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Prop Trading Futures

FOREX, Futures and Equities – Classical Chart Patterns Report – Sept 28, 2014

I expect the predominant theme for the rest of the year and 2015 to be a strong Dollar. After a decade of sideways consolidation, this month we have started to see early signs of a new trend in the back.  This event alone recently brought two changes in the behavior of several FOREX cross pairs and commodity. In all these markets I expect new trends to flourish in the months to come. Why I’m saying this and how much I expect the Dollar to move is discussed later in this report.

Shorter term, going into the week of October I see strong Singapore and Canadian Dollar; weak Mexican Peso, Australian Dollar, Japanese Yen and Euro. I’m also anticipating weakness in the Eurodollar and T-bond (the second ones are not discussed here).

Precious metals (Gold, Silver and Platinum, in particular) are expected to continue their down moves.

Interesting patterns are developing in the Russell 2000 Index, Live Cattle and Natural Gas. But in these three markets further price action is needed to confirm new trends.

Finally, I have mixed feelings about Cotton since charts are telling me one thing and the commitments of traders another.

PATTERNS IN PLAY

United States Dollar – Singapore Dollar

The impulsive move from August low continues with small sideways consolidations. Friday close – that happened to be above the upper Trendline of the massive Symmetrical Triangle – constitutes a first “early” sign that the Triangle could be completed on the upside. Further validation of this hypothesis would come from a move above January 2014 highs. The target of the Triangle formation is at 1.4160.

United States Dollar - Singapore Dollar

United States Dollar - Singapore Dollar

Support is at 1.2595. Resistance is at 1.2821.

I’m long and will stay long above 1.2595 or until the target is reached.

United States Dollar – Mexican Peso

Here we have 3 setups that in case scenario of a bullish development would give a good framework to build a good asymmetrical risk-reward trade. The following weekly chart shows a massive 5+ years Continuation Symmetrical Triangle. Within that formation two smaller Cup and Handle patterns can be spotted.

The first is still forming, and needs a decisive weekly close above 13.530 to be completed. It’s measured move objective is at 13.796.

The second Cup and Handle was completed on September 25 with a long with candle (LWC).

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Support is at 13.274. Resistance is at 13.530.

I’m long with a stop on close only (SOC) at 13.274. I do not think that we are yet out of the woods: my risk on this trade is around .5% of my trading account. There will be plenty of opportunity to sale in on weakness if the price move higher and all the three setups play out.

United States Dollar – Canadian Dollar

While the long term bottom was never seriously retested, the same cannot be said for the small Head and Shoulder visible in the weekly chart.
United States Dollar - Canadian Dollar

 

United States Dollar - Canadian Dollar

For this pair, the measured move targets are at 1.1319 and 1.1594.

Support should be found at 1.1052 and 1.0984. Resistance is at 1.1241.

I’m short (again) the Canadian dollar via futures contracts (a position equivalent of being long USD-CAD spot).

British Pound – Japanese Yen

This pair had a 2 day breakout and, since then, a tight 6-day-consolidation that formed a small flag. All things that make me believe that there will be a resumption of the uptrend.

Friday’s range offers a good spot to build an anticipation position (or to scale on an existing one).

British Pound - Japanese Yen

British Pound - Japanese Yen

I have a position opened at 176.212 and I may add another layer on Sunday’s open risking a close below 176.212. Since my earlier purchase my stop remains at 174.00.

British Pound – Canadian Dollar

This pair has played really nicely last month and going into September. A 7-month topping pattern (rectangle top) was resolved on the down side with a sharp 3% drop. The measured move target was met on September 8. The rebound has taken the shape of what could arguably be a Reversal Inverse Head and Shoulder Pattern completed by September 23 surge to 1.8152.

Three days of consolidation followed.

The measured move target is at 1.807.

British Pound - Canadian Dollar

Support is at 1.8046.

There is not much resistance until 1.8507.

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United States Dollar Index

As mentioned in the introduction, the single most important fact in the FX and commodity markets happened this month is probably the breakout of the US Dollar index.

United States Dollar Index

The index has been consolidating in a 20% range during the last 10 years.

If the US dollar starts to trend again, many currency pairs will develop sizable move and commodities too. A move to the US dollar index to 114 may take 2-3 year to develop.

Tactically, I do not like to trade the Dollar Index via futures contracts. What I’m going to do is to open several positions in other markets that overall give me more or less an exposure equivalent of being long the Dollar Index. By doing that I have the opportunity to trade around my position more easily and also have a better feeling of “FX markets breath”.

Considering that the Dollar Index is a weighted geometric mean of the dollar against a basket of 6 currencies a long position in the Dollar INtx contract can be replicated by several positions in other futures contracts and/or FOREX markets. Currently I’m short the Euro, the Canadian Dollar, the Yen. These three pairs alone make 80% of the Dollar Index. The other currencies of the basket  are the British Pound, the Swedish Krona and the Swiss Franc.

If the Dollar Index rises, as suggested by the monthly chart above, the Euro is likely to fall to 2002 levels.

Euro

Cotton

After 2+ years of consolidation in a 30% price range it is since July 2014 that Cotton is giving signs of weakness – as it can be seen in the following weekly chart.Cotton

In particular, last week, after Monday’s breakdown, December Cotton closed at it’s lower contract price.

I’m short this market with a little risk on (.3% of my trading account) and little conviction. The commitment of traders’ report shows the commercials that are net long and Funds that are net shorts. When this happens, chances are that the market moves higher. It would be interesting to see commercial capitulation and a red candle in the weekly chart next week. That would be an awesome signal to scale in shorts in this commodity.

commitment of traders

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China Index Fund

Long term chart looks promising. Shorter term price weakness could be seen as an opportunity to scale in.

This is a trade setup requires a long holding period, much longer than the few weeks or months that other setups discussed here imply. I was not sure if include here this chart and other ETF and stock setups that have a longer time horizon. Firstly, because the management of the trade is different, secondly because the conviction and the reasons for holding a position for 1+ year requires a slightly different approach than the one that I discuss in this blog. Thirdly, because of leverage, returns and risk of a 1+ year period trade cannot and should not be compared to the one of a trade of shorter duration.

Long story short: setups like FXI, IWZ, DFJ and CSCO belong to a slightly different plan the rest of other trades reported here. I may/should keep their discussion in a separate report to empathize this important aspect. I’m still long FXI with a stop at 37.84.

China Index Fund

December 2016 Eurodollar

Early in my trading career the current feelings and expectation I currently have in Eurodollar would have cost me money.

A trader shall be able to keep the feeling and expectations out of the trading room.

Opinions of where a market will go  shall not bring to break any good sense, risk management and trading plan rule.

I believe that Eurodollar is heading lower. I shorter December 2016 contract in anticipation of the breakout of a support. That was just near the lower price that the contract traded in the last weeks. The market then moved higher and I was forced to cover my short at the top of last week range. Once I have done that the market turned down with a daily long range reversal candle (December 2015 contract shows a more dramatic down day than December 2016 contract, by the way).

I still believe that the market is heading lower and I know about my mind tendency to reinforce my convictions after a failed trade! Will I reestablish my short anticipation position? In such case, where I should enter? How much I should bet? Isn’t better to leave this market alone for a while? Well all these questions need an answer. This is part of the daily trading decision process.

December 2016 Eurodollar

December 2016 Eurodollar

Australian Dollar – US Dollar

Let’s see how markets behave around these levels.

Support can be found at 0.8764 and 0.8677. I’m short.

Australian Dollar - US Dollar

 

Australian Dollar - US Dollar

Gold

The market did not move much compared to last week. I have no other comments than the ones expressed in the last week report. I’m short Gold.

Gold

Gold

Silver

Same as for Gold.

Silver is the weakest of all the precious metals. I have no position in Silver.

Silver

Silver

Platinum

As I mentioned last week I track Platinum just to look for confirmation of Silver and Gold moves. No position here.

Platinum

February 2014 Live Cattle

Possible continuation Inverse Head and Shoulder pattern.

February 2014 Live Cattle

PATTERNS IN FORMATION 

Russell 2000

Betting against the US equity market has been proven to be the wrong game of the last 6 years.

Right now the Russell 2000 futures contract is flirting with a major trendline. Will it give or hold? I do not know. I expect to hold, but any breakdown from these levels would be sharp and require traders to act immediately. Be prepared.

Russell 2000

Natural Gas

Still in consolidation. Hopefully next week a long or short opportunity will show up. I’ll be long above $4.2 and short below $3.8.

Natural Gas

PATTERNS COMPLETED LAST WEEK

November Soybeans

With also Soybeans reaching is measured move targets right now there are no more patterns in play in the grains. Yet, prices continue to fall.

November Soybeans