Thursday, April 29, 2010

EURZAR and USDZAR 4 hour charts


Over last couple of days quite bad news hit Greece, Portugal and Spain. Their long term debt was downgraded and that caused markets to stumble. Yesterday Top40 recorded biggest single day drop in more than 6 months and today’s picture does not look great either.

Last time when big news hit the market, big guys were quick enough to sell off all risky assets like emerging markets and that caused Rand to collapse. From August 2008 to October 2008 Rand dropped from 10.90 to 15.20 for US$. Is this happening again?

Two charts are shown on the top: First one is USDZAR, while the second one is EURZAR, both in 4 hours time frame.

USDZAR is currently trading in 7.20-7.85 range and that is going from August 2009. From March 2010 new and smaller range between 7.20 and 7.50 was developed. We tested top of the range four times and bottom three times. Those are two levels to watch. If 7.50 gets broken USDZAR will go to 7.85. However, if 7.20 gets broken we could see 6.50 or there about.

EURZAR is still in the channel which started in November 2009 and top trend line was just tested. Support was formed around 9.67 in early April and currently we are close to test it. Breakdown will be significant and EURZAR could drop further towards 9.30. With all instability in Euro zone this can be likely scenario.

All in all, those two charts do not show foreigners disinvesting from SA and such disinvestment would cause ZAR to weaken.

Trade with trend!

Tuesday, April 27, 2010

Top40 - end of the day recap for week ending on April 26th


We had big internet issues on Sunday evening and Monday morning and that is why I am posting this update only now. Luckily, today is public holiday, so we missed only one day of action. On Monday we had strong up day, so maybe this internet problem came with some purpose.

Last week Top40 spent bellow 10 period exponential moving average, so we could conclude that short term trend was down during last week. On Monday market closed 1.52% up and it did break sideways consolidation of last four days, paired with solid close above 10 period ema and 25922 level, which I mentioned few times in previous posts.

Stochastic turned on Monday coming from very low base, so there is quite a room for it to advance. Relative strength index bounced from 50 and is looking to reach 70 again, while only MACD looks a bit flat currently.

During last correction market broke trend line of small channel, but it bounced back fast and is now seating on the top of trend line. Bigger channel (that started with new bull run in March 2009) is still very much intact and Top40 is currently in the middle of the channel.

Important development last week was making of double bottom around 25585 level on Top40 or 25800 on ALSI (with conformation on Monday) which could take us all the way to the 26700 on Top40 or 27000 on ALSI. Detailed post about that is to follow shortly.

Moving averages, which help us to determine long, medium and short-term trends:  
  • long-term (200sma) - UP
  • intermediate (89sma) - UP
  • hort-term (10ema) – UP
Trade with trend!

Saturday, April 24, 2010

Q & A session – follow up

We got few questions in Q & A session and I would like to use this space to reply:

1. When it comes to neural networks and trading my knowledge is limited to just being aware that there are numerous sites which are pointing to literature and various resources which cover field of neural networks and trading. If readers of this blog would like to share more on this subject, including good Internet sources as starting point for the research, please share in comments section of this post.

2. Stop loss was posted and re-posted on twitter. I’ve introduced small change, so in white section on the right hand side (Last twenty trades) Stop Loss level is going to be indicated at all times (in bold).

3. And as reader Stan pointed out, two valid choices for ALSI data feed are eSignal and HiSat (local source).

As always, I remain open for any comments/suggestions/ideas that might make this blog better.

In addition, I will keep on encouraging readers to join the conversation, so Q & A session will be re-introduced from time to time.

Trade with trend.

Friday, April 23, 2010

ALSI 30 minutes chart


Quick check into what ALSI 30 minutes chart is telling us.

Market broke 26150 – 26750 trading range few days ago, but it did bounce back and ran into it again the next day. Then, on Wednesday market repeated the same pattern of break down and back into range and again the same happened on Thursday, this time with no break into range yet.

As one can see, there are two trend lines to watch: One down slopping and connecting last three tops while the other one is up slopping and connecting three last bottoms.

Currently market is making higher lows and lower highs, making it difficult to see real trend. Current pattern can be classified as triangle.

Watch those two trend lines for further direction.

Trade with trend!

Sad news

Very sad news did hit me yesterday. Dr. Brett Steenbarger will wind down the TraderFeed blog.

I was following his writing for many years. About seven or eight years ago, just as I was starting with trading, I somehow ran into his old web page. It was very simple design that probably wouldn’t catch one’s eye. Somehow, I started to read and I found numerous very interesting stories about trading and life in general. After that, TraderFeed blog came to life and I was eagerly waiting for each new post, as Dr. Brett always had something good to say. The more I red, the more I realized that it is not in indicators; it is not in patterns and it is not in finding holy grail – It is in our heads and it was there before and it will stay there forever. One just has to dig it from somewhere deep within. Simply, TraderFeed blog, three books written by Dr. Brett Steenbarger and his early writings made me a trader I am. Without his inputs, probably, I would not be writing these lines now. As time passed, I’ve realized that his blog didn’t improve me as a trader, but as human being as well.

In his last post Dr. Brett has promised that he will try to do everything to keep the blog up as well as archive "the best of" posts. At least, we can go back and read his impressive writings whenever we want.

I’m not sure if Dr. Brett will ever read my blog and this specific post, but I would like to thank him for changing my life for better and for making me succeed in this tough game of trading. I’m very sad that he is leaving us without new contributions and I wish him all the best in his new endeavor.

I would close this blog post with words from his last post: ”If you put yourself out there, share your best ideas, reach out to people, and give more than anyone ever could expect you to give, you'll attract the right kinds of people--and the right kinds of opportunity. If you have passion and you have talent, make yourself visible: the best people will find their way to you and everyone will benefit.”

THANK YOU DR. BRETT!

Trade with trend!

Thursday, April 22, 2010

Q & A session

EDIT: I will wait for a day or two in case we receive more questions and will post all the replies as separate post.

Let’s try something new on this blog – Please ask any question (trading related) and I will try to respond to the best of my ability.

For readers who are interested, just post your questions in comment section of this post.

Trade with trend.

Wednesday, April 21, 2010

Mid-week reading

Afraid to Trade:

SP500 Teaches the Importance of Rising 20 day EMA in Trend

Did We Just Repeat a Price Pattern from the February Low?

Au.Tra.Sy. blog:

Excellent read on leverage

How to apply Leverage?

Bespoke:

Bespoke's Sector Trading Range Charts

Story about Mondays. This is very interesting.

T.G.I.M!

Breadth Looking Better Than Price

US Equities Continue to Outperform in 2010

David Fry:

FRIDAY NEVER HAPPENED

The Big Picture:

What a chart?!?

FDIC Bank Closings

Dr. Brett: 

Very nice!

A Few Things That I Believe: Observations From The Doc

Rational vs irrational

The other day, nice discussion was developed on one small trading chat. I’ve posted there these definitions from some other blog:

“A rational decision is based on testing and data and an understanding of the mechanics underneath the system you're working on. The more you know, the better you decide.”

“An irrational decision is based on gut instincts, conviction and faith.”

I’ve linked them with trading and related them to having or not having system and trading on instincts.

After that, I got a reply from very good friend of mine:

“Igor, you are so right but just a thought, I've met recently few guys that trade SSF, they have a great deal with one medium to large company so they pay ridicules small fees to trade, When I asked them what triggers your trade, not one could tell me!! They say, if the price goes up, we buy, if it goes down we sell.

Now before you jump to conclusions, all of them are trading for a living, most of them never had any other job, some did work for brokers but got laid off, one of the okes bought my old house for cash.

They have a simple target, make 5-10k a day and what makes me sick in my stomach they do it almost all of the time.”

This is how I replied:

“One can make money trading million different ways: fundamental or technical analysis, long or short term, intraday, swing or end of the day trading. Who knows what story is behind those guys. How long they trade 10-20 years, how much capital they have, do they live out of trading or out of something else. Let's see example if they sold company for 50 million and now trade with 10 bars. Making 10k a day or 200k a month is not big achievement.”

At the end, it came down to the fact that those three guys are all self-made traders with 10-15 years of experience. They traded all their life for 8-9 hours a day. Remember what is being said – if one spends 10.000 hours on some activity he could be considered as very good in what one does. So, those three guys spent 10 years x 220 days x 8 hours = 17.600 hours watching markets and trading. They have 30 years of experience between three of them, so it is relatively easy for them to say: ”If the price goes up, we buy, if it goes down we sell.”

I want to make a point here – Not many of us have that feeling or instinct, call it as you wish. The only bet one can make to survive, before one gets instincts, is to have a sound system with positive expectancy and proper money management, as that system will make money for you for as long as it takes you to start with trading based on gut feel – if one ever gets to that point.

Trade with trend!

Monday, April 19, 2010

Top40 - end of the day recap for week ending on April 18th


During last week we welcomed back some volatility to our market. Wednesday’s and Friday’s daily range on Top40 was around 500 points and ATR started to show some signs of life again. Friday was especially interesting day - after making new year-to-date high on Thursday and after closing on the highest level since July 2008, market opened lower and then tried to run and test Thursday’s highs, but after failing to do so, it started to drift lower. Big surprise came in last hour of trading when news from US broke about civil-fraud charges against Goldman Sachs. That sent markets into free fall and Top40 closed 489 points lower. This was first weekly loss since the end for February 2010.

Close on Tuesday also pointed to weakness in the market. Top40 closed below 10ema for the first time since February 26th, but it managed to bounce back and close above it again on Wednesday. On Thursday market managed to stay above 10ema, but again on Friday market dropped and 10 ema was breeched as the market closed.

RSI is in the weakest state of all three indicators we follow, as it made three lower lows and lower highs in last two weeks, even as the market was making new highs. Stochastic oscillator is showing negative divergences, while MACD rolled over signal line on Friday. These negative divergences are showing us that market is not as strong as it was three weeks ago.

There is obvious channel on Top40 which started in March 2009 and there is small trend line currently around 25850. By checking shorter time frames one can see well defined trading range between 26000 and 26500. Watch for break of 26000 as it could take us down to 25500. After that support could be found around 25000 where 89 simple moving average is. On the upside, obvious test and break of 26500 might take us all the way up to that long term trend line, which is around 28000.

If you wish to check broad markets I would recommend the use of futures heat map from FinViz which shows how the GS-related selling kicked off a general divestment of risk assets, with stocks, metals and energy being lower; bonds pointing down; JPY and USD heading higher, while EUR and AUD retreated. This could turn very ugly for South African markets and Rand. Last time when divestment of risk assets started Top40 and ZAR were punished big time.

Moving averages, which help us to determine long, medium and short-term trends:


• long-term (200sma) - UP


• intermediate (89sma) - UP


• short-term (10ema) - DOWN


Trade with trend!

Friday, April 16, 2010

ALSI 60 minutes chart, as of April 16th, 2010


This morning I will review ALSI chart posted in “ALSI 60 minutes chart, as of April 13th, 2010”

As I said in that post ALSI was making double top with conformation around 26150 and target around 26550. In mean time we had false break/conformation with market going up and testing 26750 again, making it now triple top.

There is obvious triple negative divergences on RSI and Stochastic, that pointing to possible sell off. Conformation is again around 26150 with target again around 25550. To add to this is market action yesterday late afternoon when ALSI was trying hard to break above 26750 but without any success.

Pattern can be seen as sideways trading range with 600 points in it. So watch for break out. Ideally one would like to sell market as close to 26750 as possible but I guess market will gap down on opening. Also watch 26150 because there is very strong support there now and even if market goes down will probably be stop there.

Trade with trend!

Thursday, April 15, 2010

Top40 30 minutes chart as of 15th April


This morning I would like to review Top40 30 min chart from around 1st March till yesterday.

In my previous post “ALSI 60 minutes chart, as of April 13th, 2010” I pointed out that potential double top is developing on ALSI 60 minutes chart. Conformation level was around 26150 and that level was breached two days ago. Unfortunately if you we short market bounced back and next morning gaped up and run all day adding more than 500 points. On the end of the post I said “nothing is certain” and that is especially true if you try to take trades against main market trend.

Lesson that we all should learn from this is that if you nicely planed action fails you should revisit situation and adjust accordingly. Action that should happen yesterday was close short and go long. And that is exactly what we did with system that is published on twitter.

Let’s go back to Top40 30min chart now.

Currently Top40 is trading in nicely define up channel started on 8th March with one false break on 13th April. Top line of the channel is around 26700 and that is where we can expect Top40 to go today, maybe even in first hour of trading. That would mark new year to date high.

Few time I posted that levels around 25922 on end of the day base or around 26030 on intraday base are very important and that breach of them on upside is very bullish. From the chart one can clearly see that once green line around 26050 was broken acted twice as solid support. This is very nice example of change of polarity, once resistance becomes support and vice versa.

Conclusion is solid up trend on Top40 for last month and easy money is on upside so far.

Trade with trend!

Tuesday, April 13, 2010

ALSI 60 minutes chart, as of April 13th, 2010


ALSI 60 minutes chart is shown above. There is an interesting development that I would like to point out.

As we can see, from the start of this contract (JUN2010) around mid March, ALSI ran from 25300 to 26750 where it stopped on April 6th, as well as it rejected that level yesterday. So, with that in mind we could say that there is double top (for now) formed around 26750. Conformation for double top is at 26150 (thick black line) and if broken, target would be all the way down at 25550-25600 (long black line). Also, this target for double top is around previous support from end of March.

Together with double top there are negative divergences on RSI and Stochastic indicators (red lines on two top inner windows). There is a trend line (around 26200) determining current uptrend and it is currently just above confirmation line for double top.

This ALSI chart is telling us that we could have potential correction of some 4% or approximately 1200 points from yesterday’s high, but as everything in this market, nothing is certain.

Trade with trend!

Sunday, April 11, 2010

Reading to kick start new week


Starting this week I will post some links, as I believe that these articles can help you with your trading or investing as well as with understanding of markets and the economy. These are the links that we like the most.


Nice charts by Afraidtotrade: 

Updated Arc Patterns on the Daily US Equity Indexes Reference

Logarithmic Chart View of the Arc Patterns on the US Equity Indexes

How is US market behaving?

The State of Trend Following report – Draft V0.2

As always, interesting stuff from Bespoke:

Key Earnings Reports Next Week

The Baltic Dry Heads Lower

Default Risk for Greece and the Rest of the World

Ray Barros has much to say

BarroMetrics Views: The Education of a Trader (4)

I would recommend reading related posts: The Education of a Trader 1 – 3

CXO Advisory is a great place to do lots of market related research

When Market Sentiment Works

How the 52-Week High and Low Affect Beta and Volatility

Nice charts by Chart Addict

Longer-term: Gold and Silver

Market Rewind has much to say

Day- vs. Inter-Session Performances

Does the Overnight-Session Predict the Day-Session?

David Fry has great daily market reviews with lovely charts

IT’S GREEK TO ME

As always, MarketSci has very interesting blog posts

Lots of Small Days Beget More Small Days

Correlation between Historical and Future Volatility

The Big Picture

Consumer Finances

BIS: The Future of Public Debt

Worst Post WWII Recession?

Accelerating Orders Around the Globe

Thursday, April 8, 2010

Where South African Rand is heading


I would like to take a look today where South African Rand is heading to. There are two charts on top. First one is daily EURZAR chart for last 3 years, while the second one is USDZAR daily chart for, more or less, same period.

As we can see from EURZAR chart, pair is in strong and solid downtrend, meaning that ZAR is getting stronger versus EURO. Currently, pair is very close to the bottom of the channel, so bounce toward upper line is possible. That can take us to around 9.95, which was previous support and should act as resistance now. Longer time frame can take us down to 9.33, what was major low in 2007. Finally, that can stop EURZAR decent and offer solid support for some time.

USDZAR is locked in trading range between 7.22 and 7.85 since around August 2009. Over last few days pair spent time on the lower side of the range with one unsuccessful break down. After false break, pair bounced some 10 points and is trading around 7.30 right now. Break of the range will probably take us down to support around 6.41 level, which was in play in October 2007. That is just a bit lower then channel projection of around 6.60.

Those charts are as info only, because our trading systems are making decisions for us.

Trade with trend!

Tuesday, April 6, 2010

Top40 - end of the day recap for week ending on April 4th

Finally, something happed on Top40 front this week! We traded during four days, but Friday saw strong move up. Major closing level that I mentioned few weeks ago (25922) was finally breached and Top40 closed at 26113 on Friday. That was the highest close that we recorded from 17. July 2008. So, good news so far for the bulls.

Indicators are still at high levels, but with most of them pointing upwards, as of Friday. RSI reached 69 and Stochastic is above 80 once again. MACD is around 320 level for more than a month now. There are no major negative divergences so far. ATR is very low and is sitting very close to historical minimum. Currently, 5-day ATR calculated in percentage terms is around 1%.
 
Next week will bring us four-day trading week and maybe some volatility comes back to the market.

Next question that we should ask ourselves is: “When will see new all time high on Top40?”
Moving averages, which help us to determine long, medium and short-term trends: 
  • long-term (200sma) - UP
  • intermediate (89sma) - UP
  • short-term (10ema) - UP
 Trade with trend!