Wednesday, April 26, 2006

The Traders Helping Traders Big Weekend Edition - Test Drive Version

The Traders Helping Traders Big Weekend Edition - Test Drive Version

Currencies Market Overview

Currencies Rock! At least they did last week as the Pound and Swiss Franc yielded some very handsome profits before the weekend. And just when I was beginning to wonder if the currencies were ever going to find a trend!

I suspect that we will see the Pound, Euro, Swiss and maybe even the US Dollar flounder for another day (or two) before continuing again, but in the meantime we have an opportunity brewing in the Aussie Dollar and we're in the Peso again.

Australian Dollar

The Australian Dollar is in an interesting predicament. Take a look at your weekly chart for the AD. What do you see? Did you notice how the market is trading in a descending channel with rates currently testing the upper end of the channel? If you did, then you're seeing the same thing I am.

What does this mean for the AD? Well, we know that the AD is in a strong uptrend, and now that the market has encountered the upper boundary for the channel we would expect to see a bounce that sends the market lower; however, because we know that we're trading at the upper limit, we can plan to take a long position above this barrier in anticipation of a breakout. This does not mean that we are expecting a breakout merely that we have a pretty good idea of where the strongest resistance is. This allows us to set up the trade with minimal riskiness.

The channel boundary is the same as last week's high: 7469. We will want to make certain that the AD trades above this line before buying the market. The way I'll set up the trade is to buy at 7477. This allows me another 8 ticks above the 7469 resistance which should help keep me safe. I'll use the intermediate support at 7440 to cover the trade and keep risk small.

The first profit target is the resistance at 7550, where we could see a reaction. This isn't enough for a good return, so I'm going to hold out for the next resistance at 7600 before cashing the trade.

BUY June Australian Dollar at 7477
Exit Order: 7439
Approximate Risk Exposure: $380 per contract
Profit Target: 7597
Approximate Potential Profit: $1200 per contract
RRR: 3:1
Degree of Risk: Moderate to HIGH

Australian Dollar Chart

The charts in this publication are all made using Gecko's Track 'n Trade charting software. You can get a demo for free at https://secure.geckosoftware.com/reseller.cgi?abbr=SENFT.


Mexican Peso

Our "just-in-case" sell order in the Peso was filled on Friday as the market continued lower. I wanted to sell the market after Wednesday's session showed us resistance; however I was reluctant to do so until rates traded through the 90.050 support level. The 90.050 support coincided with the bullish trendline of the recent rally a break through here should see the market continue lower. On Friday we got the break; however the market closed around the resistance, which means that the resistance is not truly broken.

This could be a problem for Monday, but unfortunately there's not too much we can do about it. You'll notice that the high of the day is just below our exit stop, so the trade is perfect "as is". All is not lost however. RSI is heading lower and DMI shows the downtrend gaining strength again, so with a bit of luck we'll be able to get the trade to breakeven before running into support at 89.250, which is the next obstacle.

CONTINUATION of Short June Mexican Peso at 89.875
Exit Order: 90.375
Approximate Risk Exposure: $250 per contract
Profit Target: 88.050
Approximate Potential Profit: $912 per contract
RRR: 3 1/2:1
Degree of Risk: Moderate to HIGH

Mexican Peso Chart

The charts in this publication are all made using Gecko's Track 'n Trade charting software. You can get a demo for free at https://secure.geckosoftware.com/reseller.cgi?abbr=SENFT.


Energies Market Overview

Another outstanding week in the Energy complex. Trading the energies right now is the trading equivalent of shooting fish in a barrel. Not quite, but you get the idea. Picking the market direction is easy (up, like you couldn't guess that one for yourself) but the real challenge is hanging in while the market makes these enormous ranges.

We did well with Heating Oil and Crude last week and now it looks like we might finally have a chance to get into Unleaded as well.

Unleaded Gas

Unleaded's prices are climbing so quickly that the trendline is almost near vertical! In most cases this represents an unstable trend as a market that accelerates so quickly is usually prone to declining just as quickly (consult a recent silver chart to see what I mean), but this doesn't appear to be the case with Unleaded. Rumours at the pumps abound, and even the local gas jockey will tell you that there is no end in sight for prices as we head into the traditional summer driving season.

In spite of the strain the high energy prices put on the economy not to mention your pocket book, it doesn't look like we're going to see a decline anytime soon. For this reason I'm still quite bearish on all the energy markets. While I don't advocate blindly buying any market, you almost could get away with it in the energy complex.

Fortunately we don't have to resort to that however, as unleaded showed us some resistance just before the weekend. We've got a dandy line at the 221.50 ? 222.00 area to buy above. Heck, just to be on the "safe" side (as if there were such a thing in a market like Unleaded) I'll reserve my buy order until we break last week's high at 223.00. This will give us a slightly better chance of avoiding a bad fill ? notice I said "slightly".

Exit stops will go below the 221.50 resistance for support, and $900 risk per contract. Even though this is big bucks for risk, it is extremely tight for a market like Unleaded and you should brace yourself for a possible whipsaw.

Monday's are a good day to buy a market like Unleaded however, as there has been no overnight trading. This means that when the market opens it's likely to continue in its original direction without looking too far back, whether its direction is higher or lower. That's the plan for now anyway. Let's see how it plays out.

BUY June Unleaded Gas at 223.10
Exit Order: 220.95
Approximate Risk Exposure: $903 per contract
Profit Target: 239.45
Approximate Potential Profit: $6867 per contract
RRR: 7 1/2:1
Degree of Risk: Moderate to HIGH

Unleaded Gas Chart

The charts in this publication are all made using Gecko's Track 'n Trade charting software. You can get a demo for free at https://secure.geckosoftware.com/reseller.cgi?abbr=SENFT.

Heating Oil

If Unleaded doesn't turn your crank we have the same setup in Heating Oil right now.

BUY June Heating Oil at 211.10
Exit Order: 208.95
Approximate Risk Exposure: $945 per contract
Profit Target: 219.65
Approximate Potential Profit: $3590 per contract
RRR: 3 1/2:1
Degree of Risk: Moderate to HIGH

Heating Oil Chart

The charts in this publication are all made using Gecko's Track 'n Trade charting software. You can get a demo for free at https://secure.geckosoftware.com/reseller.cgi?abbr=SENFT.

Financials/Indices Market Overview

The Eurodollar handed us a nice little trade before the weekend which we sold on Friday. This is one of the few markets that I don't mind holding on to over the weekend ? even a holiday weekend ? since it rarely gaps and trends incredibly well.

By contrast we have the minidices which continue to be all over the place. I tried (unsuccessfully) last week to trade them again, but until we get a more defined trend they will continue to whip us about. Sometimes we'll be able to hang on, but more often than not the trade will result in a whipsaw.

Eurodollar

The Eurodollar gave us a very nice little breakout to the downside on Friday after building support at 94.725 for the better part of the week. The breakout should be sustained as RSI also hooked lower after a trendline test. This is usually a good sign. The trend is not as strong as I would like it to be, but the ED usually trends pretty well, and therefore we can expect it to build as rates continue lower.

The problem we face at the moment is managing our stops. Ideally the stops should stay where they are as this is the strongest resistance in the neighbourhood. Alternatively, if you wanted to have a little less risk in the trade, you could bring your stops in above Friday's high. Remember that in a down trending market we should not see the next day trade above the previous day's high; therefore placing your stop above the high usually keeps you in a trade so long as the market trends.

CONTINUATION of Short December Eurodollar at 94.715
Exit Order: 94.785 (or 74.760)
Approximate Risk Exposure: $175 per contract
Profit Target: 94.420
Approximate Potential Profit: $737 per contract
RRR: 4:1
Degree of Risk: Moderate

Eurodollar Chart

The charts in this publication are all made using Gecko's Track 'n Trade charting software. You can get a demo for free at https://secure.geckosoftware.com/reseller.cgi?abbr=SENFT.

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