Monday, May 14, 2012

Good Morning,

As I said last week, the markets can go lower, a lot lower. I admit, we didn't forecast (or need) JPM's debacle, but aside from that, economic news has been very poor as of late. Let's continue to watch economic news this week. For a preview, take a look at your economic calendar and focus on:


**retail sales


**any other international announcements, especially interest rate talks

**earnings data

Moving to technicals, the EUR/USD is taking it on the chin and approaching long, long, long term support at the 1.2600 level:

Past performance is not indicative of future results

On the short term, it is a tale of two currencies. The GBP/USD hanging in strong (even on a downd day in the equity markets):

Past performance is not indicative of future results

And the EUR/USD on a intra-day chart, with its down trend:

Past performance is not indicative of future results

This is why it is so very important to "trade your watchlist" by knowing it very, very well and paying attention to it on a daily basis. Traders are selling the EUR/USD and rallies can be sold. Traders are buying the GBP/USD and dips can be bought. Two currencies in the same region of the world with totally different agendas.

To the SPX and even though I used a chart of the SPY, the levels are the same. I added in Fibonacci's and also long term moving averages:

Past performance is not indicative of future results

The purple line is the 150 EMA. The blue line is the 200 EMA and the lowest red line is the 200 SMA. So it seems that the 1260-1300 are is definitely within expectations, but the Fed and the fact that they could step in at any time could keep us bid just a bid with maybe a slow grind down versus a fall. Again, I am focusing on economic data and if it underperforms, the Fed "could be actions" may not have a bullish effect.

I am interested in certain sectors and individual stocks as the markets get to more attractive levels, but I am not married to any trade as my ongoing analysis both fundamentally and technically can help me to exit trades.

Speaking of fundamental analysis, the JPM move lower seemed to be attractive. If anyone bought the stock or took a bullish position prior to the news, you are now re-analyzing and maybe exiting your position due to losses. The point is, anything can happen at any time. And if news like that comes out, it most likely causes anyone involved in that stock to thank the trading gods that they traded with the right account risk and even though a loss may be larger then they wanted, it doesn't break the bank. So the takeaway? Trade with appropriate account and trade risk and if in the event that there is a "gap" due to news, you aren't overleveraged and you possibly exit the trade depending on your anlysis and you move on to the next opportunity. Mentally, you are OK and ready to engage with another solid trading plan.

So yes, trading psychology is an ongoing battle. You have to stay on top of your emotions and constantly update your positions based on fundamental and technical guidance. 

Wednesday's Webinar on Fibonacci's:

Happy Trading and Be Environmentally Cool

Coach Brian

Forex trading is one of the riskiest forms of investment available in the financial markets and suitable for sophisticated individuals and institutions. The possibility exists that you could sustain a substantial loss of funds and therefore you should not invest money that you cannot afford to lose.

Posted By: 

Brian Kahn

Brian provides regular commentary focusing on the relationships between various financial markets. An experienced trader and portfolio manager with over 15 years in the markets, Brian relies on fundamental and technical analysis to create trading plans for each and every market entry.