You’ve all head the old market adage: “Bulls make money. Bears make money. Pigs? They get slaughtered.” Sometimes, market adages are worth listening to, and this could be one of those times.
CORRECTIONS OR TREND CHANGES?
No, I’m not writing an article about the good old days of trading pork bellies. As traders, we are often inundated with contradictory information and advice: “don’t buy the highs” and “don’t fight the trend” are two of my favorites. With those two staples, how is one to make a pip?
In my own trading, I am often bullish on one timeframe and bearish on another. The astute trader will have a reason, be it technical or fundamental, for being bullish or bearish. Last week, I essentially said I was planning on buying the highs in the euro for a continued long move. In retrospect, this was a pretty good idea. This week however, I am going to look at fighting the trend a little in the near term.
I prefer looking for short term shorts.
FUNDAMENTAL EUPHORIA
Last week, Ben Bernanke gave markets the biggest jolt of caffeine they had experienced in quite some time. We can argue whether pumping unlimited money into the mortgage market will drive down unemployment (it won’t by the way) but we can’t ignore five-year highs in the S&P or four-month highs in the euro. This is a strong trend that we should be cautious in fighting.
However, from a trading perspective, markets are at relatively significant highs and the last pips are always the most expensive. Once everyone has jumped in to buy, there is little money left to propel graphs to new highs.
LETDOWN TIME?
This week, we need to ask ourselves if the scheduled news or unforeseen event risk will likely drive the markets higher or lower. The markets often focus on one thing at a time. Last week, all ears were on the FOMC statement. This week is a fairly average week as far as news goes. A lot of red tagged events will move the markets, but I doubt we’ll get news good enough to convincingly propel the Euro to new highs just yet. We may see a few markets melt a little higher but I don’t expect a great deal of conviction.
It’s yet to be seen if renewed hostilities in the Middle East and Africa, or ongoing financial uncertainty in the Euro zone will move things. But if they do, they will not contribute to a risk on rally.
THE CHART
Technically, the euro shows further upside potential, but it’s dangerous to hop into daily parabolic moves late. We’ve broken the 200-day moving average (MA), we’ve blown through the upper boundary of a daily trend channel, the RSI is edging up on overbought territory and we’ve slammed into daily fib resistance at $1.3137. I believe we will likely see $ 1.34 but in the near term, a consolidation down to the $1.30 support zone is in order.
KEY LEVELS
Today, if we convincingly break below the typical Monday London consolidation, $1.3049 would be the first stop. If we break above Friday’s high, I would look at $1.3200 to act as resistance.
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