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Tuesday, January 05, 2010

EVER LOOK IN THE MIRROR?



The last post featured commentary on the Dollar Index and it's short term bearish setup. To look deeper into the bigger picture with that market we need to look at individual currencies that comprise that index. Due to the weighting of the Dollar Index, the Euro represents almost a mirror image of it and as a result should show a bullish picture to confirm a sell in the Dollar.

It is clear from looking at this chart above, that it is indeed a mirror image of the DX. We see alot of commercial buying, small and large spec selling. We are also seeing an overall open interest decline which in an uptrend is bullish. This does confirm the near term bearish dollar picture. Again, also the problem here the way I see it is the larger picture cycles. They are bearish for this contract for the next couple of months. So what do we do?

For me it is very simple, I wait patiently for my patterns I look for in shorter term tools to pull me into the market. It does seem likely to me that in the near term we are going to have a metals rally and a Dollar decline. As a result, I will be looking for trades in those directions with my short term tools. I already am long Gold, but am not in the Dollar or Euro yet. However, we are at a juncture that if we were to break out above the recent dollar high and below the Euro low, those setups will be nullified. I give these cylces very heavy weighting due to how well they have performed in recent years and they say to look for the dollar to rally and the Euro to decline for a couple more months. It would be best if they both lined up, but we do not always have everything we ask for. At times we have to make judgements based on the weight of the evidence.

The general rule I use is that if I have to look at a chart more than 30 seconds to determine if there is an entry, there is not one. It should jump right off the page at me. I have very specific patterns I look for and if they are not there I am not there, pretty simple. If a market leaves without me I don't care. Neither of these two markets do that right here even though fundamentally they are setup.

In summary, the Euro setup does support the DX setup, but there is also conflicting information that is enough to make me pause and wait for everything to line up better than what we have here.

HOUSEKEEPING NOTE

There have been 3 attempts in the last week to submit comments that had links to blogs that in no way relate to trading at all. They were made under the guise that they liked the topic and had another site that added to it. These were obvious marketing attempts to get traffic to their sites. All of the comments here are moderated for reasons just like that. You are not going to get those comments through, so there is no need to submit them. I just delete them immediately. Unfortunately this creates a lag in posting of comments but it is a necessary procedure. I apologize for any inconvenience this causes.

2 comments:

robert said...

I know you rely heavily on COT data in making your trading decisions.

What would you suggest I read to learn more on how to interpret COT data?

Of course, you could simply email me your proprietary system too - but I doubt I would get very far with that request. ;o)

Thanks Chris.

Chris Johnston said...

Larry Williams book on it is best. Briese also has one but it is not as good