Thursday, October 28, 2010

Prepare For Battle! - Oct 28, 2010

Most of the week showed dollar strength until today's morning trading. Most majors is are still in their ranges. Will the dollar weak trend resume or is the dollar weak thesis doomed?

I think tonights Asian action will prove to have some interesting action for Fridays London open. Lets hope the traders don't too lazy on Friday again... as usual...

Monday, October 25, 2010

Skelton Shift Update: October 25, 2010

G20 Weekend Results:

(see Pat's more thorough blog below on this subject or click HERE)

I don't see how it will be possible for the FED to not move currency markets in a "measured" efforts. Following the EUR/USD the past month shows how speculative moves have been. In 2005 it has been recorded that 80% of currency moves were all speculative. In 2010 this number probably well over 90% considering pip range expansion in all trading sessions along with the even more explosive boom in retail participants over the past 5 years.

As we currently speak the GBP and the EUR have moved over 100 - 120+ pips from Sundays open trading. As follows US equities futures are strongly up, dollar correlation plays on crude are still in effect which will continue to drag on upward fundamental bias keeping it in a range. What has happened over this weekend? Looks like markets don't believe anything changed as the typical weak dollar, strong equities story is still in play. At these levels, I'm not fully buying into that story again just yet.

I'll wait for key level confirmation before fully committing to one view.

I could have been wrong on the pound to expect a wider range of 1.53 to 1.60 if markets take prices back to 1.60 resistance from current levels. Either way on the down side 1.53 and to the upside 1.60 is the decider for trend direction. I will stay out of reading the EUR as the noise makes the chart too convoluted to read clearly. I'll have to cross examine other majors to confirm where the trend will head this week. On the whole though, short term, I am bull dollar but longer term out expect to see strong continued dollar weakness.

I'll have to do more analysis and research to get a more clear time frame, but post NOV 2nd, trends should be clear if the past weeks/months correlation will continue hold or will change the game.


Technicals on the SPX are a bit conflicting just as the dollar story technicals (dollar story: short term bearish momentum within a strong uptrend). Weak volume on yesterday fridays move questions higher ground justification into the 1200's. However momentum to the upside via short term and long term SMAs calls for much higher prices. To me, technically a correction to 1125 will justify a move to 1300 for the bulls (IMHO).

What do I believe? Its hard to argue against such strong upward momentum, but I remain bear and will look for the 1125 level to the downside. SMA is lagged in price action and there for it maybe possible to see my expected correction to support levels before continuing higher if the bull story stays in tack (need to re-assess at this level). A strong fail at the 1200 or slightly above the 1200 will give strong support/evidence for bearish price patterns of a higher low from the 1220 seen back in April 2010 and the 1300 level seen back in 2008.

Though, A break below 1125 and bears will be the winners for the year.

Where do the bulls win? A strong break above 1220.

So to recap:

  • Dollar short term bull and long term bear

  • SPX short term bear and long term needs assessment if I am right on the bearish move to come.

  • Oil I am fundamentally bull - but the macro environment can skew fundamentals so ill call neutral on this bad boy and leave it to the range traders.

Give me two more weeks of price action against my thesis and I will throw my hands up in the air in complete utter defeat.

*remind me to reassess the strength of dollar and SPX at the end of the week for performance check.

Key Levels to Watch this week:

GBP/USD: 1.53, 1.60 (watch the break outs or range bounces)
EUR/USD: 1.41, 1.40, 1.37
SPX: 1200 + or -
Oil: below 80, and above 84

-A Lê

Ready For War

So let there be no battle on a ground of dissolution, let there be no stopping on light ground, let there be no attack on ground of contention, let there be no cutting off a trafficked ground.  On intersecting ground form communications, on heavy ground plunder, on bad ground keep going, on surrounded ground make plans, on dying ground fight.  --Sun Tzu

Let us agree to disagree.  If any message is to be taken from this weekend's meeting of G20 finance Ministers that was it.  The Group agreed in principle not to wage a malicious currency war in which 'beggar thy neighbor' and 'fastest to the botton' monetary policies apply.  In addition, the Ministers of Finance also agreed that matters of foreign exchange policy are simply over their collective heads of wisdom. Hence, no 'Plaza Accord 2' will take place until The Group of 20 Seoul Summit on November 11-12.  Hurray!  Now we are free to continue speculation on impending Quantitative Easing from the FED without any worries of a 'currency war.'

We shall shift our focus to the United States.  This week we will receive stone cold housing data from Monday to Wednesday with Consumer/Investor Confidence reports and Durable Goods orders sprinkled on top.  What a sweet Cupcake this will be.  On Thursday the market will have a chance to digest with a soothing cup of tea or pepto depending on elusive Jobless Claims data. Finally, Friday may bring us a basket of fresh or moldy fruit with GDP, Employment Cost Index, Chicago PMI, and Consumer Sentiment.  

Wow, this week's economic calendar provides us with copious amounts of noise to trade around, into, and through.  The noise becomes deafening if we look at German CPI, BOJ announcement, British GDP, German Unemployment, and Japanese Industrial Production.  The aforementioned data set does not encompass the entire set of data releases, only what we think is important.

Switching gears, let us not forget about earnings from Ford, Kimberly-Clark, UBS, ConocoPhillips, Deutsche Bank, Visa, 3M, Banco Santander, Microsoft, China Construction Bank, Constellation Energy, Merck, NASDAQ OMX, and Total.  Ford, 3M, Visa, and NASDAQ OMX pique our interests the most.  

Alas, we arrive at the question of the hour; 'how does one trade markets this week?'  Unfortunately, we lack the definitive foresight necessary for profitable speculation at this time.  However, circumstances may change rapidly and swiftly.  Do yourself a favor and trade the trends.  If no trends exist trade the ranges.  If the range trades are missed be patient, make plans.  The Lords of Trading will part the waters in due time.

--Patrick M. Ambrus  

Sources:,,, The Art of War

Wednesday, October 20, 2010

Skeleton Shift Update: October 20, 2010



I was correct yesterday in that trading was headed into lower territory going into the Asian Session. Uncertainty of a reversal kept me out of the downtrend which was stupid, but maybe not... since backtrading is always a sure winner. Well today, I've noticed post Asian/Euro overlap is when the trend for the day usually takes place and can be traded up to the New York open for a conservative play. If New York agrees and your thesis is inline with the trader trading through New York on the same position can be even more profitable. I will be possibly trying to time a trade around then for a short term play to test this strategy out. 


Asia's Major indices probably trailing US equities close yesterday. European Equities are continuing with slightly lower opens. More soft US earnings can perpetuate this weakness we've been seeing in the markets across the board. 


Lots of movement in the Agri space with Soy and Drey Wey taking early gains. On the energy side WTI and COIL are also paring overnight losses. These moves seems to be somewhat related to temporary dollar weakness we are seeing going into London Trading.


Tuesday, October 19, 2010

Hurricane China Watch

22:40- Commodity Update

WTI CL- November ‘Crude oil rose, recouping part of the biggest loss in eight months, as China’s interest rate increase added to signs of economic growth and analysts forecast a decline in U.S. fuel stockpiles. Futures gained as much as 0.4 percent after dropping 4.3 percent yesterday, the biggest decline since Feb. 4.’

November Crude trades at $79.90/b up $0.30. December Crude trades at $80.50/b up .37%. Globex shows December contract volume of 4.8k. Due to impending expiration on Wednesday, November crude only traded 481 contracts as of writing.

‘The Energy Department report today may show U.S. gasoline inventories fell 1.5 million barrels, according to the median of 16 analyst estimates in the Bloomberg News survey.’ (

Natural Gas- NG contracts expiring on October 27 continue to pick up traction from yesterday’s session in which prices rallied more than 2%. The front month contract is up by .51% to 3.538.

GC- Gold was crushed in yesterday’s session and traded down by $40 on December contracts. The precious metal is up by $3.50 to 1337.10/Toz.

Copper- After trading down to 3.7250 throughout the NYMEX session, HG gained some traction during Globex trading. The Red base metal December contract is up by .94% to 3.7655.

22:30- FX Commentary

EUR/USD- The Euro has weakened a bit since the blood bath, across all asset classes, at the close of NY trading. The pair traded as low as 1.3700 @ 20:00. The slight breach of 1.37 triggered heavy buying up to 1.3750. Since then the pair has bounced and now trades higher by 58 pips from the lows to 1.3758. The pair is up 34 pips on the session.

USD/CHF- The ‘Swissy’ traded down to .9680 at 21:50 from session highs of .97185 at 20:00.  The pair is weaker by 32.5 pips on the session and was last quoted at .9686.
AUD/USD- Watching this pair is almost as much fun if not more fun than the viewing the  EUR/USD trade.  The Aussie dropped to .9665 at 20:00 and paired all losses to touch a session high of.9742 at 21:45.  The pair now trades at .97375.

Trading Economics
Many Commodity traders who held Net long positions may have been caught off-guard when The People's Bank of China explicitly announced hawkish monetary policy in order to curb inflation:
"China's benchmark rates are not an overnight lending rate as is the case in the United States and other major western economies. Instead, it has a one-year interest rate on saving deposits, which increased to 2.5% and a one-year interest rate on loans, which rose to 5.56%." (

GDP, CPI, PPI, Retail Sales, and Industrial Production data are to be released tomorrow evening.  Economists expect the Chinese economy grew by 9.5% yoy in the third quarter of 2010.  Any growth figures over 10% ought to unleash the commodity bulls from the proverbial cage they were placed in today.

-Patrick M. Ambrus


For Cryin Out Loud! - Oct 19, 2010

NY's Gubernatorial Race

For Cryin Out Loud… the NY Gubernatorial Race … its a DAMN circus!

What has american politics become… *Shakes my Head*

Be sure to check out the video in the link above and Jimmy McMillian's awesome accompany soundtrack about his platform.

Crying Out Loud by maxread


Skeleton Shift Update: Oct 19, 2010


All major pairs closely moving in tandem.

Pink - Asian Hours
Yellow - Asian/Euro Overlap


It seems that I was wrong on the EUR/USD and that Asian trading did not agree with the EUR/USD London/NY trading. The amount of volatility on the EUR/USD in overnight Asian trading has been very suspicious. On the Asian/Euro overlap (2 am to 4am) I've been seeing roughly 50 to 60 pips between low to high, which is 60 to 80% higher than the the Asian/Euro overlap in 2005/2006 high to low range. While during Asian hours alone I've seen ranges between 50 and 100+ pips regularly, which is about 0 - 100% more than 2005/2006 pip ranges for these hours. These random bouts of 100% increases in historical pip ranges either means some sort of high speculation from Asian traders or big financial institutions/central banks are buy/selling large amounts of Euros going into European trading hours. Another possible scenario is the increased volatility may reflect the developing capital markets in Asia and the rise of new big market players on the other side of the world.

Whether this is a permanent facet to stay or if this just a temporary phase, it surely makes noise exponentially higher and making the pair much harder to read/trade. More players, more expectations more dynamics pushing the pair with different interests.

For now I stay by my stance to stay out of this pair unless a strong short term opportunity arises. Waiting for the range to break below the 1.377 range or above the 1.41 would be optimal still. The current fail at 1.40 maybe significant especially with a close below the 1.377 level.

With the current price action, I'm even sure swing traders are having a hard time with this pair.

A. Lê

Monday, October 18, 2010

Skelton Shift Update: October 18, 2010

6:34 AM

From my last post on the EUR/USD

It turned out my analysis and entry were off. The trade entered was good but turned out to be a looser. Getting shadowed into my entry with 1 candle below the hourly 200 SMA should have signaled me to exit right away. Instead I rode it out and got stopped out. I should have been looking for a few candles of consolidation below and a daily close below the 9 day SMA.

Learning from my listen from that day, it seems early London trading is a repeat of that day! Asian traders were playing catch up from the sell off seen on friday and now we are seeing London trades trading back the lows from this morning of 1.383 all the way back to 1.39125, my instincts telling me this trend will continue up by mid NYC trading and then Asian trades will take it to the 1.41 retest.

However, Trading in this 1.377 to 1.41 is ALL noise… Making sense in these ranges is senseless and one is either better taking a long term position with wide stops to take advantage of a big move in either direction (for you well capitalized big boys) or just waiting out the price breakout to play it safe.

It is compelling to catch a short term long trend on the way up to 1.41 but I think I will play it safe for now.


The majority of Asian indices ended up on a lower note; again a possible lag from fridays trading. European equities are opened up mildly stronger:

  • Cac40 +0.14%,
  • Dax +0.30%
  • FTSE100 +0.12%

This week can be a week of consolidation as there are not many short term market movers expected on the economic schedule. Also, my take on the SPX has stayed the same the past weeks, at these levels I expect the SPX to stall out below 1200 and correct. A clear strong break above, would mean I'm completely wrong and 1300 would be very feasible in a two weeks or so.


Gold, Silver, Copper all pulled back from their overnight highs and continue to trade lower.

GC (NYMEX) OCT10: -0.78% - 1360.40
SI (NYMEX) NOV12: -1.09% - 24.015
HG (NYMEX) NOV10: -1.02% - 3.7985

CL (NYMEX) NOV10: -0.17% - 81.6
NG (NYMEX) NOV10: -1.41% -3.487

Take away:

Overnight we saw dollar strength and metals went into higher territory and interesting crude strengthen (nat gas following its own fundamentals). Going into mid day London trading we are seeing relative dollar weakness and with the commodities lagging in correlation. With the temporary dollar weakness we are not seeing oil or the metal budge from their current lows.


High End Consumption


I remember pre-crisiss retail was in its hey day back in 2007, not just the high end brands, but pretty much retail across the board. I've never been a retail expert but, thats the sentiment I was getting at the time from the retail analyst I knew.

Going into the end of 2007, post sub-prime explosion/implosion, I clearly remember the nature of debate revolving around the systemic nature of the catastrophe and often found myself debating state of the macroeconomy myself. Typical interest rates, inflation, households and the consumer were the stars of the show. To an extent, these have taken a backseat in light of the new exotic and non-traditional monetary policies of QE and the current so called "currency wars," we see in the daily news. Not that the former are not of severe importance, but the media certainly have found new toys to play with.

From what I can recollect, I was trying to argue if the consumer was strong enough to absorb the crisis and continue their abnormally over leveraged lives. My main rationale at the time was that the middle middle class and upper middle class(prime borrowers) were the ones driving consumption and were somewhat insulated from the then recent sub-prime woes. To an extent I was right as the SPX continued to make higher highs all the way into early October 07 after the sell off from the summer months.

Well, fast forward through one year, and it turns out I was completely wrong as all assets ended up tanking along with the economy in 2008. A complete miscalculation and misunderstanding of the financial/economic/social systems at hand. As the economies tanked savings rates hit all time highs and continue to persist today, we now are seeing close to 10% un-employement, stagnant housing, weak consumer demand, tight supply controls, and uncertainty in the global economy.

Accordingly, how does this high end retail picture fit in this weak economic environment. A lot of intersting facts and figures are thrown around in the article:

  • Luxury sales to increase by 10% in 2010 vs -8% in 2009
  • US luxury sales up 12% for 2010
  • Euro luxury sales up 6% for 2010
  • Asian Luxury sales up 30% for 2010
  • The rise of Chinese global consumption for such goods

It is hard to believe that US high end sales will be sustainable given the current state of consumption, unless it is really only the rich consumers who are driving this trend. The article hints similarly with the recent dollar weakness soft sales are expected going into 2011. It would be interesting to see how a big dollar correction could affect US consumption if there is a correlation at all. Given the supply and demand constraints of credit, it may have limited effects unless more middle class consumers start unleashing some of their savings. Indeed the holiday spending coming up may provide some broader interesting insights as to how the consumers are behaving.

On the whole I wouldn't read into these high end sales numbers as indicative of anything strong for the US economy, though the Asian dynamic mentioned may be worth exploring for further insights into the Asian growth story and its own sustainability. Perhaps another blog for another time…

-A. Lê

Friday, October 15, 2010

Early Bird Update

00:016- Equity Commentary

The Nikkei 225 is off .52% to 9530. Bloomberg attributes the drop to Investor Sentiment:

‘“Investor sentiment is a bit twitchy,” said Shane Oliver, Sydney-based head of investment strategy at AMP Capital Investors Ltd., which manages $85 billion. “The U.S. data was a bit poor. This week we’ve had a couple of good days and investors may be looking to take profits.”

The CSI is up 2.00% or 65 points to 3,288.52. The ASX 200 is down 13 points to 4686.60.

In the U.S. GE reports before the opening bell on the NYSE: “Analysts project a second straight quarter of higher profit after eight periods in which it declined or was little changed. Adjusted earnings may be 27 cents a share on sales of $37.4 billion, the average of estimates in a Bloomberg survey.”

SPX, Dow, and Nasdaq Futures are flat. 5 and 10 Year Treasury futures are up 0.05% as of writing.

00:05- Commodity Commentary

Energy- Nat Gas is currently positive by $0.0001, up on light volume. November CL contracts have followed the dollar for most of the session. Losses were paired from 82.53. November contracts are up at $82.75/barell.

Precious Metals- Silver has led the rally and is up 1.47% or $0.36 to 24.795. I see $25.00 on Silver before $1400 on Gold. Gold is positive on the session up $3.60 to 1381.30.

Grains- Wheat and Corn continue to rally as we have a global shortage. In addition corn may be benefiting from E15 legislation now in place. Though, bullish activity is in order until the next USDA report reports accurate Supply numbers. The always important yield/acreage ratios remain on the low side when measured against previous estimates. Wheat is up .82% and Corn is up .93% on the session. Additionally, Soybeans continue to extend gains, advancing by 1.20%.

00:00- FX Comentary

EUR/USD- the pair traded down as low as 1.4009 at 20:15. The pair then traded up to 1.4049 and faced resistance at 1.4050. The 'Sovereign Default Trade' seems to have found support in the 1.4025-1.4035 range. Currently we are long at 1.40387.

Cable trade - The pound traded down to 1.5985 at 20:30 and has since traded up around 1.6005. The pair sits at 1.5997 at present time.

U.S. Dollar Index- The DXY gained traction and is trading up to 76.88.

U. S. Trading

CPI , Empire State, and Retail Sales come in at 08:30.  I expect 'robust' retail sales data to bolster equities.  Additionally,  expect a weaker USD tomorrow with stronger Commodities.  Good morning and good luck.

-Patrick M. Ambrus

Sources:,, The Gartman Letter, Financial Times

Thursday, October 14, 2010

Lost in Transition

As the memories of summer dawn upon us and autumn's head-winds transition us into colder months, we remain stuck in a period of cryptic transition.  The green leaves are slow to transform into  red, yellow, and orange decay.  Throughout September and early October, temperatures here on the Eastern United States remain elevated with splashes of summer, spring, and autumn surprising us on a daily basis.  I seek clarity in these matters.   Moreover, when will a new forceful trend form and carry us into colder, cooler, and darker days?

This same phenomena can be easily applied to current market conditions.  We are at a a cliff looking over the edge and waiting to be pushed by "someone or something."  For the past month of trading the impetus for asset price appreciation came at the behest of the U.S. Federal Reserve.  Mr. Bernanke made it clear at the Fed's anual Jackson Hole Summit:

Notably, since December 2008, the FOMC has held its target for the federal funds rate in a range of 0 to 25 basis points. Moreover, since March 2009, the Committee has consistently stated its expectation that economic conditions are likely to warrant exceptionally low policy rates for an extended period. Partially in response to FOMC communications, futures markets quotes suggest that investors are not anticipating significant policy tightening by the Federal Reserve for quite some time. Market expectations for continued accommodative policy have in turn helped reduce interest rates on a range of short- and medium-term financial instruments to quite low levels, indeed not far above the zero lower bound on nominal interest rates in many cases....

In support of the stock view, the cessation of the Federal Reserve's purchases of agency securities at the end of the first quarter of this year seems to have had only negligible effects on longer-term rates and spreads. 

Many Market participants took statements like these as indicative of greater 'Quantitative Easing' measures in the near-term with an emphasis placed on purchases of longer-term maturing Debt instruments.  Thus, the cruise ship 'QE2' set sail and every trader, analyst, investment banker, and speculator jumped aboard.  The rumors of 'QE2' allowed an appreciation  of equity prices, commodity prices, and a continued rally in the bond market.  However, many market participants fight a potentially painful hangover as they wait for another round of cocktails to tide them over.  Until 'QE2' becomes a reality, the current run-up in asset prices will continue to be predicated on rumors supported by ubiquitous supply & demand, fundamental, and sentimental data.

Consequently, The USD has taken the brunt of the pain over the past month of trading.  The US Dollar Index is down 6.8% in the period from September 1st -October 11.  Even though this downward trend has been in place since early June, the recent rumor mongering has certainly contributed to the Greenback's precipitous plunge in value.

EUR/USD has appreciated by 9% since September 1st.

OK so what, why does a weak dollar matter? As the emerging markets transition into developed economies won't the USD need to allow the wealth to spread to other currencies, 'new reserve currencies'?  In the future, the USD may no longer be the benchmark for which emerging market rates are pegged or for which all central bank reserves pile into.  However, these structural changes will not placate current financial psychology for some years time.  Hence, we must look at the short-term trends to discern directionality.  Disregard, financial profits, journalists, and fund managers who say otherwise.  Trade the trends.  Block out the noise.

-Patrick M. Ambrus


Tuesday, October 12, 2010

Trade of the month - EUR/USD - Oct 12, 2010




The condition is now prime for shorting the EUR USD. A big correction in the dollar should be at hand. A break in the 60 Minute 200 SMA would coincide with a clean break on the 7 Day SMA daily leaving an open range all the way down to 1.35. I would target 1.368 in the intrim via range analysis post FOMC in 1 - 2 days. If the FOMC noise exaceberbates the beggining of the down trend 1.35 may come in a blink of the eye. 

The last evidence #3, is the candle stick analysis of the past 3 days on the daily chart plus MACD cross and FINALLY the RSI pulling back into less than 70 range. Also to note on chart #2 the peaking of of volume indicates a possible smooth down trend reversal if the volume maintains from here out with no surprises.

The only risk to this technical landscape would be if the recent negative sentiment completely reverses or if the FOMC completely surprises and says something ridiculous like no QE and an exit strategy is underway. However, I find that unlikely to happen as with the November elections in sight, fed speak will be tame and typical. TT ... TT ...


It seems to me that no mans land has been between 1.38 and 1.40. Gun below the SMA's and you should be good for free falling.

-A. Lê

Monday, October 11, 2010

Skelton Shift: Going into London Hours - October 11, 2010


And I quote:

"ECB QUADEN: Global slowdown is risk to euro-area growth outlook; Excessive FX volatility must be avoided."

"SOUTH KOREA: The president has been on the wires saying countries need to reach an agreement on ccy's or global economy will be in trouble."

"$EURUSD: ECB Mersch & Nowotny along with Roubini have all commented that euro looks too strong and unlikely to cross 1.40 level."

The big question is sentiment gonna lead the trend today? The hangover from NFP, the IMF annual meeting, and economist in the headlines are all making for interesting dynamics in the EUR/USD trade today. When sentiment is so high and been driving the trend does one trade with it  and Short the EUR/USD or does one go contrarian (especially against economist comments).

Early morning hourly short term charts are showing a failure to reach the 1.402 - 1.403 range highs from pre NFP.  The Hourly is trading down at 1.396 and has been range bound between 1.39 and 1.40 since Friday's trading. The tone will be set by London traders but New York traders will really push the direction.

The weekend should have given traders enough time to process the data. Asian traders provided very light volume in early Sunday trading. The real action starts in a few minutes.

Daily Technicals:

The first 1.40 touch had highly abnormal volume (300,000+  vs a daily average around 90,000-100,000+) followed by two days of doji candles. for sure the uncertainty is high in the pair at these levels. This mornings touch on the daily in the 1.40 needs to be supported with more abnormally high volume if we are to see a sustained trading above 1.40. However, if volume peaks out from here we can see a long sustained dollar correction to 1.35 (a retracement to the 50% FIB), a mimicry of the June to August EUR/USD rally and correction.

However, it will be foolish to call a tops on the daily chart as timing is very hard as we humans don't feel time in terms of days but more in minutes and hours. The chart can get extended to as far as 1.41 - 1.42 before the day of reckoning.

Take Away:

Set entries wide to catch some limited upside, and if the chart gets too extended in a short period of time I would completely opt out of the trade until large downside (1 - 2 Daily ATR's to the downside ~200 - 300 pips from the 1.40+ range), and possibly set trades in the low 1.38 range or lower to catch an extended down trend.

-A. Lê

Friday, October 8, 2010

Forex Taxes - Oct 8, 2010

Summary Reporting is allowed for Forex Gains/Losses

Skeleton Shift Update: Market Commentary Oct 8, 2010

After yesterdays "assault" at the 1.40 level on the EUR/USD, prices pulled back 150+ pips to the downside and since its over night lows, has traded up as much as 100 pips. Currently prices are trading to the downside from its 8 hour highs. ON the hourly the 60 minute 50 SMA is being tested, and since 2:00 am has been strong hourly support.

At this point in time arguments for the bull and bear picture is equally attractive. Yesterdays 1.40 test showed that the word was watching and waiting for 1.40 to break as a huge amount of sellers entered at that level.

As a fellow trader SAUROS said, "The Landscape is bullish, but in the face of such strong selling it is hard to go against it." This is especially true in light of the daily chart failing to make a clean candle close above the .681 FIB (1.51 -> 1.19). However,I am not ready to be bearish yet amongst the current high uncertainty. The NFP announcement at 8:30am today is to set the today for today's and next week's trading. Expectations are rather bullish on the numbers, and I am in agreement with expectations (54K -> 5K). However a surprise could completely tank the dollar.

A retest at the 1.40 would be critical in deciding next weeks direction. A strong close above the 1.40 mark by Friday's FX close may continue the bull trend we been seeing up into the 1.41 range in early next week trading. A fail in the 1.40 mark leaves the EUR/USD to fall as much to the mid 1.35 range.

In light of the upcoming NFP unless you are playing the report I would suggest following the price direction set post announcement, as there is too much risk on the upside and downside.

NFP in regards to equities and crude:

If one believes in the equity oil correlation more so these days (vs the dollar crude corr), a negative surprise in NFP could send equities lower from its recent highs and causing oil to revisit its overnight lows of 81.00 on QM NOV 10 contracts.

A positive reaction floating equities can mean crude breaking into the 84 territory.

In terms of US equities, the Daily SPX charts indicating some selling pressure in the coming days, but is overall bullish to the 1190's+ ranges in the coming. It is my view that there is not enough volume to sustain equities to break the 1200 level. In my yesterday's post I noted an article that highlights a good number of HF managers who are still bearish equities. With the current volume levels its my believe that big mutual fund guys have been forcing prices high and may not be fundamentally sustainable.

However, if one equity earnings may change the volume story if they are indeed positive. However, if big corporates are really sitting on big piles of cash and are not investing in light of to coming election, the earnings may be rather flat.

Take Away:

  • Opt out of the dollar trade until post NF
  • Crude maybe a good play in the coming weeks via equity correlations however, with NFP coming it one would be wise to tighten stops or hedge
  • If bullish the daily is indicating a pull back which would make for a good entry if expecting the higher 1190+ range.
A. Lê

Thursday, October 7, 2010

Survivorship Bias and Backfill Bias and HF Alpha

Insights on Survivorship Bias and Backfill Bias:

Survivorship and Backfill Bias

HF Alpha's,+B'

Alpha is relative?

-A Lê

Hedge Fund Industry Sentiment - Oct 7, 2010

I thought I would share this interesting article with our readers.

Even though the sample size (109 HF managers) is relatively small, I still think there is something to be said about the current HF industry sentiment.

Bull/Bear Ratios:

SPX: 0.83

10 yr Treasures: 0.89

Dollar Index: 0.58


19% plan increasing leverage into NOV. (cited due to cheap borrowing rates)

Why record company cash balances?:

79% cite uncertain economic, political/regulatory outlooks vs 14% lack of investment opportunity. (I find that with current interest rate levels that the later is unlikely, unless you are a domestic company).

What are they doing with their cash positions?:

28% paying down debt vs 17% want to keep it on their balance sheet.

Take away:

HF managers are pretty neutral across the industry assuming this sample is normally distributed, except with more slight bearishness on the dollar. Views tend to say there is more risk aversion in the US economy. The views are conflicting in light of the SPX's 8% performance. US equities definitely may tip the sentiment to more bullish, however as November approaches for sure risk aversion may remain strong and keep sentiment mixed.

In light of this, those funds that plan on levering up into the next month should probably hedge instead. If I were to take a stab in the dark, it is probably those really large funds sitting on large cash positions who missed/took a hit on the September equity rally that wish to do so.

A. Lê

Citations: from the article link above From Hedge Week

Skeleton Shift Update: EUR Technicals Update - OCT 7, 2010


Summary of current Action:

The Assault to the 1.40 level is on its way with a 70 pip Hourly candle at 2PM. Luckily our 70 pip trail was only a Day order as our trail rest at the 3940 level and into Asian trading the EUR/USD dropped below 3870. On the Hourly that happened at 10pm which led to an hourly doji like candle which led into the 2am move up. Such a strong move to start the morning means to follow the trend into NYC open. 1.40 will touch and then we will have to see how the retest goes. Psychologically a strong trading above with a pull back leaves room to pyramid.



7 day SMA + 20 SMA + 50 SMA are all great indicators on the the hourly for short term entry points. 20 and 50 SMA's confirmation of continued upward price pressure with the 7 SMA used for timing.

Post US equities close the EUR started to trade below the 7 SMA but above the 20 SMA and when prices on the touched the 20 SMA we saw a the start to a strong price reversal. By 2am prices started to trade above 7 SMA and shot up from there.

On the Daily chart the perfection formation of the 50, 100, and 200 is hard to argue against for continued price direction


Fibs don't lie (ha ha get the irony?) Anyway, the 61.8 fib (drawn from 1.51 to 1.19) was blown out of the water. This is similar to price action blowing through the .236 and .382 level before correcting. If price action is similar, we will see current prices trade above 1.408+ before a significant correction (significant = 500+ pip correction).

If prices do want to correct 500+ pip with strong trading above 1.408+ or higher, that would only make the move to 1.50 more viable or sustainable. Technical analyst are all over the 1.35 support level which would be key for a bull argument to hold on a monthly basis.

Trend Strength:

ADX on the Daily:

This can last for days in the 75 range, even if ADX starts to trend on a downslope the upwards price trend can continue to higher highs, ideally, in a narrowing range. ADX daily shows continued strong upward trending

Strategies Recommendations:

For Entries look for decent price corrections on the hourly or ranges of consolidation where you are getting bullish crossovers on the MACD. Try and get multiple confirmation with long lower shadows on hourly candles or RSI support on the 30 min chart. This timed entry maybe complete BS however because in strong trends the indicators will make no sense, which is why its better to use this type of entry on strong moves down which indicators make clear moves that may coincide with price direction.

Watch the 1.40+ price action and the 1st test to look for opportunities for pyramiding for already existing positions. Keep the tights rather tight in case prices do want to strongly correct to the downside.


For those who been actually following the blog, yes I do STRONGLY feel a correction is needed on a fundamental level, however, last months trading has humbled me and made me re-learn what I should have already known. Trade with the trend! So for consistency I believe there needs to be a dollar correction, but obviously thats not how I will be trading it.

-A. Lê

Quiet Before the Strom

Interest Rate Day 2 will reign central banking policy among us in less then 4.5 hours.  The first such decision emanate from the Bank of England at 7:00 EST.   Jean-Claude Trichet's ECB is on deck and will step to the plate 45 minutes later.  In the mean time, let us examine the potential ramifications that hinge on the tongues of the notorious 'Lords of Finance.'

Is there any any legitimate doubt the ECB will keep rates in check? No doubt here.  I volunteer to take the opposite side of that trade.  Maybe Mr. Kerviel will humor me.  The issue in question more or less is whether or not Mr. Trichet will touch on the bleek Irish banking system, lack of deposits held by Spain's Cajas, Greek austerity, or effects of a stronger Euro on medium-term growth.

The ECB statement will most likely sidestep Ireland's dire banking sector and potential liquidity problems in Spanish financial institutions.  ECB rhetoric on the aforementioned issues will trickel out in various policy speeches and interviews.  Now let us savor the meet and potatoes.  Surely, we can assume the words 'growth' and 'inflation' are seared throughout the policy statement.  The 'Lord' will reaffirm that the European economic recovery continues on the forecasted track bolstered by 'robust' (there's that word again) economies (Germny, ahem).  Next, Trichet will unwrap the 'PIIGS' with hyperbole that includes restructuring, budget rebalancing, and structural change.  Lastly, the spotlight will surround inflation.  I surmise The ECB will not attribute lack of inflation to a stronger Euro but rather pent up demand.  At this point the Germans will be thrown praise for their growth through domestic demand.

All of this banter is pure speculation.  However, what I attempt to underline is the ECB's 'poker face'.  Time and again the ECB protects the Euro-Zone through tight-lips.  When Lip-service is provided the market bites.  Let us recall how long it took Wall Street to buy a coordinated bailout between The Fed and U.S. Treasury.  The ECB/IMF bailout of sovereigns slowed the bleeding immediately.  What am I getting at?  The ECB can move markets just as fast if not faster as than the next central bank.

May 6 - July 6, EUR/USD rate rebounded in 2 months

On a more speculative thought, I am intrigued to see the Dollar Index touching 'Armageddon Support'.  Could Non-farm Payrolls provide the impetus for a rigorous dollar rally?  I expect to see 76 on the above index before a bottom becomes apparent.  Though, I will keep the 'Armageddon Support' in mind over the next few trading sessions regardless of Quantitative Easing round 2.  At present, $ 1 Trillion seems to already be priced in.  

This next  chart  is of the Dollar Index.  Here I look for 'highs' as a an indicator of risk aversion or more simply put, a fear gauge.

What will come of Rate Day 2?  I am not a forecaster, only a lowly speculator.  However If I were a betting man I would put my faith in the Euro currency for the next few sessions.  Good luck trading!

-Patrick M. Ambrus

Sources:,, Financial Times,,

Tuesday, October 5, 2010

Rates Down Under

The AUD/USD pair corrosively sold off the moment the rate decision became apparent at 11:30 EST. The pair rallied more than 150 pips since the initial sell-off and now trades higher around 0.972o. Unfortunately, I was on the wrong side of this trade. Lesson learned.

Interest rate day came and went.  The RBA decided not to raise rates by the sure-fire economist/analyst prediction of 25 basis points.  Instead, rates stayed in check at 4.50%.  Central Bank Governor Glenn Stevens explained:

Financial markets are still characterized by a degree of uncertainty, and are responding both to differences in growth outlooks between regions and evident strains on public finances and banking systems in several smaller countries in Europe. Most commodity prices have changed little over recent months, and those most important to Australia remain very high.

The tacit implication here is that while commodity prices continue to rise, notably Copper, the substantial appreciation of the “Aussie” supplants any real threats of inflation in the near-term.  I surmise the central bank employed this policy to assist in job creation through private sector reinvestment, which in turn may help reignite housing demand and retail sales.  In the minutes the RBA suggested higher rates over a mid-term period.  The central bank did note cooling domestic demand and global economic uncertainty as concerns:

Several measures of inflation expectations had eased a little over recent months to be around average levels. Similarly, business surveys reported that the share of businesses planning to increase their prices over coming months was around average…While policy had to be alert to these risks, members considered that if the central scenario came to pass it was likely that higher interest rates would be required, at some point, to ensure that inflation remained consistent with the medium-term target. For the immediate decision, there had been no significant change in the overall outlook, with conditions looking a little stronger domestically than they had at the previous meeting, but looking a little weaker internationally.

In addition, I found the IMF’s recent comments in their annual Article IV moderately firmer than those found in the most recent RBA minutes:

Should the recovery unfold as expected, monetary policy will need to tighten further to contain inflation pressures generated by the mining boom… from a medium-term perspective, our assessment is that the exchange rate is mildly overvalued… This overvaluation is likely to be temporary and may dissipate with the eventual normalization of interest rates in the United States and other advanced economies.”

Here, The IMF argues interest rate policy (tightening) as the correct tool to cool inflation.  Conversely, the RBA seemed content to let the ‘Aussie” appreciate and reap the benefits of cheaper cost of capital and simultaneously increase prices of exported commodities.  Note, as the CNY remains weak against the USD, imports from Australia become more expensive for the People's Republic of China. Either way, inflation will cool. 

What caused economists and analysts to maintain such conviction of an interest rate hike?  The empirical reason may never be discerned.  I maintain a theory though. Many rumors sloshed between investors, traders, and media pundits that the Central Bank Governor openly desired hirer rates. However, Mr. Stevens did not lay his cards on the table in between the release of RBA minutes on September 7th and the rate decision on October 5th.  Thus, many of ‘us’ were fooled.  Next time 'we 'ought to err on the side of caution when attempting to forecast a Central Banker’s policy decision.

--Patrick M. Ambrus

This Blog has been developed by Analyze Capital LLC, and as an independent organization we provide “AS IS” information without warranty. The ideas and opinions expressed by the contributers of this blog are personal and do not represent the actions or policies of Analyze Capital LLC. The contents of this blog do not intend to assert recommendations or to offer advice of any kind. We are not responsible the consequences, be they gains or losses, that may result from using any of the information from this blog.