TALE OF THE TAPE
I mentioned yesterday that although I am looking for the market to bounce, that the intra day price action has just been terrible and that we needed to have a move down then reversal within a day to show there was a bottom beginning to form. Once again yesterday at the end of the day we had a big rollover. The market spent most of the day in the green just to get clobbered again during the last 30 minutes and close negative. This is what we call the tape. In the old days, even before my time they had to watch tape coming out of a machine that had price quotes on it to watch price action. They called that reading the tape. Of course now with all the technology we have reading the tape is much more sophisticated. We have all our fancy indicators and different ways of forming charts, candlesticks and all this other stuff. Sometimes we just have to sit back and watch the tape.
I do this by just overall gathering my view on what is happening. In this instance it has been pretty simple, as we near the end of the day selling takes place, so the tape is telling is that in the near term the trend is solidly down. We are very oversold, there is no doubt about that, and the philosophy of buying into weakness above the 200 day moving average for the Bernanke's is telling us to buy into this decline. Again, even though I showed a trade like this I did with the Q's I am not comfortable with an unlimited loss in those scenarios when the big one does show up. I think we are on the verge of the big one now, so I am not doing that trade. I do think it is going to occur after a bounce, but it is possible we could just roll over really big right here. Due to how the advance/decline line looks I am not expecting that but you just never know.
The above chart shows the Aussie Dollar long trade I was in that I exited last night. I waited for the NFP report to come out on Friday, before I entered this trade. This market has been one of the strongest currencies, and I knew I wanted to be long currencies, so I watched how this reacted. When the Bernanke's fell out of bed on this and the Aussie only went down a little, I decided on a relative basis it was pretty strong. Since I got it on a retracement, I got more contracts than normal since the stop was smaller. Life was good this thing took off and I was up more than 100 points per contract by the close.
However, as we know things change in a hurry in this business, and they did here. I began to notice that quickly this currency started under performing it's counterparts the next 2 days. The dollar got killed Tuesday yet this went nowhere. I knew I had some trouble so I was looking more closely at it. I then noticed how much the POIV indicator was diverging against the price, so I now had a solid technical reason to back up my tape read as to what was going on here. Once I saw all that and it opened weak in the night session, I was looking for a stop location and I noticed Tuesday was a reversal type bar which gave me the ideal stop around it's low. I got taken out immediately as everything rolled over last night really sharply. I had been carrying my stop at 10582, so getting out at 10670 saved me a bundle of cash since price did wind up going down to where my stop would have been.
Net net, you have to manage your trades as they go along. I had my plan on this one and it was to hold it for what I thought would be a big move up, and it started off gangbusters. The huge equity weakness caught me here, but you just never know when that will happen. I had thought since we are already short term over sold in the equity markets that they might bounce. Had they bounced I am sure this trade would have done well. They did not, and dragged most things down a bit with it including this market. The trade was still a profit albeit a small one, and I managed it perfectly as a short term trader. In the end that is all we can do in this business. The reality of trading is that you just have to grind it out. Many trades work out like this then occasionally you get a big one and all the balloons get released into the air! I may wind up going long again here if things start stabilizing. If equities roll over the currencies are not going to rally other than the DX.
As we have now gotten ever further oversold in the Bernanke's we finally have a chart pattern where the software is projecting an upward move.
I have stated this over and over, these projections based on patterns although incredibly accurate at times, can also be dead wrong. You cannot trade off these alone. I just use them as a general reference to try and tell me a bias when I can't find one looking at the bars alone. It is indicating that past patterns like this have tended to drift up. I still have nothing myself that would get me to go long right here, we just have all down range bars and all my indicators are going straight down. My trading style is not to try to be a hero and buy these types of plunges. There is a statistical edge that is strong is doing so, as long as the Bernanke's are above their 200 day moving averages, which they are in this case. That theory I alluded to above would be long a couple of units so far and looking to add more on a down close today if it takes place.
This is not for me, but I just wanted to mention it due to the strong bias it has if you carry no stops and exit on short term strength.
I did take that trade in Hogs yesterday I mentioned at the end of yesterdays post. I got sidetracked so never got the add ons on a pullback, which never really happened anyway. I only got a 7 lot on, and of course the trade took off. This business can be frustrating in that we don't often have the size we want on the biggies and are too heavy on the bad trades. Now I can root against the trade and have some fun since in this bass ackward business I might feel better if it winds up losing since I don't have full size on it!