You don't need a conspiracy to see that the markets are falling. I'm playing the 50-day ema downtrend on SPY. I sold a number of calls last week and more today. I'm still bullish on the Q's. In fact, I think the real money is made here long Q's short SPY on a 75/25 split on full margin. Close that in January and everyone will think you're a genius.

I reversed quickly on all the positions I took from the previous post. Though we're clearly at what look like reversals, the trends continue. I'm short on the loonie now, long €.

€ uptrend is broken.

I'm shorting EURUSD here at 1.3598. This quick runups, regardless of reason, rarely last more than 8 days. The consolidation short of the former high of 1.3666 shows there's some doubt about the breakthrough. It's likely, and healthy to pull back here.

NZDUSD looks over as well, but I'm not shorting, just closing. Triple tops aren't reversals.

I like EURJPY short and USDCAD long here. The loonie is moving in response to oil, should be a good reversal.

The waiting is the hardest part

It's really hard to do nothing. Markets are trending as predicted: spy's running, kiwi's running, copper too. What's there to do?

Nothing.

If you read the markets well that's the overridding message: do nothing. Take your positions, hold them. But, that's hard. The charts show volatility, indecision, opportunity.

Try looking at the chart and saying, "Good!" Then walk away.

So you're saying, "But I don't have any positions." Okay. Live with this fact: you only enter when there's an entry. Entries are reversals. We're trending now. You need to wait. One day the chart will say, "Enter here." Calmly, and without any of the hollywood-induced passion. Just enter, then manage.

Cocoa's pulling back here. There could be an entry in as many days as it takes for you to enable commodities trading on your account.

xbox elite on cnbc:



I agree that after the Dow tests 12,000 MSFT is a great portfolio play. It's lost enormous ground since releasing Vista and is a value play now, but it's not time to buy.

Betting on a strong US$ is tough. There's no good reason for the dollar to strengthen outside of Bernanke's comments. Still, that's where the price action is. I'm short EURUSD long USDJPY. I closed my kiwi trade. Not looking to short there.

The downtrend in the equity markets is over. It's not on the SPY chart, but even that will be clear in a few days. It's on the copper chart and EURUSD.

This is not healthy, but we're not doctors, we're investors. I wish the markets pulled back to some EMAs that had resonance with the 'goldilocks' uptrend. They didn't. What this means is simply we're in for another up-leg. When we crash from this one, likely in October, it will be hard: good money making opps on both sides.

First of all you have to get into copper. Even the federal reserve watches copper more closely than any of their own money supply statistics.

Charts later when I have more time.

It's all about reversals and trends.

At reversals the ema's are hard to read: they're covered by the price bars. However, after a reversal they're clear: they're support and resistance, usually at the same periods as before the reversal.

There's a U-shaped patter to equity trading volume on any given day. That's one of the reasons I draw trendlines at candlestick body tops and bottoms. I don't use the extremes of the day. The open and close have the most significance as they have the most trading volume. They reflect sentiment.

There was a sharp drop today on the close that's moving in sync with the 50-day ema. I am reading this bearish and have taken my first short on SPY. I remain short on MDY.



I think I nailed the kiwi reversal, but an end-of-day surge in US$ has me a bit concerned:




I'll be buying the first green bars.

I'm back in the € long as well:

I closed USDJPY and AUDUSD this morning. Not much to say here except I got all a that! A retracement here is natural. Will the carry trades continue to unravel? If so they will do so on an EMA. I'm not playing every bend in this road. When € and US$ / JPY peak today we'll have something to go on. I'm waiting for that information.

Volatility is good:

Carry trades are continuing to roll out. The next stop on eurjpy is 150. I'm short there and continuing on USDJPY. If you're following me at home please keep a sharp eye on your charts. Set stops to lock in profits. This could turn around quickly. No one likes being on the opposite side of that interest delta. Short AUDUSD as well.

To my own shock and horror I closed GOOG today. My friend Shawn calls me his Apple/Google guy. I guess I'm just his Apple guy now. I don't like GOOG's behavior here after the China panic, failing to rise above any of the trailing emas.

Markets are starting to show some trending characteristics on the hourly charts. I'm looking at the 13-hour emas as trial entry points. It's always fun to spot shorts. Quick money.

Out of the € today, doubling down on my ¥ short.

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.