Good morning/afternoon to you all.
Context
More bad news for the Euro yesterday as Spanish and Italian borrowing costs soared. Im not sure what the Eurozone expected after it forced private debt holders in Greece to write off 50% of their debt. Who would now lend money to the Spanish or Italian governments who are likely to need the same type of rescue at some stage? It begs the question who actually leant the money, and I have the feeling the answer to that is only more bad news for the Eurozone. Rising cost of debt is about as bad a news as insolvent organization can get, and in my opinion the Eurozone now actually has a crisis, and it created it for itself.
Yesterday's Report
Yesterday the market having touched the area late the night before, didn’t test daily pivot but did move down most of the day as we had predicted. One of the features of this move, on our 30 minute chart, has been the cycles with lower lows, and lower highs, and the great entries this has given us each day. My preferred entry yesterday would have been at the bottom of the long tail (high test) bars pictured.
(Click on the images to enlargen them)
The up legs of the cycle is short covering or when people already in short positions buy back the position to bank profits. More on that next…
Technical Analysis
We still have our pivots lined up in perfect bearish order, but they are so over extended with Daily Pivot nearly 790 pips short of monthly pivot, and approachings its record of the last year of 830 pips. This over extension means we expect a short covering rally at some point. We have been waiting for some days now for the big money to say we have made enough here, we will buy part of our position back, and and bank some profits. We have seen this on the shorter timeframes but on the longer timeframes where the big money plays no sigh of it yet. We expect the rally to be somewhere between 38 and 62% of the move. The lack of the rally tells us big money isn’t interested in banking profits, or reducing its exposure.. mid term it sees more damage coming with numbers like 1.03 being thrown around. We will see.
I do think its very easy to tell a pollster that you will vote for austerity, but in the voting booth understanding the effect that will have on you, I could see some surprising results. If we get them short term moves will be crazy.
So this is the reason we talk about no short… It’s gone too far, and no long… the momentum is to strong. We are waiting for the short covering rally, and the lower high that will likely give us a chance to pile in short at a far better price. That’s the behavior of the pack…our job is to work out how to make some money from it.
The Day Ahead –
Tomorrow is NFP and the market normally ranges the day before, although these market condidtions aren’t normal.
I expect a similar day to yesterday, with the possibility of a retest of DP.
A break of Daily pivot, a new high and a retest of support would interest me as I would consider it a possible start of the covering rally and look for a nice long.
More likely is a test of a resistance level and a move down, with us looking for the same kind of entries as yesterday.
Remember in these conditions we want a price action confirmation, and to wait for the entry of the day.. We are looking for chart pattern type entries, and still trading at reduced risk.
Tip of the day
Check your trading plan and see how suitable it says your strategy for trading over extended markets, if it doesn’t say don’t trade. If you don’t have a trading plan you aren’t trading, you are guessing. Always write or review your trading plans while the market is closed.
News Today GMT
1:15pm USD ADP Non-Farm Employment Change 145K 119K
1:30pm USD Prelim GDP q/q 1.9% 2.2%
1:30pm USD Unemployment Claims 369K 370K
All Day EUR Irish Stability Treaty Vote
All the best
PLB
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