Market gapped up only to close it ultimately..

Mon, 14 Jun 2010 17:45:30 -0300

5 min Emini Nasdaq 100

Hi,

How is it going lately? As you know market can go into extremes easily.. Are we a little optimistic by gapping up again today?

I suspected so... Today's market action was characterized mainly by price trying to close the gap.. I did not enter as there was no clear signal from stochastics and short-term MACD.. You can see that price closed the gap nicely..

market pull back

Fri, 11 Jun 2010 17:31:56 -0300

5 min Emini Nasdaq 100

Hi,

After4 days in the red, market gapped down again today only to cover up the gap immediately and beyond. I found 2 long opportunities when price pulled back to my moving averages..

1st trade,
I longed 1 contract at 1824 and exited at 1833 with only $180 profits. Notice that this entry was accompanied with stochastics cutting up the oversold line.

2nd trade,
I longed 1 contract at 1826 and exited at 1840 with is the high established in the morning session.. Notice that stochastics formed a double bottom, but short-term MACD only cut up the signal line in the second upwared swing. This gave me the signal to enter.

Total profits of $460.

Fundamental news:

Stocks are mostly on the upside in mid-morning trading on Friday, as earlier weakness on the heels of disappointing retail sales figures has been partially offset by buying interest that emerged following a strong reading on consumer sentiment.

Markets were able to stage a partial recovery as consumer sentiment saw a notable improvement in the month of June according to a report released by Reuters and the University of Michigan.

The report showed that the consumer sentiment index rose to a reading of 75.5 in June from the final reading of 73.6 in May. Economists had expected the index to show a more modest increase to a reading of about 74.5. With the increase, the index jumped to its highest level since January of 2008.

Peter Boockvar, equity strategist at Miller Tabak, said, "Consumers continue to show a stiff upper lip to the macro concerns we all obsess about."

The initial weakness came following the release of a Commerce Department report showing an unexpected decline in May retail sales, with the headline figure slipping by 1.2 percent after a revised 0.6 percent increase in April. Economists had expected retail sales to increase by 0.2 percent.

Also today, the Commerce Department released a separate report showing that business inventories increased by 0.4 percent in April following an upwardly revised 0.7 percent increase in March. Economists had expected inventories to increase by 0.5 percent compared to the 0.4 percent growth originally reported for the previous month.

First Greece, Now Hungary, Next Meltdown??

Fri, 04 Jun 2010 17:39:21 -0300

5 min Emini Nasdaq 100

Hi,

How is it going lately? Market's extremely volatile and it is not easy to make money in this market.. We can really tell where the trend is going.. There appears to be no long term trend. Market has been climbing until late April.then all of a sudden we had the mystery of Dow dropping 10% ?? Just when we thought the markets are pleased with EU's bailout package, we have Hungary destroying it.

Market gapped down by around 40 points today, there is a weak attempt to close the gap, but failed... price then trended down very slowly.. I did not short immediately but waited until price cut down the opening price today.. this was accompanied by stochastics also cutting down the signal line.. I shorted 1 contract at 1854 and held my position all the way till the end as price did not cut up my upper trend line.. I exited only 1834 with profits $400.

Price snapped up to close gap and beyond - $2120 profits

Fri, 21 May 2010 18:17:45 -0300

5 min Emini Nasdaq 100

Hi,

How is it going lately? Today's trade is countertrend, you have to be careful.. I am not recommeding this trading style for everyone but if you know what you are doing, you can make money..

Market has been falling for the past week and we all know that markets cant fall indefinitely.. same logic that price cant go up indefinitely..
We are lucky that there is a gapped today of more than 20 points..

Stochastics was at oversold region and turned up to cut the signal line.. I longed 1 contract at 1779 and another 2 more contracts at 1798 when price found support at the previous close.. I rode that uptrend all the way till 1827 where price hit the moving averages.. profit of $2120..

Gapped down... EURO fears...

Fri, 14 May 2010 18:23:06 -0300

5 min Emini Nasdaq 100

Price gapped down today by a huge margin -> around 15 points.. Should we view this as a timely correction? Markets cannot keep moving up always anway... As day traders, we should be concerned about how we can capitalize on such movements.. When market gapped down and kept moving down.. I did not go in and I was unsure whether the gap will close or not..

There was divergence with my short-term MACD. notice that short-term MACD is moving up whereas price is moving down... this was another factor preventing me from shorting, I was waiting for a pull back to the Moving averages.. unfortunately, this only happened closed to the closing bell..

Fundamentals:

(RTTNews) - Stocks are down by substantial margins in mid-morning trading on Friday, as the markets have largely shrugged off continued improvements on the economic front in the U.S. as the European debt crisis remains a chief concern. The major averages are all firmly in negative territory, adding to yesterday's losses.

A short time ago, Reuters and the University of Michigan released their preliminary report on consumer sentiment in the month of May, showing that sentiment improved roughly in line with estimates compared to the previous month.

Reuters and the University of Michigan said that their consumer sentiment index rose to 73.3 in May from a final reading of 72.2 in April. Economists had been expecting the consumer sentiment index to increase to a reading of 73.5.

In other economic news released recently, the Commerce Department reported that business inventories increased by 0.4 percent in March following a 0.5 percent increase in February. The increase in inventories came in line with economist estimates.

Before the opening bell, the Commerce Department released a separate report showing that retail sales edged up by 0.4 percent in April following an upwardly revised 2.1 percent increase in March. Economists had expected retail sales to increase by 0.5 percent compared to the 1.6 percent growth originally reported for the previous month.

gapped not closed.

Wed, 12 May 2010 18:52:41 -0300

5 min Emini Nasdaq 100

Hi,

How is it going lately?

Market gapped up today and with an onslaught of good market earnings results, basically, I did not expect the gap to close anytime soon... I was looking for a chance to go long. When price pulled back to the moving averages, I longed 1 contract when stochastics cut back up from oversold at 1959. I exited my position at 1966 when price hit the high established earlier, with profits of $140..

Market reaching new highs. Can we rocket all the way up?

Tue, 23 Mar 2010 18:41:15 -0300

5 min Emini Nasdaq 100

Hi,

How is it going lately? Remember the old say " the higher you fly the harder you fall" ? Well, we are in that situation in the markets right now, we have an exuberance where price keeps going up.. There is bound to be a sharp correction sonner or later.. However, we should play along with the market and only go long for now..

I managed to find a long singal when price dropped down towards the moving averages and bounced back.. this was accompanied by stochastics cutting up the oversold line and short-term MACD cutting up.. I longed 1 contract at 1942 and exited at 1950 with profits of $160.

Fed bumps up discount rate, price bounced up but eventually got down!

Sat, 20 Feb 2010 03:29:38 -0300

5 min Emini Nasdaq 100

Hi,

Despite the title, today's trade is purely technical and not dependent on any knowledge regarding the FED's action..
I just want to make sure that you know that we are technical traders, we pay attention to news sources but they don't control our trading decisions.

Price gapped down today only to cover it immediately and bounced back down... It hit my moving average resistance line and started to bounce back up.. this was accompanied by the stocahstics turning up and I longed 1 contract at 1813 ..Notice that short-term MACD went on to cut the signal line shortly after..

Price went further up to cut through the all my moving averages and this is where I longed another 2 contracts at 1818. I only exited my trade when stochastics started to behave strangely and cut down the overbought line at 1828 with profits of $700.

Fed raises banks' emergency-loan rate to 0.75 pct; won't directly affect consumer borrowing
The Federal Reserve decided Thursday to boost the rate banks pay for emergency loans. The action is part of a broader move to pull back the extraordinary aid it provided to fight the financial crisis.

The action won't directly affect borrowing costs for millions of Americans. But with the worst of the crisis over, it brings the Fed's main crisis lending program closer to normal.

The Fed chose to bump up the so-called "discount" lending rate by one-quarter point to 0.75 percent. It takes effect Friday.

The central bank said the step should not be seen as a signal that it will soon boost interest rates for consumers and businesses. It repeated its pledge to keep such rates at record-low levels for an "extended period" to foster the economic recovery.

The Fed had signaled for weeks that a higher discount rate was coming, though the timing of Thursday's decision caught some by surprise. It portrayed its action as moving its emergency program for banks closer to normal.

The announcement came after the financial markets had closed. Investors saw it initially as a prelude to higher borrowing costs across the board. In after-hours trading, the dollar strengthened on the expectation of higher rates. Yields on two-year Treasury securities rose, and stock futures dipped.

After the sell-off in stock futures, Pimco Managing Director Bill Gross warned investors not to overreact.

"I'd accept the Fed at its word -- that this isn't a change in monetary policy or in the timing of it," he said. "Calmer heads may prevail tomorrow."

T.J. Marta, a market strategist, said he thinks higher rates for American borrowers are still months away. But "I think one man's normalization is another man's tightening," he said of investors' initial anxiety.

The Fed has kept the target range for its main interest rate -- the federal funds rate -- at between zero and 0.25 percent since December 2008.

After the Fed's action Thursday, economists said they still believe it won't start to boost borrowing costs for Americans until later this year. Some don't think it will happen until next year, given the fragile recovery.

Chairman Ben Bernanke last week signaled the Fed is in no rush to boost rates.

When the time does come, Bernanke said the Fed will likely start to tighten credit by raising the rate it pays banks on money they leave at the central bank. Doing so would raise rates tied to commercial banks' prime rate and affect many consumer loans. That would mark a shift away from the federal funds rate, its main lever since the 1980s.

Steering interest rates through the excess reserves rate, now at 0.25 percent, gives the Fed more control over money floating around the financial system. The Fed sets that rate directly; its funds rate is just a target.

James Paulsen, chief investment strategist at Wells Capital Management, saw the Fed's move Thursday as testament to an improving economy.

"This may be the bell ringing that the crisis is over," Paulsen said.

The big question over the next few days is whether investors will start selling Treasurys with maturities of two years or less, Paulsen said. Doing so would send yields higher. Savers would start seeing higher interest on their money market accounts.

The economy is growing again, and financial conditions have improved. But unemployment is still near double digits. And demand for loans remains weak. Many ordinary Americans and small businesses have found it difficult to borrow.

When credit virtually shut down starting in 2008, banks that wanted to borrow had nowhere to go except the Fed. Banks can now more easily tap private lending sources. As a result, the Fed feels more comfortable about boosting the rate banks pay on emergency loans.

Because conditions have improved, the Fed also said it will shorten the length of loans drawn from its emergency lending program. It will return to the historical norm of overnight loans, effective March 18. During the crisis, the Fed had lengthened the loans to 30 days.

Earlier this month, the Fed shut down a handful of programs to help banks and other companies access credit. Like those shutdowns, the action Thursday is "intended as a further normalization of the Federal Reserve's lending facilities," the Fed said.

"The modifications are not expected to lead to tighter financial conditions for households and businesses and do not signal any change in the outlook for the economy or monetary policy," the Fed said.

Banks have scaled back their use of the Fed's emergency "discount" loan window as conditions have improved.

At the peak of the crisis in the fall of 2008, daily borrowing from the discount window reached $110 billion. Commercial banks averaged $14.3 billion in daily borrowing for the week that ended Wednesday, the Fed said in a report Thursday. That was down from $14.6 billion for the previous week.

Congress has demanded the Fed identify the banks that draw on the emergency loans. The Fed has resisted. Bernanke and his colleagues have argued that identifying the banks that take out emergency loans could cause a run on the institution.

Created by Congress in 1913 after a series of bank panics, the Fed acts as "lender of last resort" to banks that can't borrow elsewhere. Its actions help stabilize the financial and economic systems. And its decisions on rates affect the ability of companies and individuals to borrow and spend.

The wind-down of Fed programs earlier this month, most of which had fallen out of use, was little noticed. A bigger impact could be felt by the scheduled shut-down of the Fed's program to buy mortgage securities from Fannie Mae and Freddie Mac. That program is slated to end after March.

The purchases of mortgage securities have lowered home-loan rates and bolstered the housing market. The Fed has held the door open to extending the program if the economy weakens. Some analysts fear that once the program ends, mortgage rates could rise, hurting the recovery in housing and the overall economy. Rates on 30-year mortgages averaged 4.93 percent this week, Freddie Mac reported.

Unwinding the Fed's stimulus is the biggest challenge for Bernanke in his second term, which began Feb. 1. Moving too soon could short-circuit the recovery. Waiting too long could unleash inflation and feed a speculative asset bubble.

More insights into the Fed's strategy will likely come when Bernanke testifies on Capitol Hill next week.

David Rosenberg, chief economist at money manager Gluskin Sheff in Toronto, says the Fed's decision to bump up the emergency lending rate for banks is psychological but still packs a punch.

"The Fed is moving toward a new strategy of draining liquidity from the system," he says. "Will the Fed be raising the Fed funds rate soon? No. But what happens when it stops buying mortgages or even starts selling? That could have a material impact on mortgage rates."

Gapped up but remained in narrow range ...

Tue, 16 Feb 2010 18:00:41 -0300

5 min Emini Nasdaq 100

Hi,

How is it going lately? Price gapped up today and continued on it's path of upward trending... however, you can see that the real movement is only during the first 2 hours... thereafter price remained jin a narrow range... bounded in narrow bollinger bands... I certainly don't want to be trading in such conditions. There is no tradeable signal from either stochastics or MACD... No trade today..

Soveriegn Risk, jobless claims rise

Thu, 04 Feb 2010 17:40:44 -0300

5 min Emini Nasdaq 100

Jobless claims increased more than expected and the recent debt crisis experienced by Greece are all bad news still hanging in the air..
Finally we are seeing some big movement... Price gapped down and kept on sliding all the way till closing bell.

There was not a signal from either stochastics or short-term MACD that allows me to short with comfort! I missed the shorting trade... But, let me remind you again that trading is a disciplined art, we should stick to our rules in all circumstances..

Price surged during open... MA sloping up...

Tue, 19 Jan 2010 17:33:02 -0300

5 min Emini Nasdaq 100

Hi,

How is it going lately? Price surged during the opening bell.. with moving averages sloping upwards... stochastics was already in the overbought region and short-term MACD cut up the signal line...

Price exhibited strong action, but there was no signal for me to go long... No trade today..

s Birthday - No trade today.

Mon, 18 Jan 2010 17:01:47 -0300

5 min Emini Nasdaq 100

Hi,

Nasdaq is effectively closed today, but we can still see some action in the futures market..
Market gapped up and price went up in a straight line.. But I don't recommend you trading in a light market..

No trade today.

Price bounded in range, slightly upwards sloping MA

Thu, 14 Jan 2010 17:01:24 -0300

5 min Emini Nasdaq 100

Hi,

How is it going lately? Price is stalling again as it approaches the resistance formed by a previous high 4 days ago... Moving averages only slope up slightly and I would really like it to have a little bit more slope before I even think of going long..

Stochastics and short-term MACD are not very symmetrical reflecting the price action characterised by short-bodied candlesticks..
Short-term MACD stayed closed to the zero line..

This is no condition for going long... No trade today.

$180 profits

Tue, 12 Jan 2010 17:40:00 -0300

5 min Emini Nasdaq 100

Hi,

How is it going lately? Price gapped down today and never covered the gap... Market is having second thoughts about the so called recovery? At least today, we can tell that market is weak.. Moving averages are sloping down and there is no way we should be thinking of going long, I am looking for a chance to short...

My chance came when stochastics started to cut down the signal line. However this was not accompanied by the same price movements... I shorted only when price broke down the support line at 1862.. I exited the trade at 1853 with $180 profits when stochastics started to cut up the oversold region..

$480 profits

Mon, 11 Jan 2010 17:35:59 -0300

5 min Emini Nasdaq 100

Hi,

How is it going lately? Market has been going up and up.. Apparently we are in an optimistic market... However there is a slight correction today and I made use of this to earn some money!

Price began to fall at the opening with stochastics cutting down from the overbought region.. I shorted 1 contrat at 1891 and another 2 contracts at 1885. As moving averages are flat, price cut it with ease... Notice how short-term MACD also cut the signal line down? The same applies to mid-term MACD

I exited at 1879 when stochastics started to cut up the signal line from the oversold regioin.. profits of $480.

P Sights Key February High; Risk 1,442.30

By virtue of Friday’s latest round of new highs for the past month’s recovery, the S&P 500 market has defined last Thur’s corrective low and 38.2% retracement as the latest and tightest risk parameter to a continued bullish policy. Looking at the 60-minute chart of the June futures (top, right), a failure below 1,442.30 is thus required to confirm a momentum divergence that, just ahead of 22-Feb’s key 1,464.50 high and with a 72% bullish sentiment reading, will expose a larger-degree correction or reversal lower. In lieu of such specific proof of weakness, further, and possible accelerated gains should not surprise. Indeed, looking at the weekly log chart of the underlying cash index (top, left) and the exact 38.2% retracement the Feb-Mar shocker held, it’s certainly reasonable to consider that break a complete bull-market correction within the secular advance to new highs above those key late-Feb highs. In this very specific regard then, a bullish policy is advised until the market fails below 1,442.30 in the June futures and 1,433.91 in the underlying cash index. For further discussion, please phone us at 312-726-0700.

Rgds&good luck,

Dave

Enlarge Image

Flexibility and $61.35 Keys To May Crude

Flexibility to both directions will be a key in the weeks ahead until the market breaks out of the recent 61.35– 66.78 range shown in the 240-minute bar chart (inset). We advise a slight bullish bias simply because the longer-term trend is arguably up until or unless the market fails below at least last week’s 61.35 low.

A few reasons have developed to be leery of a broader peaking/reversal possibility however. First, the Jan-Mar rally, to this point, is only a 3-wave affair. Left unaltered by resumed strength above 66.78, this would be considered a corrective sequence ahead of resumed losses or a broader lateral consolidation process.

Secondly, the area of the (67.50) 61.8% retracement of the entire Jul06– Jan07 decline has this far capped the recovery. Lastly and perhaps most importantly, long positions by large spec accounts has ballooned out to levels not seen since those that accompanied last Oct06’s major peak. As long as the market sustains its recent advance, such a sentiment condition is of no matter. But if the market fails below 61.35, this confirmation of at least the short-term trend being down will create another condition of downside vulnerability similar to last Oct06 when the market melted down.

In sum, traders are advised to consider a cautiously bullish stance with a failure below 61.35 required to negate this view and expose a larger-degree correction or reversal lower. For further review or an intra-day update, please phone us at 312-726-0700.

Kind rgds,

Dave

Enlarge Image

June 10-Yr Decline Intact Below 107.19

Not only is the past month’s simple downtrend pattern well intact as best shown in the daily (bottom, left) and hourly (bottom, right) charts below, long positions by large spec accounts remains stubbornly high and near the levels that accompanied last Oct06’s peak. Buying into that Oct break ended up working outquite well. But from a disciplined standpoint and without a defined low defined by a confirmed bullish divergence in mo above at least Friday’s 107.185 corrective high, such a tack is bucking a trend that is vulnerable to indeterminate losses below.

107.04 marks a Fibonacci progression relationship that makes the current decline from 109.08 61.8% of the length of the preceding 109.205– 106.07 decline. But as always, with an accompanying bullish divergence in mo to lend credence to such a merely derived level, we cannot rely on such as a support condition of any merit. As a result, further losses remains expected, with 107.185 (tight) and 107.235 the levels the market is required to recover above to threaten or defer the decline. For further review, please phone us at 312-726-0700.

Rgds&good luck,

Dave

Enlarge Image

USDJPY Whipsaws, Resumes Rally

Usually when we’re flat out wrong on a market call, the market’s a little more merciful by leading us on for awhile before putting the hammer down. It was ruthless Friday as the USD resumed its recent recovery more swiftly than many of you may have received our email that the combination of a bearish divergence in mo and a rejection of the 61.8% retrace level warned of a market peak. In hindsight, looking at the 240-minute chart (bottom, right), the market held support around the area of former 118.50-area resistance March and promptly negated the bearish divergence by posting new highs above last week’s 119.54 high. As a result, the six week uptrend is back intact, with Friday’s 118.22 low the tightest level the market is now required to fail below to again threaten the advance and expose a larger-degree correction or reversal lower.

Bullish sentiment accorded the yen remains relatively pessimistic at 33%, but surprisingly, short positions from large spec accounts is nowhere near the excessive state that accompanied the early-Feb peak and reversal in the USD. As a result, and in lieu of weakness below 118.22 which serves as our new risk parameter to a cautiously bullish policy, further, and possibly accelerated gains have again been exposed.

Rgds&good luck,

Dave

Enlarge Image

Euro Bull Sites 1.3666 Dec04 High; Risk 1.3408

There are three things of technical importance that stick out from the collage of euro charts below. First and foremost, the trend remains clearly up. Secondly, weakness below at least 11-Apr’s 1.3408 corrective low is required to threaten the advance that, given the excessive but understandable bullish sentiment, will expose a larger-degree correction or reversal lower. In lieu of such weakness, further gains remain expected. Thirdly, the weekly (bottom, left) and monthly (top,left) charts show that the market is nearing Dec04’s 1.3666 high that will no doubt be highlighted by all techies. But while consideration of this area as a resistant candidate is a given, we believe an accompanying display of waning strength via a confirmed momentum divergence below a recentcorrective low remains as a key requirement of any more significant pause of reversal of the ongoing uptrend. In lieu of such proof of waning strength, intra-week dips are advised to still be considered corrective buying opportunities ahead of eventual gains to new highs above this key 1.3666 reference point, the break of which will have many then focusing on the Apr95 high of 1.4520.

In sum, hesitant dips as the market approaches the key 1.3666 high are to be expected, but considered as corrective buying opportunities ahead of further gains, with recent corrective lows of 1.3408 (tight) and 1.3338 the most important technical levels and conditions in our opinion. For further discussion or an intra-day update, please phone us at 312-726.0700.

Kind rgds,

Dave

Enlarge Image

USDJPY Reverses Lower; All Bullish Bets Off

The acute combination of a confirmed bearish divergence in momentum shown in the 240-minute chart (bottom, right), a pessimistic 33% bullish reading accorded the yen, and the market’s acknowledgement/rejection of the (119.50-area) 61.8% retracement of the Jan-Mar 122.18 – 115.15 decline shown in the daily chart (top, right) defines Wed’s 119.54 high as one of developing importance as not only a clear resistant condition, but an objective risk parameter to a bearish policy and possible resumption of the Jan-Mar reversal lower. As a result, all bullish bets are off, with proof of laboured, corrective behaviour on intra-week recovery attempts reinforcing proof of a broader developing move south. Such corrective recovery attempts will be considered shortingopportunities ahead of what could be sharply lower levels in the days and even weeks ahead, with strength above 119.54 required to negate this bearish turn of events. For further discussion or an intra-day update on levels and bearish trade opportunities, please phone us at 312-726-0700.

Rgds&good luck,

Dave

Enlarge Image

TYM Southbound Express Still Rolling

Especially on the heels of last week’s payroll-related acceleration of the past month’s sell-off, the TYM southbound express is required to slowdown before it can be expected to reverse. In other words, it has to create a bullish divergent condition. Perhaps this week’s lateral chop shown in the hourly chart (bottom,right) is a developing component of such a reversal process, but this would still require at least one more round of new lows below last Fri’s 107.11 low AND a failure to sustain such losses below a recent corrective high like yesterday’s 107.235 high. There are obviously a lot of “ifs” needed to define a more objective basing/reversal environment.

As a result, a continued bearish policy remains advised, with new lows below 107.11 expected, and possibly accelerated losses thereafter. In the daily continuation chart (bottom, left) we have noted that the market has already retraced 61.8% of the Jan-Mar rally from 106.07 to 109.08 and that the 0.618 progression of the preceding 109.205– 106.07 decline from 109.08 cuts across at 107.04. Fine. But without any accompanying bullish divergence in mo to lend credence to these derived Fibonacci relationships, they are merely noteworthy.

At this juncture, strength above 04-Apr’s 108.09 corrective high remains required to jeopardize the impulsive integrity of this bearish view, so protective buy-stops are advised just above this level. Those with tighter risk profiles may want to consider stops just above yesterday’s 107.235 high, but this luxury of a tighter stop always come at the expense of whipsaw risk. For further discussion or an intra-day update, please phone us at 312-726-0700.

Rgds&good luck,

Dave

Enlarge Image

Euro Bull Intact Above 1.3338

There’s not a lot new with the euro as the clear uptrend remains intact and orderly. The monthly chart (top, left) shows that the market has reached the trend line that connects the major 1995 and 2004 highs, but we believe this derived level takes a back seat to the clear and secular bull trend.Rather, we advise traders to focus on recent corrective lows like Monday’s 1.3338 low the market is now required to fail below to provide a much more objective indication of weakness. In lieu of such proof of waning strength, further, and possibly accelerated gains remain expected, with the Dec04 1.3666 high the next obvious upside threshold.

Bullish sentiment remains extremely optimistic at 79%, but as we’ve always warned, such indications of a market being “overbought” are totally irrelevant as long as the trend is sustaining its gains. Only upon proof of a confirmed momentum divergence will this contrary opinion factor become applicable and warn of a larger-degree correction or reversal lower. And this requires a failure below a recent corrective low like 1.3338.

As a result of this technical condition, full bullish exposure remains advised, with protective sell-stops trailed to 1.3330 for those with tighter risk profiles, and 1.3250 for those with longer-term views.

Kind rgds,

Dave

Enlarge Image

Crude Oil\'s Downside Vulnerability Could Surprise

The extent and impulsiveness of yesterday’s May crude oil break through the 63-handle support presents a very interesting technical development that will likely effect many other markets if this slide evolves into a broader bear move.

As a quick longer-term review, the combination of excessive bullish sentiment and confirmed bearish divergence in momentum last August shown in the weekly chart (top, left) exposes the possibility of a major, multi-year reversal lower. We have conceded however that the 3-wave-looking decline from last year’s high to Jan07’s 49.90 low could likewise be a complete corrective process within the secular bull that is in the early stages of it’s resumption to eventual new highs above last year’s extreme heights. In essence, we’re saying that the long-term price trend is still indeterminate at this juncture, so flexibility to a $30+ move either way is advised. In this long-term regard, we’re not of much help. From an intermediate-term and more practical perspective however, this week’s continuation of last week’s relapse tilts the longer-term directional scales south, with near-term strength above yesterday’s 64.36 high required to threaten or defer a bearish count.

On the heels of such a mega-bull trend the market experienced prior to last year’s peak, such sharp, counter-trend reversals as the market experienced from July06 to Jan07 are typically retraced more fully, and often times at least 61.8%, in order the entice the masses into another vulnerable bullish position needed to fuel the next decline. Looking at the weekly and daily (bottom) charts, the recent relapse has stemmed from the area of the (67.50) 61.8% retracement of the entire Jul06 – Jan07 decline. Even more important is the recent spike in bullish positions by large spec accounts (i.e. CTAs and hedge funds) to the most bullish exposure since that that accompanied last July/Aug’s peak and reversal. The chart of the CFTC’s Commitments of Traders Survey is shown below and indicates the increase in bullish positions that the late-March rally enticed.

This combination of an increase in bullish sentiment and positions with a confirmed bearish divergence in momentum below the 63.50-area exposes the market to a larger-degree correction or reversal lower. As importantly, the developing decline has left in its wake recent corrective highs like 64.36 the market is now required to recover above to jeopardize the impulsive integrity of any broader bearish potential. Given the longer-term prospect that the Jan-Mar recovery is a complete 3-wave, and thus corrective affair within a broader bear trend that began last year, we cannot ignore the possibility at this point that last year’s bear trend is resuming to eventual new lows below 49.90.

Clearly, such a bearish count or prospect currently earns little regard, especially heading into the summer driving season. And as soon as the market stems the current slide with more objective proof of strength via confirmed bullish divergence in mo, we can again focus our attention on this market’s upside potential. In lieu of such proof of “non-weakness” and/or a recovery above 64.36 however, the market’s downside potential should not be underestimated. As such, traders are advised to move to a neutral-to-cautiously-bearish policy.

For further discussion or an intra-week update, please phone us at 312-726-0700.

Rgds&good luck,

Dave

Enlarge Image

Secular Aussie Bull Romps To 16-Year High

In one of the clearest, most orderly and textbook examples of a bull trend, the Aussie$ has broken Dec96’s 0.8212 high to post the highest rates versus the USD is 16-1/2 years. Not only is the uptrend clear, so too are the recent corrective lows that have also been stair-stepping higher as the objective risk parameters to a bullish policy. As a result of this latest round of new highs, yesterday’s 0.8151 corrective low becomes the latest, tightest, but still objective risk level the market is required to fail below to threaten or defer the 6-year secular advance. Those with medium or longer-term risk profiles should require a failure below at least 03-Apr’s 0.8066 corrective low before taking defensive measures. In lieu of weakness below at least 0.8151, further, and possibly accelerated gains should not surprise, with Aug 1990’s 0.8493 high the next upside threshold of any merit.

Kind rgds,

Dave

Enlarge Image