Not much movement in the currencies today, something of a Mexican standoff: everyone's got their guns drawn, waiting for someone else to make a move. That won't last long.

There's nothing to do today, just plan for the setup. The equity markets will recover from this spike, but to what level? China will find a floor, but where? I like DXD here a lot. That's the free space on the bingo card. SPY will not make it all the way to 146 anytime soon. Where it reverses below that is the setup, that will determine the controlling EMA for the downtrend.

Not all stocks will fall. In fact, I'm playing this panic as a re-entry to China using FXI. FXI hit a low of 94 yesterday, and that's where I'll take my 1st position, but I expect to load up fully around 88.

I remain short on MDY. Long € and short USDJPY.

Finally, a correction.

Anything could have sparked this. Markets were far over-extended. I've been predicting a China-based correction since February 6th. I don't want to catch a falling knife but there are some early opportunities here. I really like UltraShort Dow30 ProShares - DXD for playing this correction. Simple: buy here and sell when the panic's over.

The real question is will carry trades continue to unfold? I don't think so. Today was a panic, but not an over-reaction if that makes any sense. As Kensey once said, "It takes a long time for a tree to grow, and a day to cut it down." That's the nature of correcting markets.

I'll be looking for continuation trends. I'm very happy with my MDY puts. I'm short on TTEC and ICE as you know. Long on the &euro here and short USDJPY. I'm expecting more ¥ strength before this is over.

Gold popped its head out of the tortoise shell with some vengeance yesterday. The early characteristics of this breakout are the 13-day moving average: the green line on the daily chart - currently @671.74. I won't enter until we visit that line again. The upside looks like 740; that's where it reversed in May 2006. That's a good run, worth the risk and worth the wait.



The US$'s weak across the board here today. The spikes are too high for immediate entry, so much so that they all look like great weekend shorts. NZDUSD looks like a great double top. If only I didn't believe it will break through.

I was wrong about the USDCAD reversal, that is, it didn't reverse. That trend is done. When a trend fails a support line something new is going on. The possibilities on USDCAD are: range-bound with a floor 1.1585, continuing downtrend with the longer 50-day ema in as the entry and a floor at 1.1450. That's only 135 pips in the best-case scenario. There's more on the upside reversal: 264. On a risk basis there' no point in fishing for a long. It's best to put this on the watchlist for a strong US$ reversal and get in for the 264 pip ride.

I'm long on EURJPY with a stop at 159.06, the 50-period EMA which has already proven itself on the hourly chart. I was waiting for a breakout above 158.3 on the daily. We're there.



I've bought into these step-like hourly patterns before with great success. Check each day, up the stop to the controlling ema and just wait for a breach. I've found they last usually for 8-days. I suppose you could find the other side of this channel with Bollenger Bands, buy why bother. This is a clear and persistent uptrend.

The equity markets have been on a roll for so long now that they've had a chance to form a base such that shorting doesn't make much sense, with the exception of MDY… if you could get in. Tradestation's out of shares to borrow.




The interesting one for the watchlist here are the semiconductors: SMH.



35.60 is a strong line going back to mid-2005. Strong lines are lines that have multiple points of support and resistance.

The current range floor is 33. which is not a great short and options just expired so there's no immediate play here. However, the potential for a breakout is huge. It reminds me a lot of BBH back in April of 2005. BBH broke 145 there and ran to 200, excellent options plays all along the way as no one believed it. Same could happen here.

Strength here in the US$. Good time to look for new entries.

Long USDCAD short AUDUSD.

Why I don't use stops:



My USDJPY long has performed extremely well, but, I put a trailing stop on it that took the position out as I slept. This blip (I'm sure there's a more technical term) is a common occurrence in CU currency markets which tend to be driven by short-term factors.

My solution has been to generally let my position ride without stops. I look at the markets every day and in general use the daily charts for my stop parameters. I can see them comming for the most part.

It's rare that a currency trader will advise against stops, but I've seen too many long-term positions taken out by what turned out to only be an hour of tradings.


Dramatic reversal on the loonie:

Shorting AUDUSD at the top of the channel. Decrease in oil prices will put the Aussie $ down. How? The oz is valued primarily on its exports to China which are predominately coal and copper. Lower oil, lower coal:

How to read the news.

It is essential to read the news, just as you read charts, that is, "How will this information affect investors' perception of future supply and demand?" News is a bit harder to read than charts because journalists aren't traders. They key on on buzzwords rather than trends and reversals. Use a discerning eye to pick out only information that concerns changes in supply and demand.

Here's an annotated article from todays FT:



An example of a carry trade: click.

This is a classic tale of supply and demand. The Bank of Japan controls the supply of the ¥. Carry trades are determining the demand. This is a long-term trend in effect and sensitive to imbalances. With the US paying nearly 6% in interest and Japan paying only 0.25% it's unlikely that there will be any long-term effect. However, a change from 0.25 to 0.50 which is being contemplated is a 100% increase, so it's likely to have an effect in short-term trading.

Re-entered GBPUSD long but I'm having doubts. The nail-price was 1.9440 I'm ahead of that. I'm betting markets will respond when they reopen in NY tomorrow.

Also long on the loonie:



3rd touch of a long-term up trend. The real issue here is the price of oil. I'll check that next.

The US$/¥ long is panning out nicely. I'll let it run and up the stop to 119.18.

Strong US$ prevailing this morning. Sticking with USDJPY. Stopped out on GBPUSD but I'm still looking at a downtrend here. Entering another short at 1.9511.

Going long on GBPUSD and USDJPY here:



This is a cross play — weak on $US vs. ¥, strong $US vs. £.

Nice move on GBPUSD, better than expected. I do expect this one to run so I'm leaving it open to double-down as it pulls back to the 50-period ema (the purple line). That's a pretty clear break in the downtrend with a nice confirmation on the daily chart (see yesterday).



I'm more excited about the reversal here in EURJPY. I'd usually play the daily chart here which demands waiting for a return to the 50-day ema. I think the € is going to break through the 159 ¥ barrier with some urgency. Should that happen I won't wait for a pullback here either: just double-down.

Just a summary here: While being remarkably mercurial on the ¥ I am also moving into some longer-term positions as well. I bought a small retracement of National Grid Group Plc Ads (NYSE: NGG). Early for the daily chart, but the hourly dip is an entry to the current run.

The daily charts say: short USDJPY, long GBPUSD and short EURJPY.



The hourly charts say: long USDJPY, long GBPUSD and long EURJPY.



So, in order to go about my day without a trigger finger I've placed a long only on GBPUSD, and that may be a day early. I can wait to play the ¥.

As expected London and New York are both seeking a stronger ¥ this morning. What's interesting here is how much stronger the US$ is moving. There are a lot of gaps here in the chart. There's a lot of opportunity here if you can catch the right direction.

I'm playing the long side of both the US$ and € this morning. That may change by noon. It's really all about that hard ceiling @ $122 and 159 €.

The ¥ is soaring, likely due to the fact that traders are recognizing that in fact the ¥ is a topic of G7 discussion. This hiccup is curious:



I'm reading it as a strong desire to short the €, some trepidation overcome by conviction. Only Japan is open right now. It will be interesting to see what London and New York do with this. Usually they disregard what happened in Tokyo.

The difference a day makes! All the stops are out now for shorts, finally. TTEC and ICE off to a good start both down around 2%. The great thing about shorting is it's good quick money. It takes years for a tree to grow and the ax takes it down in a day. But those profits are short-lived. There's no such thing as a long-term short and the most you can make on a short is 100%, unless you're playing puts or selling calls.

I'm at the Meadowood Resort today. In the lobby they had a copy of FT which I picked up and went straight to the currency page. I couldn't help but think "I read this online almost every day, but here, on paper, the meaning is so different." Content, even valuable content, online has less value for some reason. I obviously want to play the EURJPY, and I know what the dynamics are there. But reading the news with paper in my hands had so much greater an impact.

The number one impression I had was, "This EURJPY trend has a lot more to play out. That trend is going to run." I think you're mind works faster online that it does with eyes on paper. You consider different scenarios. I'm recommitted to that trend. There's only one question? What's the entry? It's a clear as a bell on this chart:



The 50-day! I made it glow a bit to make it look more attractive. Don't you want it? I know you do!

But you have to wait. Like all good things they come to those who wait. When the day comes and the ¥ is only 119.72 € as on this chart you will be thinking differently. You'll think, "Oh I see this! It's the beginning of the downtrend, but it's not. We'll wait and perhaps short a spike.

Good thing I haven't shorted any of my short candidates yet. They're all doing quite well! TTEC is up 23% today. A computer services company. Now may actually be the time to short that one. Here's how my shorts and longs are panning out: click.

Teletech Holdings (NASDAQ: TTEC) beat earnings estimates and raised guidance today. You don't short a stock like that no matter what kind of tear they're on. Nonetheless the market did faulter today, mostly on housing bubble fallout fears. Who will lead the correction? Will there ever be a correction?

The ¥: is has charged up the track from it's low of 120.05 against the US$. I closed out my short there with some dissappointment. From the Daily Pfennig:

While the U.S. snuggles up tight to Japan and pats them on the back telling the world that yen weakness is OK... The European leaders aren't feeling the same love for Japanese yen. If you think the yen is weak VS the dollar, you should be a German manufacturer and see how awfully weak the yen is VS the euro!

So, some rumors were going down, someone's underground, no wait! No Eagles this morning, we only want HAWKS! Anyway, rumors were circulating last week and early this week that the G-7 ministers would include a discussion on the weakness in yen, and add a note in their meeting ending communiqué. This had yen stronger for a couple of days... But with Japanese officials throwing cold water on the rumors... Well... We get yen weakness again.

Of course the conspiracy side of me says that the Japanese officials have been briefed on the G-7 meeting, and took this time to jawbone the yen weaker, know all the while that the communiqué will strengthen yen... Same old Japanese.... Get it weaker now, so that when the communiqué helps strengthen the yen, it will merely offset the weakness, and we end up back in square one! UGH!



I'm obviously playing the G7 meeting on this trade. Perhaps I was a week early. Keeping out of USDJPY for now. The real volatility is in EURJPY. I'm placing a $100K short there to keep my finger on the pulse. Still playing the G7 there's no way the €|¥ combo is off the table.

Did you ever look at a position in your portfolio and say, "What the hell was I thinking!" I'm looking at the strange move on Imergent Inc (AMEX: IIG) this morning and thinking, "blips happen". Then I look into my trading log, (click, to see just what the hell I was thinking and find no mention. I dig into the fundamentals and I see things I like. Okay now understand why I got in here. I expected leap forward from this pullback. Gross margins 75% on a service company. That's good. Trailing 12 months ROE 82%, I like this a lot. PE 5, Price to Sales even better 1.26. So what's with that trading blip on an earnings announcement. Could only be 1 thing, insiders want out. Dump it! Bye-bye.

Short candidates: FXI, PPH, ICE, ACH, TTEC

Why… Corrections are natural. I don't expect this one to go beyond the well-established 50day EMA.

Shorting theme: US-focused companies, little manufacturing or sales overseas

iShares Trust FTSE China (NYSE: FXI): Will be most damaged by the coming G7 meeting. Yuan devaluation will be a top priority on everyone's list.

Pharmacl Holdrs Tr Dep Receipt (NYSE: PPH) : Strong appreciation in the face of the fact that all DC politics have turned against them, no currency exposure to save them.

IntercontinentalExchange ( ICE ): Bubble-like runup. Overbought on every measure.

Aluminum China ( ACH ): Double-top, Overbought, will suffer from trade talks. You'd be lucky to get any shares on this one though.

Teletech Holdings (NASDAQ: TTEC): Sitting on a spike. Just announced.

Zero Ink Printing: http://www.zink.com/

I don't see any clear way to invest in this yet, but should have a negative impact on HP.

I recall back in 1998, when consumer color printing was taking off, a VC telling me the guy who invents a magenta that doesn't fade will be a billionaire. I suppose archive inks came soon after that but I don't recall any names associated with that invention. Kodak? This technology looks promising but I do wonder about quality. I like that their strategy is to build right into phones.



Speaking of obsolete technology I just ordered a Lenovo x60 so I can work on the beach. The docking station they make for this thing is an absolute joke. They have no DVI port but include a parallel port! Is that insane or what? When did they stop making parallel port devices? When they started making archival ink?

There's a strange similarity in the opposing pairs eurusd / usdjpy right now. This is hardly news as the general disparity between the ¥, € and US$ are the main topic of the G7 meeting. There's a potential turning point here that I've noticed on the on the charts which, if it holds, will make a tough spot for the € even harder.



¥ 120 and 1.29 € are clearly tipping points. Right now I'm long eurusd, and short usdjpy. Oddly enough it's the ¥ short that's making the money. If I spot a reversal at ¥ 120 it would suggest a new strong leg for the ¥'s downtrend. Buy any stochastic oversold in EURJPY. Oh my fucking God look at this chart:



I'm looking to short the equity market right now. The question of course is who's the best short? I wouldn't look to short any multinational that can exploit these currency and labor pricing discrepancies.

My bet is that the big loser of the G7 meeting will be the Yuan. According to the "Big Mac" index it remains the world's most undervalued currency. More importantly it remains the easiest kitten to kick in the room. I've often argued that the only bubble in the goldilocks economy is the China bubble. There's growth there for certain, but everyone seems to forget these guys are a bunch of commies. It's like expecting miracles out of the folks at the DMV just because they're underpaid.

There are real arbitrage opportunities in all the BRIC countries, but the Yuan is the only currency in that mix that doesn't float. Do we really want the Yuan to float? If we did wouldn't that be the single largest threat to the US$'s preeminence? Okay, no wonder we're not aggressively pursuing that one.

The China ETF FXI is in the last moments of a closing pennant. Look at the percentage change on that chart. If it falls south of 102 short that bad boy and really impress your friends. "Hey! I'm shorting China!" Yeah, that would turn a few heads.

The Big Mac index, from Economist.com

The Economist's Big Mac index is based on the theory of purchasing-power parity (PPP), according to which exchange rates should adjust to equalise the price of a basket of goods and services around the world. Our basket is a burger: a McDonald’s Big Mac.

The right attitude to approach the market with is: "I don't really care if I make a trade today." Each open position should bear some degree of urgency, the result of laying in wait, ready to nail an entry you've been waiting for.

That's pretty rare. In fact, I'm convinced you only need to trade 5 times a year. As I've reviewed my trading records over the past 10 years it's clear that most of what I've done has been busy work. There's an argument for busy work as well. It's like placing some jabs at your opponent in a fight, testing the waters. It's so easy to get distracted with those jabs. If you've got a losing streak of 10 or so jabs it can be frustrating. That frustration colors what you'll see. It comes down to balance.

That was my thought as I looked at EURUSD this morning: staying in its trading range.

Yet the ¥ is making money for me. Interesting.

I can't look at oil without thinking I missed the boat. My primary theme is natural gas so I can't help but look at the oil futures daily. I missed the reversal at $51. I was waiting for $49. This is where my jabbing comment comes in. I regret not taking a jab at that level, just one contract to put it on my trade monitor. I'm not shorting energy here though there's a triple top on the hourly natural gas chart.


My issue here is the daily chart which is convincingly bearish:

Sometimes you just need to lay in wait. My bullish disposition is based on fundamentals. It's the most misunderstood commodity: priced like oil with a completely different geology. The simplest explaination of this difference is from Matthew R. Simmons, author of Twilight in the Desert. Imagine 2 balloons, one filled with oil and one filled with natural gas. Take your finger off both. Which empties faster: the gas of course. Further, once the natural pressure of the oil balloon empies you can still squeeze it to get more oil out. That's about what we've got in terms of natural resources.

However, there is little (I'd argue none) discounting for this geological difference. When shortages occur the spikes will be sudden and lasting. A well managed position in natural gas with a bullish bias is my current dominant theme. This is no quick money scheme.

In equities I'm holding AAPL, ECA, EMN, GOOG,IIG and NGG. When they turn south I sell calls. Pretty simple. There's no such strategy for futures that I know of. You need to either lighten up or get out. It's a binary situation. I suppose there are some spreads that could soften that position, but in general I find spreads noisy. I'm not managing the risk, I know what the risk is. I'm laying my balls on the chopping block. That's different.

That said, I still have 2.

Dollar's up on Fed optimism. Personal income and spending, weekly jobs and PCE inflation data arrived yesterday: all reinforcing the Fed's decisions to stay on the sideline. More from The Daily Pfennig: "The US savings rate has fallen to a 74 year low. The last time the savings rate was this low, was in 1933 during the Great Depression." All of the long-term conditions for the dollars continued decline remain in place.

My ¥ short is not immediately gratifying. I'm stopping at 121.4. Not an automated stop. Automated stops have been killing me. I'm watching this daily. I need a timer on my stops, which I assume tradestation offers. I just haven't had the time to figure it out.

From FT: "Low interest rates have been a crucial factor in the recent weakness of the Japanese currency, encouraging investors to put on carry trades in which long positions in high-yielding currencies are funded by selling low-yielding currencies such as the yen."

On the continued run on the S&P 500: A trend, once in place, will continue until something stops it. That something must be exogenous. The trend in equities is the healthiest I've seen in years, especially in the absence of any kind of market innovation to justify it run. There are changes in the world economy of course driving this growth: the advent of a consumer class int he BRIC countries (Brazil, Russia, India and China). Everyone's waiting for a pullback, including me. However, a trend will continue until it ends, and if you don't trust that, you're not making money.

Natural gas continues to be my continuing focus. The long-term chart suggests a number of things but I'm focused on the 6 - 8.5 range and building explosion suggested by stochastic. Open wedges are not predictors, rather they need interpretation. Often they fizzle into a trading range. With Russia seeking to create an NG OPEC and the supply issues of the near past (it's hard to ignore that peak at 15) this is as close at it gets to a safe bet in futures (if you're not Jim Rogers).

Bill Gates is pissed at the Apple ads. Funny story.

They ask, "Where has he been?" Africa would be my guess.

I used to detest Bill Gates for his lack of philanthropy. I remember going to the huge Chihuly exhibit at the Seattle Museum of Art. Dale Chihuly is arguably America's greatest living artist. At the show there was a roster of patrons and benefactors. Nearly every Microsoft board member was on the list, with the exception of Gates. Obviously I judged him way to early. Now he's making the multi-billionaire Jobs look like a selfish prick. That said I have no such judgements on Jobs. I'm going to wait and see.

I'm sure this story started when Gates met the PC guy, John Hodgman, backstage at "They Daily Show".

Shorting the ¥ here. I'm joyous about the weakening US$ here and just scanning for short entry points. The ¥ bounced recently but that's following a huge run up that no one convincingly accounted for:



The 50-period EMA is a good entry on this chart as there is a precidence, though it's only one. The trend is down on this chart. The chart is not a strong argument here, and I'm not taking a huge position, nothing like on EURUSD. However, this isn't about nailing it. It's about getting in on the 1st retracement which is one of my favorite habits. Half a mil heading south here. No stop just yet though 120.29 would be my recommendation (if you're looking for one).

I don't set stops these days as I'm finding spikes cutting some of my best moves short. Stops are great, and I don't recommend doing what I'm doing, that is keeping a position without a stop. However, if you're checking your positions daily you really don't need one. I've had far too many /Oh shit!/'s with positions that died early that those that ran the other way.