Friday 7 December 2012

GbpAud - 60 Minute Chart

Missed this one but there is still more to come until we reach the measured move target at 1.5250.

EurGbp --- Euro worries will re-emerge

There is a saying in the markets that "when fundamentals and technicals disagree, you side with the technicals" .

Given the recent parade of the Euro bulls telling us that all is well now in Europe, Greece is sorted, Spain can go to the OMT/EFSF/etc and we have seen the worst, EurGbp charts are warning of something completely different... Of course it may be GBP strength rather than Eur weakness...but I just cant see that in the GBP charts. Lets have a look.

The Daily EurGbp chart looks to be forming the right shoulder of a Head and Shoulders pattern whose neckline comes in currently at 0.7985. The measured move target should the pattern play out, would be close to 220 points from the break or retest/fail point which would come in very close to the lows reached earlier this year at 0.7753.

The current decline should either copy leg aX ( target 0.7955) or AB ( target 0.7942) with the Fib confluence at 0.7935, an 113.0% extension after an 88.6% retracement of AB.

Giving further credibility to the idea of the decline is the monthly chart.

During the past 5 months we have been in a consolidation phase, with the market caught in between the 50% and 61.8% Fibs of the 2007-2008 rally (0.6535// 0.9801). The current retracement of that rally appears to be that of an AB=CD decline of which we are currently finalising the CD leg whose measured move target lies at 0.7350 which is also confirmed by Fib confluence after the 50-61.8 Fib retracement of AB would target the reciprocal 1.618-200.0 extension zone.

Looking at these charts leads me to believe that the Eur bulls have this completely wrong and something is about to go pear shaped yet again in Europe over the coming weeks and months.

Gold - Daily

Gold Daily chart remains bearish and is currently forming the CD leg of an AB=CD pattern with the measured move target at 1631.

On the downside initial support lies at the 169 Ema at 1685, then zone 2 at 1661.80/1672.50. A break of which would open up the measured move target area at 1621/1631 which is a combination of AB=CD, Fib confluence 61.8/1.618 and the daily uptrend support line.

At this point only a break above the recent high at 1755 would invalidate. First resistance lies with the 55 Ema currently at 1721.

Thursday 6 December 2012

EurAud Update

60 min EurAud Head & Shoulder pattern still in force after the pair held first support last night to retest the neckline at 1.2480 . The failure to break back above the neckline confirms the validity of the pattern with the measured move target revised to 1.2380. On the day 1^st support lies at the Asian session LOD at 1.2472 then S1 and the 50 Fib at 1.2438/42 with the third support zone at S2 and the 61.8 Fib at 1.2412/15.

At this point only a break and close above 1.2485 would invalidate the pattern.

Wednesday 5 December 2012

EurAud 60 min

EurAud - Hourly Chart

Head and Shoulder Pattern formed with current price action testing neckline at 1.2495. The Target of the move sits at 1.2405 slightly under the 61.8 Fib retracement of the last up leg from 1.2334.

Initial support at 1.2471/80 - with S1, 111ema and previous horizontal support. Then 50 Fib at 1.2439 and S2. Followed by the target zone inbetween the 61.8 and 70.7 Fibs.

An hourly close back above the neckline and daily pivot at 1.2503 would invalidate for a retest of 1.2543 highs.

Opening Print - Mr. TopStep

WHERE ALL THE E-MINIS WENT

Let’s face it, the credit crisis has devoured just about everything we touch and see. Things we thought could never be affected are getting affected. From job loss to losing a home, every American is feeling the pinch.

It also has had a big effect on the volume of the Chicago Mercantile Exchange’s electronic mini S&P futures, called the ES. Over many years of watching the S&P I have seen all levels of cause and effect. I know for a fact when the markets were busy and all the big boys like Louis Bacon of Moore Capital, Paul Jones of Tudor, Bruce Kovner from Caxton and George Soros were all pumping orders into the S&P pit that they were are not doing it for fun. In the ’87 crash every one of the guys I just named sold the S&P days or weeks before.

Generally after a steep decline, volume will drop. As the stock market starts to recover the public starts buying again and the institutions and big banks start making prices again. When that happens, program trading picks up and the volumes jump. It works for everyone all the way down to the guy picking up the phone in the S&P pit. When everyone is trading, liquidity jumps and open interest rises. Our desk knows all about how that worked back then and how it works today.

In the late ’80s and ’90s every desk in the S&P futures was doing orders. It didn’t matter if it was a big or a small order, someone was putting them into the pit. Then in the late ’80s the CME came up with its first order routing system. It was the open outcry system of buying and selling with your hands in the pit. Brokers trading with other brokers, brokers trading with locals and locals trading with other locals all helped make up the bid / offer. Sure you could get some bad fills, but you knew there was going to be a bid to hit or an offer to lift.

In 1989-90, program trading volume started to increase in the S&P futures; everyone wanted to do S&P index arbitrage. It was the craze of the day. By 1995 program trading had become a predominant factor in the S&P futures. It could no longer be overlooked by professional traders. In 1996 electronic trading was introduced. Open outcry volumes were already going down, but as Globex took more volume away from the pit trade, program traders started to automate. The initial cost was high, but it also took out the human error factor. As the pit dried up, electronic ES volumes started to jump. We know from running a desk what “busy” looks like in the S&Ps when everyone is trading. Going into the credit crisis in 2007, overall volume was 2 to 3 mil e-minis a day. As the crisis dragged on, volumes jumped to over 4mil to 5mil contracts a day. You could feel and see the liquidity building up. This buildup was not at all like in the past. In October of 2009, the volume in the CME’s e-mini S&P futures jumped to an all-time high of 6.9mil contracts. As big Wall Street firms went out of business, it drove up the volumes but with the record volume came record liquidation. The more firms and trading desks went out of business, the lower the volumes went. It was a volume bubble in the S&P and it has never recovered.

The credit crisis has not only knocked out some of the big players on Wall Street but it has also affected the retail trader. The absence of this volume is a key factor in why the S&P floats up and down. After a volume spurt, the S&P has to rebuild itself and more stops have to be placed. The space that used to be filled with professional traders, hedge funds and banks and retail traders has been taken up by the algorithms and program trading. This is why the S&P goes from buy stops to sell stops all day long.

In the old days it was big order flow that got things going in the S&P pit and today it’s the algos chasing stops. As traders we need to follow the news, but we also have to be on the lookout for where the closest set of stops are …

Danny Riley is a 34-year veteran of the trading floor. He has helped run one of the largest S&P desks on the floor of the CME Group since 1985.

Our view:
Until the government comes up with an agreement over the fiscal cliff, the S&P is going to be hanging in the wind. As of today there are 7 days left on Congress’ calendar before it adjourns for the rest of the year. As we have said many times, the S&P hates uncertainty and that is exactly where are are at today. We also have pointed out that the S&P tends to be weak Monday through Wednesday and firm up Thursday and Friday. With that in mind, we lean to selling rallies. As always, keep an eye on the 10-handle rule and please use stops.

Today’s data:

· It’s 7 a.m. and the SPZ is trading 1409, up 1.9 handles; crude is trading 88.42, down 67 cents; and the euro is up 37 pips at 1.3096.

· In Asia 6 out of 11 markets closed lower (Shanghai Comp -0.78%, Hang Seng +0.15%).

· In Europe 6 out of 12 markets are trading lower (CAC +0.70%, DAX +0.28%).

· Today’s headline: “S&P Futures Signal a Higher Open”

· Economic calendar: Today: Earnings from AutoZone, Toll Brothers, Pandora, Mattress Firm. WEDNESDAY: Weekly mortgage apps, ADP employment report, productivity & costs, factory orders, ISM non-mfg index, oil inventories; Earnings from Men’s Wearhouse. THURSDAY: BoE announcement, Challenger job-cut report, ECB announcement, jobless claims, quarterly services survey, Apple/Samsung hearing; Earnings from H&R Block, Lululemon, Smithfield Foods, Cooper Cos. FRIDAY: Employment situation, consumer sentiment, consumer credit

· Globex volume: 1.65mil ESZ and 13k SPZ trade

· Fair value: S&P +1, NASDAQ +3.25

Tuesday 4 December 2012

Fiscal Cliff Talks continue......

REASON TO BE CONCERNED: 8 DAYS AND COUNTING

From Mr Topstep

If you turned on any of the Sunday morning talk shows, you already know that the U.S. government is going nowhere fast on the financial cliff talks. On Fox, Speaker John Boehner said there was “no deal on the financial cliff,” while on NBC’s “Meet the Press” Treasury Secretary Timothy Geithner said the government is nearing a deal, but not without a tax increase.

With exactly 8 days left until Congress adjourns for the year, Democrats are blaming the Republicans for the log jam. In reality neither side is budging and the rank and file do not appear to be gearing up for a fight. With no compromise and the clock ticking, the markets are going to get very unstable. In the last few weeks the (^GSPC:SNP) S&P futures have gone from a big down move that included a high level of S&P index arbitrage sell programs to big index buy programs. With the shift came a big reversal in the overall tone of the markets too. Many traders we talk to on the floor of the CME Group (CME) say they thought there would be a compromise by now. In ordinary times we would too, but these are anything but ordinary times. There is continuous talk that there are both moderate Republicans and Democrats who recognize that a deal has to be made. From the way Timothy Geithner was talking, the fight is over concerning higher taxes on the rich. In the last few days there has been talk that things are so far apart there will be no deal. Even if a deal is reached, many are beginning to think it won’t be until Christmas or January. The funny part of all this is that when it is finally agreed on, all it will do is just put off another fiscal cliff down the road. Regardless of what either side agrees on, the road ahead is going to include some serious reforms that have to be carefully implemented.

When you break it down, it all comes down to entitlements. The White House is talking raising taxes on the rich but they are not talking about where the rest of the cuts are going to come from. One of the top stories out last Friday was written by Ben White of Politico.com titled Administration mind meld: fiscal cliff edition – GOP response: Is this a joke? – Exclusive: Why Morgan Stanley went hard on the cliff – Obama hits the road. It’s a great read and says it like it is: http://www.politico.com/morningmoney/1112/morningmoney9568.html

By Danny Riley

Our view:
Right now the markets are moving off of one thing and one thing only: the cliff. Because of this the ESZ is being dominated by short term / day trading run by program trading and the HFTs. The way the markets act is they are betting on a resolution but no one knows when that will be. It’s our guess not until year end.

Today’s data:

§ It’s 1 a.m. and the SPZ is trading 1421.50, up 6.8 handles; crude oil is up 95 cents at 89.86; and the EurUsd is up 80 pips at 1.3052.
§ In Asia 6 out of 11 markets closed lower (Shanghai Comp. -1.03%, Hang Seng -1.19%).
§ In Europe 11 out of 12 markets are trading higher (CAC +0.80%, DAX +0.44%).
§ Today’s headline: “S&P 500 Futures Signal a Higher Open”

§ Economic calendar: Today: ISM manufacturing index, construction spending, Fed’s Bullard speaks, auto sales; Earnings from PepBoys. TUESDAY: Earnings from AutoZone, Toll Brothers, Pandora, Mattress Firm. WEDNESDAY: Weekly mortgage apps, ADP employment report, productivity & costs, factory orders, ISM non-mfg index, oil inventories; Earnings from Men’s Warehouse. THURSDAY: BoE announcement, Challenger job-cut report, ECB announcement, jobless claims, quarterly services survey, Apple/Samsung hearing; Earnings from H&R Block, Lululemon, Smithfield Foods, Cooper Cos. FRIDAY: Employment situation, consumer sentiment, consumer credit
§ Globex volume: 1.68mil ESZ and 10.6k SPZ trade
§ Fair value: S&P +5.75, NASDAQ +16.75

Monday 3 December 2012

Weekly Markets Outlook 03-08 Dec 2012

Comment:

As I have been commenting over the last few weeks, attempting to trade these markets has been difficult at best given that algos are extremely active in thinning year end trade effectively gunning for stops either side of the market before turning it the other way.

Add to this the continual unexpected news and comments emanating out of both the US (Fiscal Cliff negotiations) and Europe (Greek/ Spanish…bailouts…) which is making holding on to a directional trade almost impossible.

This week will be no better with a barrage of economic data from all corners including; US unemployment Friday, Chinese CPI, PPI, Retail Sales and Industrial Production Saturday, rate decisions by the RBA, RBNZ, BoE, ECB and Japanese elections.

Economic Data:

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