Tuesday, August 10, 2010

With Risk Comes Opportunity.(Jīyù yǔ fēngxiǎn lái)

The U.S. Dollar

The U.S. Dollar is showing a little strength overnight. The chart below indicates that it has broken a 2 week downtrend channel and is currently testing the August 5th high (approx. 81.20)
Perhaps the most important aspect of executing a trade is to have as little risk as possible at the outset. If the trade does not work out and the position is stopped it will not produce a devastating loss and will allow a trader to reestablish a position at a later date when circumstances dictate.
The USDX is presenting such an opportunity currently. A 61.8% retracement of the Nov 09-June 2010 range is @ 79.76. A stop just below that level would seem like a reasonable risk reward parameter to consider.

Gold is interesting since a channel is forming which is harmonic with Fibonacci retracement levels. It is comforting to have a stop protecting profits at such an early point after the establishment of a position.

The Insanity Better Known as the Equity Markets.
The action in the Dollar, if it is in fact commencing a rally, may result in a pivotal development in the equity markets. However, it should be recognized that according to Dow Theory, the Dow Industrials and Transports suggest higher prices to come. Both the Transports and Industrials edged higher--extending their advances above the June 21st high.
As far as the S&P is concerned, 1135 and 1155 are viable targets for the current rally. A close above 1178 would negate any logical argument for the bearish scenario.
But...both averages are clearly venturing into over-bought status--so this is not an appropriate time for any notion of exuberance with regard to equity prices.

We are entering into a time period that will establish the fate of the global economy for many years to come. This months Energy Dates (August 9-10 & August 18-21st) may turn out to be VERY SIGNIFICANT dates as far as the markets are concerned.

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