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Prop Trading Futures

Commodities, Financials and FOREX Special Situations – Oct 19, 2014

While the stock market goes through the biggest pullback in over two years and the Dollar Index is trading at levels not seen since 2010, on a weekly basis, there is a lot of indecisiveness in all major currencies, commodities and Financials.

During times like this, a careful selection of trading setups and a reduction of portfolio leverage may be the wisest thing to do. Diversification is always king, but remember that during periods of high market volatility, correlations between asset prices can differ substantially from those seen in quieter markets.

Let’s dive into the chart patters that I’ll be watching going into the new week and a brief introduction of what will be my overall approach to these markets.

Chart Patterns in Play

US Stock Indexes (TF futures, IWM ETF)

Together with the DJ, S&P and NASDAQ, in this pullback l closely track (and trade) the Russell 2000 that is the weakest of the four major indexes and also the one that offer a clear long term pattern.

Based on the channel shown below I expect at least another leg down in the US indexes following the current pullback. Ideally, before a long term bottom is in place we should see some sort of divergence developing and then a capitulation in the breath. Divergences are present, but a capitulation, not really yet.

A break of 1038.6 would confirm 1000 as next target on the downside. On the other hand a move above 1116.5 would be very bullish a likely bring TF to trade at least to $1150.

Everybody thinks (me included) that this pullback is different from all the other we have seen in the last 12-18 months. For many this means that the downside potential is bigger. I do not think so, but it that do not happen we may see some weeks or months of nasty sideways consolidation.

US Stock Indexes (TF futures, IWM ETF)

United States Dollar (DX futures, UUP ETF)

Is the pullback that we witness in the Dollar Intex in the last 2 weeks a bull trap or just a retest of 84.96 support? We still do not know, but in 2-3 weeks we should have an answer. Given the long term pattern in the Dollar Intex, expectations are that the current correction will be resolved soon and the uptrend will start again.

Support is at 84.96. Resistance is at 88.41.

United States Dollar (DX futures, UUP ETF)

Gold (GCZ futures, GLD ETF)

So far Gold has corrected less that 40% of the downturn from July highs. In doing so it has not violated it’s long term prospect. A decline to $1053 it is likely.

Gold (GCZ futures, GLD ETF)

Gold (GCZ futures, GLD ETF)

March 2018/December 2015 Eurodollar

March 2018 contract already reached its target, while December 2015 completed 70% of its move to 99.5325, before it pulled back in the last 2 days of the past week.

March 2018/December 2015 Eurodollar

March 2018/December 2015 Eurodollar

US Dollar-Singapore Dollar (USD-SGD)

Short term, USD-SGD is in a consolidation that should should resolve soon and bring more upside.

Levels I’ll be watching next week are 1.2825 and 1.2673.US Dollar-Singapore Dollar (USD-SGD)

Mexican Peso (USD-MXN spot, 6M futures)

The trend remains up with targets at 13.807, 15 and 19.813. Support is at 13.275.

Mexican Peso (USD-MXN spot, 6M futures)

Mexican Peso (USD-MXN spot, 6M futures)

Canadian Dollar (USD-CAD spot; 6C futures; FXC ETF)

The Canadian Dollar is trading at a critical level. From ere either a pullback or a breakout on the upside can be expected as early as Monday/Tuesday.

The broad Intraday volatility seen last week reflects the indecision between market participants in the commodity markets.

Canadian Dollar (USD-CAD spot; 6C futures; FXC ETF)

Canadian Dollar (USD-CAD spot; 6C futures; FXC ETF)

Chart Patterns in Formation

Euro-Japanese Yen (EUR-JPY spot)

When markets get a bit messy with plenty of intra-day volatility, but lack of follow through, a step back and a look at closing-prices-only charts (or even at weekly charts) can help the position and swing trader.

image

Last week EUR-JPY offered a good example of nervousness and indecision. First, it gave a weak (arguable) sell signal, then had a huge intra-day swing down, but managed to close relatively strong (thanks to the FED). Then, on Friday, it closed up. If short note that fake breakouts could bring to shift moves in the opposite direction, so be careful here. I’m flat and expecting a resolution on the downside. But before I sell it, I want to see a decisive close on a negative day.

I expect 126.816 to be tested within the next few months. image

Australian Dollar (AUD-USD Spot; 6A, M6A futures; FXA ETF)

Going into next week I have marked two levels to watch: 0.8679 (support) and 0.8828 (resistance).

Australian Dollar (AUD-USD Spot; 6A, M6A futures; FXA ETF)

Australian Dollar (AUD-USD Spot; 6A, M6A futures; FXA ETF)

Euro-Australian Dollar (EUR-AUD spot)

I’ll be long above 1.4629 looking for 1.58. 1.4457 offers support.

Euro-Australian Dollar (EUR-AUD spot)

Euro (EUR-USD spot; 6E, M6E futures; FXE ETF)

Another short lived pullback or a meaningful pullback? I’ll be looking at the Dollar Index (discussed above) to get a better feeling on where the Euro is headed. Until it closes below 1.2819 I want to stay short.

Euro (EUR-USD spot; 6E, M6E futures; FXE ETF)

British Pound – Canadian Dollar

Look for a strong close above 1.8204 to open the path to 1.8813.

British Pound – Canadian Dollar

Natural gas (NG futures, UNG ETF)

A nice short may be setting up here. Look for a decisive close below 3.715. Target at 2.872.

Natural gas (NG futures, UNG ETF)

Rice (ZR futures)

Rice (ZR futures)