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Cliff Wachtel
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Cliff Wachtel, CPA, is currently the Director of Market Research, New Media and Training for Caesartrade.com, a fast growing forex and CFD broker. He covers a variety of topics including global market drivers, forex, currency hedged and diversified income investing, and is currently working on a... More
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  • FOREX, COMMODITIES, STOCKS Brief 1/18: Inter-market Analysis Key Events, Trends, Trades 0 comments
    Jan 18, 2010 4:36 AM | about stocks: INTC, AA, JPM, C, MS, BAC, AMX, GS


    NB: THE FOLLOWING IS AN ABRIDGED VERSION FOR FULL ANALYSIS AND CHART ILLUSTRATIONS OF RECOMMENDED TRADES GO TO http://fxmarketanalysis.wordpress.com/   AND SELECT "DAILY OUTLOOK" FOR TODAY
     

    Stocks: Prior Day: Asia up, Europe USA down, Today: Asia mixed, Europe up

    - FX: bias against safety currencies [JPY, USD, CHF in order of safety appeal] vs. risk currencies [AUD, NZD, CAD, EUR, GBP in order of risk appetite appeal], US Dollar down as jobs data defers stimulus exit, interest rate increases

    - Main events Tues: GBP: CPI, BoE inflation letter, BoE Gov Speaks EUR: German, EU ZEW sentiment, CAD: Boc Rate St. overnight rate , USD TIC Long Term Purchases, NZD: CPI

    - Big Theme: Developing Pullback?  – SEE CONCLUSIONS & RECOMMENDATIONS BELOW FOR THE COMING DAYS

    STOCKS: Investors To Stocks: "Justify My Love"

    US: On Friday better-than-expected earnings from bellwethers Intel and JPMorgan were not enough, as sellers sought more convincing data to justify further gains, and handed stocks their worst loss in four weeks. For the week, the DJIA -0.1%, the Nasdaq -1.3% and the S&P 500 -0.8%. NB: If you look at a daily chart of the S&P 500 with Bollinger Bands (2, 20 settings) note how often, over the past 7 months, it retreats and tests support to around the 50 day moving average once it hits the upper band.

    Asia: Major stock markets in Asia such as Japan and Hong Kong were down early Monday following Friday's decline on Wall Street where rising loan losses at JPMorgan Chase & Co. sparked concerns about profits at other big banks. Bank of America Corp., Citigroup Inc., Goldman Sachs Group Inc., Morgan Stanley and Wells Fargo & Co. are expected to post results this week..

    European Stock Outlook: European shares rose in early trade on Monday, with banks recovering some of the losses they suffered on Friday following JP Morgan's results.

    ASIA- UPN225I +0.68%HS -0.29%SSEC +0.27%FTSTI +0.03%AORD +0.00%
    EUROPE DOWNFTSE -0.78%DAX -1.89%CAC -0.03% 
    US- DOWNS&P -1.08%DJIA -0.94%NASDAQ -1.24%  
    THIS MORNING MIXEDN225I -1.16%HS -0.90%SSEC +0.40%FTSTI +0.24%AORD +0.13%
    UPFTSE +0.17%DAX +0.19%CAC -1.06% 

    Commodities Outlook: A stronger dollar, which was helped by continued concern about the financial health of Greece, along with lackluster growth data over the past weeks, brought further weakness in the commodities complex, and dragged the CRB Commodity Index to a 1.1% loss. The slide made for a weak finish to an already-feeble week that saw commodities fall more than 3% since Monday.

    Crude Oil Outlook:Mo Continuing its 6th day of pullback, Monday, slipping below $78 a barrel in Asia amid declines in stock markets and a stronger U.S. dollar. More downside risk given oil's annual range of $82-69 and stocks, risk appetite looking ready to pull back.

    Gold Outlook: Gold plunged -1.1% Friday as USD rebounded strongly against major currencies. On weekly basis, gold lost -0.7%, traded sideways within a range of 1120 and 1160, probably because the dollar also lacked direction.

    FOREX Daily Outlook: Bias to safety fx Friday, early Monday on retreating stocks, risk appetite. SEE WEEKLY OUTLOOK FOR DETAILS on events and forces to watch this week.

    US Dollar Daily Outlook: The dollar index gained +0.8% Friday after dropping for 5 days.

    Euro Daily Outlook: Friday-Down vs. the US dollar and other lower yielders, mixed in early Monday trade. Greece, economic data pressure the euro. German Economic Minister says (even) the German recovery is not self sustaining. Lots of EUR data this week

    Yen Daily Outlook: Friday- up vs. most fx on falling stocks. In early Monday trade steady vs. the USD, retreating modestly vs. the euro, doing one or the other vs. other majors. Despite its poor fundamentals and BoJ intervention threats, could be a prime beneficiary if US stocks and risk appetite pull back.

    British Pound Daily Outlook: Down Friday vs. the USD and other low yielders on retreating stocks, risk appetite, recovering somewhat since then as BoE statements managed to exceed low expectations last week and send the British Pound rallying.

    Australian Dollar Daily Outlook: Down Friday, recovering in early Monday trade, rallied on improving jobs data

    New Zealand Dollar Daily Outlook: Down Friday, recovering in early Monday trade, following the AUD.

    Canadian Dollar Daily Outlook: Down vs. safe-havens Friday, little changed since then. Pressured by falling oil prices, stocks, along with other risk currencies

    Swiss Franc Daily Outlook: The USD/CHF was up strongly in Thursday and Friday trade, gaining modestly early Monday. In tight range vs. Euro.

    CONCLUSIONS & Big Picture: Bias to downside for risk assets. S&P 500 and other major global stock indexes still in well established up trends, earnings data will be key over the next week. However, as noted above, when the SUP 500 starts to pull back from its upper Bollinger Band on its daily chart, it has usually tested support back down to around its 50 day moving average. Given the downbeat market reaction to US earnings thus far and a relatively light week for news, our bias for risk assets is to the downside in the coming days. See below for specifics on the S&P 500, CRUDE, GOLD, EURUSD, NZDUSD, USDCAD, USDCHF, and GBPUSD

    Big name earnings reports are the likely key influence on sentiment. For any trades we try to select only those trades with resistance/ profit targets that are 2-3 times farther from the entry point than the stop loss, for a 2:1 or 3:1 reward/risk ratio.

    SPECIFIC TRADE RECOMMENDATIONS

    S&P 500, Other Major Global Stock Indexes:

    Advice: As noted above in Conclusions, given its tendency over the past 7 months to retreat back to around its 50 day moving average once it pulls back from its upper Bollinger band, and the dour market reaction to earnings thus far, especially those of the banks, bias to the short side.

    The safer move is to wait for a pullback, like we saw on the 12 preferably to some kind of support level, and then jump in when that reverses, as happened yesterday. However, we urge those long on any risk assets to keep tight stop losses in place, given:

    · The potential time bombs that continue ticking under the US banking and housing sectors, as well as in

    · The Euro-zone sovereign debt default threat area –Update: Portugal received a warning about another downgrade from its current A+ rating following a downgrade January 21 2009.

    · The Fed has now warned banks to get ready for rising rates and the certain increase in mortgage defaults. Stocks do not tend to do well in an environment of rising rates. In recent long term treasury bond auctions, the high percentage of awards to direct domestic bidders had many wondering if the Fed is in fact doing a major share of the buying via intermediaries. If so, that suggests flagging foreign demand and eventually falling bond prices and rising rates.

    · The very real falling demand for US Treasury bonds, which the US must keep issuing, and thus the very real incentive for Washington to allow stocks to crash a bit and drive up US T-bond demand (hat tip to Graham Summers for that observation).

    Because the S&P 500 is so representative of overall risk sentiment, and thus the "One Chart to Rule Them All", always take a look at the daily chart (or other relevant timeframe to the style you trade) for a picture of overall risk appetite or aversion. The current picture is bullish/long but the move may be losing momentum and flattening out.

    S&P 500 Daily AVA FX Chart (04 Jan 18 )

    ** GOLD: Await clarification of trend. Moving with stocks and risk appetite, opposite the US dollar. It is currently sitting between Fibonacci levels, no clear support/resistance nearby. Given our overall bias for the coming days to the downside, be ready to take short positions as noted below.

    Trade Suggestion:

    Long: Conservative traders should avoid longs for now until it either retests and holds near the the 50% Fib level at $1125.41, or breaches price resistance at 1154 for a target exit around the 23.6% Fib level at 1175.75

    Short: We do not recommend opening new shorts until gold breaches the 50% Fib support level with a stop just above your entry point (with then a target exit near 1103, the 61.8% Fib level, OR after gold tests and fails to break over the 38.2% level around 1148.

    Gold is moving opposite the dollar, so watch the EURUSD and S&P 500 for indications of gold's near term moves. Also watch the S&P 500 and other major stock indexes and news to see if risk appetite gets a lift from improving spending, jobs, or other data that ALSO boosts USD stimulus exit and interest rate expectations, thus supporting the dollar and driving down gold.

    Gold Daily AVA FX Chart (05 Jan 18)

    Crude Oil: Virtually unchanged since Friday, sitting right at the 38.2% level, a great entry point long or short with stop loss within about 30 pips. Crude is volatile, so best to accept being stopped out and then just jump on the trend in the other direction. Will move with risk appetite and the dollar, which for this week rests mostly with US earnings and other key events noted:

    As noted above, our bias for the coming days is to the downside, so traders should be ready to enter short on a breach below 78.03, with a short term target to at least around $76-75. Oil has been in a range of about $82-$69, so the short side has lots of room should risk sentiment make a longer pullback.

    Watch the EUR/USD chart for USD movements, and the S&P 500 chart for overall risk sentiment.

    WTI Crude Oil Daily AVA FX Chart (06 Jan 18)

    EURUSD: Price and recommendation unchanged: Like many of the anti-USD Forex plays, jumping higher in the wake of the weak US jobs report and weakening USD. Given the clear short term bias to risk assets shown in the S&P 500 chart above, current bias is long.

    Recommendations unchanged.

    Long: Wait until it breaks the 1.4600 resistance level or retests the 1.4428 (50%) Fibonacci retracement level, with stop loss just below the recently broken resistance turned support.

    Short: At or near a break below the 50% Fib level, this has been stubborn resistance lately.

    Watch the S&P for overall risk appetite, and the EURUSD for a quick gauge of the USD to judge if oil is ready to stabilize.

    EURUSD DAILY CHART (05 Jan 12) AVAFX CHART

    NZDUSD: Price and recommendation essentially unchanged, currently at 0.7362. Has been gaining on the US dollar like all high yielding or risk currencies, but currently still recovering from Friday's stocks pullbacks. More of that could send it lower.

    Long: Can enter around current levels 0.7420 and use the descending downtrend line as a support level to place a stop loss nearby, with a target of 0.7563 for a 3:1 reward/risk level

    Short: not yet – wait until some major pro dollar or fear news breaks and enter just below the declining down trend line, placing a stop loss just above it, and with a target around the 76.4% Fib level for a 2:1 reward/risk at least.

    Watch the S&P 500 and EURUSD to gauge risk appetite and USD strength. Much will depend on further news on US economic fundamentals and Euro zone sovereign debt issues.

    NZDUSD Daily Chart (07 Jan 18) AVAFX CHART

    USD/CAD: While it generally follows oil, beware. As the chart below shows, it's in the middle of recent support/resistance, making a low risk entry unavailable. Also, the CAD is a risk currency, and if stocks continue to pullback further, this pair could rise even if oil holds steady. Best to await clarification

    1.0364

    USDCAD DAILY AVA FX CHART (image: 08 Jan 18)

    USD/CHF: Sitting right at resistance of the 38.2 Fib retracement level, good entry for long or short with stop loss nearby. The dollar should benefit more than the CHF if stocks pull back, which, as we note above, is our bias for the coming days. Currently pulling back slightly, so best to wait to enter long after a breach over this resistance level, or go short at current levels.

    USD/CHF DAILY AVA FX CHART (09 Jan 18)

    GBP/USD:

    Long: Too far above the 50% Fib level for now, so wait until it retests the 50% Fib level or breaches the 38.2 level.

    Short: Wait for a break below the 50% level, with target around the 61.8% Fib level around1.6167.

    GBP/USD Daily AVAFX CHART (11 Jan 18)

    OTHER HEADLINES

    Bloomberg.com

    .

    Breaking News

    Breaking News

    Corporate-Government Spread Rises as Banks Rush Debt Sales: Credit Markets

    European Stocks Gain; International Power, Cadbury, Richemont Lead Advance

    Japan Airlines Said to Near Deal With Delta, Severing Ties With American

    EU Officials Haggle Over ECB Vice President as Emergency Policies Unwind

    U.K. Home Sellers Raised Prices in January as Supply Squeeze Intensified

    GDF Suez Is Said to Consider Tie-Up, Partnership With International Power

    Sakakibara Says U.S. Recovery May Slow, Weakening Dollar to About 85 Yen

    Taliban Attacks Government Ministries in Biggest Kabul Assault Since 2001

    Yen Carry Trade Shows Japan Losing Mojo With Collapsing Market Volatility

    NATO to Rebuff Russia Proposal for Separate Security Treaty, Officials Say

    Breaking News

    (Seekingalpha.com)

    Market Week: Looking Forward

    by All Things Forex

    by Brian Dolan

    by Steven Hansen

    by John Mauldin

    DISCLOSURE AND DISCLAIMER: OPINIONS EXPRESSED ARE NOT NECESSARILY THOSE OF AVAFX, AUTHOR HAS NO POSITIONS IN ABOVE INSTRUMENTS.



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