The Squeeze trade to make the 400 million economist both professional and amateur sweat, is on. Readers of this blog of course know I have been calling for this recently. It is also at this point a retracement in a downtrend, still well within pullback parameters for a continuation trade back in the direction of the longer term trend which is down.
Which is the way to play this? Short this rally or buy the pullback?
The answer to that is that it depends on what your time frame for trading is. As a short term trader I know that the highest probability trades are pullbacks like this, with commercial selling that accompany them. However, I also know as I have written previously in here over and over, this is the short squeeze of the decade in the making. Since the potential for such a large gain on the upside is there, long side entries also have to be taken.
For a longside entry we need a pullback to test the low. It is possible that like the metals, it is just a V bottom like they appear to be a V top, and that opportunity will not develop. The problem is that we can never know that when it is happening, whether or not it will just blast off, or give us a retest. I can tell you from the experience of learning the hard way over the years, you have to fall back on your entry techniques now and if your setups give you the trades you take them, if they do not you move on. There is always another trade. If you just blindly bought an oversold market on the Dollar all the way down searching for this bottom that appears to have formed, you would have been bankrupt long ago.
I studied for years over-extended conditions and how to fade them, all that happened is my account balances faded! If you can live with a 20% accuracy rate knowing eventually you will hit a homerun that makes up for everything, that approach can work. I personally cannot live like that knowing I am just a few more decisions at any moment from handing over my house keys to the bank. At this very moment I do not have an entry setup in either direction to trade this. The chart below shows why.
You can see the oscillators far outracing the price. There are 2 ways to look at this. One it tells us this is a very strong move which we can obviously see for ourselves on the chart. Second, have they punched themselves out? Larry Williams has taught recently that at times this can be a reversal pattern when the price does not keep up with the momentum oscillators, and a move can fail. For my purposes I either need some type of a momentum divergence now to short this move, or a pullback where the oscillators stay positive and we get a higher short term low. Other than that it is basically watch to see if either develops. If they do not I do not take a trade here. The currencies and Forex pairs offer plenty of action, so if this does not setup exactly like I want, I will just say I told you so on the rally, brag about the call, and move on.
I do not trade well when I force trades, so even though it kind of ticks me off that I am not long here since I predicted this, my entry setups are not there yet either way.