present uptrend support line, the GBPUSD showing signs of fatigue following its surge above its Jun-present channel resistance, and the USDJPY bottoming nicely on its daily, the USDX should have decent upside going into next wk.  Although the NFP is most widely anticipated # this wk, any signs of a breakdown in the EURUSD below its month long channel support or a further confirmation of bottoming action on the USDJPY will trigger my trades before NFP.  It has been observed in the past that the NFP is a non-event relative to the economic #s preceding it by a day or 2.  One idea is to scale into the USDJPY, w/ 1 long initiated today, and another following NFP.  I'm currently waiting for the hrly MACD on the USDJPY to be closer to its positive crossover before going long, w/ the understanding that the 5min chart has provided a shorter-term buy signal. 

The order of the trades being contemplated is: long USDJPY and short EURUSD.  The EURJPY may be a short when risk aversion rises again (and can coincide w/ a rise in the USDX).  Better than expected US figures tonight will confirm at least the entry on USDJPY, and quite possibly the EURUSD.  The GBPUSD short idea will need to await further confirmation (i.e. testing of its Jun-present uptrend support).