By Vadim Pokhlebkin
Today, the EUR/USD stands well below its November peak of $1.51. Find out what Elliott wave patterns are suggesting for the trend ahead now — FREE. You can access EWI’s intraday and end-of-day Forex forecasts right now through next Wednesday, February 10. This unique free opportunity only lasts a short time, so don’t delay! Learn more about EWIs FreeWeek here.
What moves currency markets? “The news” is how most forex traders would undoubtedly answer. Economic, political, you name it — events around the world are almost universally believed to shape trends in currencies.
A January 14 news story, for example, was high up on the roster of events that supposedly have a major impact on the euro-dollar exchange rate. That morning, the European Central Bank announced it was leaving the “interest rate unchanged at the record low of 1% for an eighth successive month.” (FT.com)
The euro fell against the U.S. dollar after the news. But could it have rallied instead? You bet. In fact, traditional forex analysis says it should have. Here’s why.
Analysts always say that the higher a country’s interest rates, the more attractive its assets are to foreign investors — and, in turn, the stronger its currency. Well, U.S. interest rates are now at 0-.25% and in Europe, at 1%, they are 3 to 4 times higher. Isn’t that wildly bullish for the EUR? Apparently not, and wait till you hear why — because in today’s announcement ECB president Jean-Claude Trichet warned that European recovery would be “bumpy.” Ha!
By no means is this the first time a supposedly bullish event failed to lift the market. On June 6, 2007, for example, the ECB raised interest rates. Bullish, right? But the euro didn’t gain that day, either — the U.S. dollar did.
Watch forex markets with these “inconsistencies” in mind and you’ll see them often. In time you realize that it’s not news that creates market trends — it’s how traders interpret the news. That’s a subtle — but hugely important — distinction.
So the real question becomes: What determines how traders interpret the news? The Elliott Wave Principle answers that question head-on: social mood — i.e., how they collectively feel. Currency traders in a bullish mood disregard bad news and buy, leaving it to analysts to “explain” why. Bearishly-biased traders find “reasons” to sell even after the rosiest of economic reports.
If you know traders’ bias, you know the trend. How do you know? Watch Elliott wave patterns in forex charts – it’s reflected in there, on all time frames.
Today, the EUR/USD stands well below its November peak of $1.51. Find out what Elliott wave patterns are suggesting for the trend ahead now — FREE. You can access EWI’s intraday and end-of-day Forex forecasts right now through next Wednesday, February 10. This unique free opportunity only lasts a short time, so don’t delay! Learn more about EWIs FreeWeek here.
Scott Redler of T3Live
With the jobs number out and the market oversold, I focused on trying to find a bounce in Apple (AAPL) and Goldman Sachs (GS). In this morning’s note, I highlighted exactly what I would look for. This is what I wrote:
…watch Apple (AAPL)–it had a second downmove yesterday from the $194-195 zone. Some will try to short that zone for a sell setup. Others will use yesterday’s low (if the market gets pressured) as a pivot. It could trade through that spot for another move lower, catch some support at a lower level, then perhaps trade higher.
Both worked trades worked well to generate cash flow. We call this setup the REDDOG REVERSAL. It’s a play to trade a calculated long (or short) in an overextended market.
Here are the charts to provide a visual description of the two setups. First is AAPL:
…and here’s Goldman:
You can either take the money already earned from the trade, or sell some and leave the rest on the table with some room to run for a day or two swing. It all depends on your personal trading time horizon.
From the BLS:
The unemployment rate fell from 10.0 to 9.7 percent in January, and nonfarm payroll employment was essentially unchanged (-20,000), the U.S. Bureau of Labor Statistics reported today. Employment fell in construction and in transportation and warehousing, while temporary help services and retail trade added jobs.
Click on graph for larger image.
This graph shows the unemployment rate and the year over year change in employment vs. recessions.
Nonfarm payrolls decreased by 20,000 in January. The economy has lost almost 4.0 million jobs over the last year, and 8.42 million jobs since the beginning of the current employment recession. (note: job losses were 7.2 million before benchmark revision).
The unemployment rate declined to 9.7 percent. (I’ll have more on that soon)
The second graph shows the job losses from the start of the employment recession, in percentage terms (as opposed to the number of jobs lost).
For the current recession, employment peaked in December 2007, and this recession is by far the worst recession since WWII in percentage terms, and 2nd worst in terms of the unemployment rate (only early ’80s recession with a peak of 10.8 percent was worse).
From the time the market started rallying last March, skeptics have been warning of a coming storm ahead.
Today, it felt like we experienced it. As one market pro put it today: This was real.
Here are the key highlights:
- The 15 sovereigns at risk of collapse >
- 20 reasons the economy can’t recover >
- Morgan Stanley: We can’t believe how fast the euro unraveled >
- The Dow crashes through 10,000 >
- It’s a good thing you’re hedge with gold >
- The crazy action in leveraged ETFs >
- TALEB: Everyone should be short treasuries >
- The countries short-sellers are abusing >
- Commodities hammered >
- Moody’s: The US debt is vastly understated and on course for a downgrade >
- Portuguese debt disaster bludgeons the euro >
The DOL reports on weekly unemployment insurance claims:
In the week ending Jan. 30, the advance figure for seasonally adjusted initial claims was 480,000, an increase of 8,000 from the previous week’s revised figure of 472,000. The 4-week moving average was 468,750, an increase of 11,750 from the previous week’s revised average of 457,000.
…
The advance number for seasonally adjusted insured unemployment during the week ending Jan. 23 was 4,602,000, an increase of 2,000 from the preceding week’s revised level of 4,600,000.
Click on graph for larger image in new window.
This graph shows the 4-week moving average of weekly claims since 1971.
The four-week average of weekly unemployment claims increased this week by 11,750 to 468,750.
This is the third weekly increase in a row for the four week average, and the average is now 28,000 above the low in early January. Both the level of claims, and the recent increase in the 4-week average, are concerning and suggest continued job losses.
If you want to initiate swing longs with the belief that the bull trend is intact then do yourself a favor and don’t do it until these levels are taken out on GS IYR XLE. We had been watching these levels for days (on Twitter and in our newsletter) and all three held where they should meaning that resistance is to be respected:
GS reversed at the 160 level we’ve been talking about for several days. If you’re a bull you want that level and then the 200 SMA taken out with force.
IYR reversed at the 50 SMA and is leading the market down — be patient and wait for that to be remounted.
Whether one likes it or not oil stocks are a big part of the current market — wait for XLE to re-gain the 50 SMA.
A Great Newsletter for Active Traders
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Submitted by Kletus Klump
T3Live
The oversold bounce continued yesterday and the digestion of the recent down move is healthy. The bounce could continue in select stocks today but in the end we look to see the downward momentum resume after some rest. BIDU is a stock that has built a base and still has room to bounce. AAPL has shown some relative weakness and looks ripe for a trade in the coming days. The banks on the other hand have had a nice two-day bounce…. Continue Reading More Here
Bespoke Investment Group says the market is screaming oversold, based on multiple indicators they track. In particular, 10-day average trading volume for NYSE listed stocks as a percentage of total market volume has hit 35%. This is higher than any reading since November 2009 and is two standard deviations away from a standard reading.
According to Bespoke, this is significant:
Bespoke: In the charts below, we show the S&P 500 and the 10-day average upside volume on the NYSE. On the chart of the S&P 500, we have also included red dots to show each time upside volume was at least two standard deviations below average. As shown, most (although not all) of these readings have occurred near short-term lows. In fact, in the week following these instances, the S&P 500 has averaged a gain of 0.89%. Over the next month, the S&P 500 has averaged an even greater gain of 4.3%.
AIG is a stock that has been very profitable for us since the summer and one that is on our radar again today. The stock likes to get into very tight ranges before exploding in one direction or the other, and has recently formed a very tight range. The chart tells us to look short this time, and we will keep a very close eye on the trade for range resolution. The trade is multi-layered and can be executed based on your optimal time horizon. The initial trigger is 23.04, then next support is at 22.50, next at 21.30, and then there is nothing in the way of it getting down to 13.50, which would represent a 40% depreciation in the stock price. The stock is truly unique for trading because nobody really has a reasonable valuation for the company and much of the float of the stock is owned by the government. The stock is extremely volatile after breaking out of ranges and should yield another great opportunity in the coming days…. Read More Here
