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Old 07-27-2011, 03:56 AM
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Per-Erik Karlsson Per-Erik Karlsson is offline
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Default Market report 26th of July

Daily Market Report for Tuesday 26th of July 2011

see full pdf version here

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Still no solution on the US deficit talks and this is keeping the pressure on S&P 500 futures and we continues to see safe heaven flows into gold, CHF and JPY. The main focus is definitely on the US deficit talks and I would not be surprised to see a reversal of the last days movement if such an agreement it reached. The recent delays by Washington seem to be a political game and my feeling is that the markets still assume everything will work out in the end. So I see the biggest risk is for sure a no solution outcome. I see this as quite unlikely. However the US deficit problem will not go away overnight and the market might look for more problems down the line, which might make the rally short-lived.
S&P 500 futures have a gap open at 1344.25 and key resistance at 1352.75 and 1361.75. I think it will be very important technically what happens this week. We have failed in this region (1340 to 1362) three times already this year. We want to see increasing volume towards the key levels to be able to push through. An approach on decline volume is bearish in an up move and bullish in a down move.
Euro has broken through the falling resistance at 1.4462 and next key resistance is 1.4578, the July high. We have minor resistance at 1.4520. Looks like the market prefers to sell USD for now, at least until any US deficit plan has been agreed upon. EURGBP is also helping Euro higher at the moment, which week UK data putting a bid into the EUR.
Aussie higher on less than expected comments from the RBA Governor and more talk about players adding AUD to their reserves is certainly supportive as well. We do have key CPI data out overnight at 03:30 CET, which is a major event risk. Market consensus is 0.7% and any upside surprise will have people looking for a rate hike at the August 2nd meeting. Biggest potential in price movement I reckon is a lower than expected reading.
Crude is looking interesting as we are trapped inside the 97.50 to 100.20 and we need to see a daily close outside of this range to get something directional going. Next big levels are 104 to the upside and 94.76 support.
Today’s calendar:
16.00 US S&P/CaseShiller home price index
16.00 US new home sales
16.00 US consumer confidence
03.00 NZ busines confidence
03.30 Aussie CPI

Looking at the VIX index chart, we have a clear range last 3 months and it has worked very well to buy below 15.50 and sell towards 22. I still favor buying dips and I think we will see another spike towards 25 to 30 in the next 4 to 6 weeks. See chart below.

Looking at a few interesting points in the markets trading wise:
- Next key resistance levels in the S&P 500 Emini futures are 1344.25 gap from 8/7 and the 7/7 high at 1352.75. We failed at 1352 last up run and we really need to see increased volume and a break higher this time. Another failure would be very bearish in my view.
- Corn bouncing higher after the test of the 670 target. Also hearing some traders buying bunch of puts for December with 500 strikes as cheap downside protection. I expect the upside to be limited for now.
- Crude key levels for a break out are 100.20 and 97.50, but we have seen plenty of false breaks, so might be sensible to wait until we close outside of this range before we get really excited about a break out?
- Yen continues to be strong across the board no matter what the equity markets are doing, seems like the correlation between equities and JPY is out of the window for the time being. I still have a bias that JPY should sell off, but at the moment not happening. I think we could see BoJ on the bid it goes towards 77, so keep an eye on that. The best way to play potential JPY I reckon is to buy some calls, I see that 9th Sep at the money options are only at 10.07% volatility. That looks interesting in my opinion as I think the volatility will rise from that level.
- GBPUSD has broken the recent downtrend and looking for a test of the key resistance at 1.6444 next, as long as 1.62 holds.

Interesting articles:
Obama Warns U.S. Debt Threatens ‘Serious’ Damage - Bloomberg -

Obama Warns of Default Risk - The WSJ -

Greece Says It’s Working With IMF, Hasn’t Requested for More Financial Aid - Bloomberg -
US parties no closer to debt deal as default fears grow - The Telegraph -
Eurozone bonds 'creep' upwards over bailout uncertainty - The Telegraph -
Europe Rates Resume Climb - The WSJ -
Business as Usual For Bond Markets? - The WSJ-
U.S. Debt Negotiators Should Look to Britain - The WSJ -
Swiss Franc Gives Shelter in Storm - The WSJ -
Irish Finance Minister Is Right to Cheer, But Banks Continue to Struggle - The WSJ -
Greece needs a new political culture - The FT -
How to move beyond a short-term fix - The FT -
No money left to boost growth, says PM - The Times -
Obama ready to go to the wire in showdown over debt - The Times -
Aussie Joining Reserve Currencies as Central Bankers Seek Commodity Havens - Bloomberg -

Technical’s and comments

Euro: Break above 1.4462 falling resistance and next key resistance is July high at 1.4578. We have minor resistance at 1.4520
Cable: Next big resistance level is 1.64, followed by 1.6441. The interim falling resistance has now been taken out and buy on dips is my favorite as long as 1.62 support holds.
USDJPY: JPY is performing strongly no matter what the equity markets are doing at the moment and no sell off of the JPY to really spot at the moment. I still think JPY is very overvalued, but maybe not so much against EUR and USD. Alternative plays are AUD, CAD and NOK I think.
Swissy: Big down trend in this pair and no telling when it will end. My guess is that we will not seen any major reversal until the Fed starts tightening monetary policy. Risk off mode again this morning benefitting CHF and trading down to 0.8025 low so far. Minor resistance at 0.8092 that can be used to sell. Otherwise difficult to outline any levels other than the 0.80 as a key level in the current price region.
AUDUSD: Above 1.09 and 1.10 is the next resistance level now. CPI data out in Asian session can be a major market mover.
USDCAD: CAD performing strongly on the prospects of rising rates in Canada. However it has moved a fair deal to the downside and at this point I would like to see a pullback before looking to buy CAD.
S&P Future (ES): Tested the upper end of the recent range end of last week. Key resistance levels are 1344.25 and 1352.75. The volume on the approach is a bit low, but still better than the last few times we have failed in this area. Still a bit worrying in regards to potential upside. If we fail in this region once more I think we have a deeper down leg coming up.
Gold: 1620 high so far, the sky is the limit. The most important I reckon is the US 10 year rate, so keep an eye on that. Looks like buy on dips above 1580 for now. The big risk is if we get a debt ceiling deal in the US, could see strong profit taking.
Crude oil: Struggling to get above 100 level. I thought we would see a clean break higher if 99.50 was taken out. Another failure up in the 99.50 to 100 resistance zone would be big trouble for bulls I think. Need to hold key support at 97.50 today to avoid a move lower.

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Old 07-27-2011, 04:01 AM
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Per-Erik Karlsson Per-Erik Karlsson is offline
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Default Trading recap 26th of July

ee full trading log here (with chart images)

The S&P 500 futures failed to make any recovery above the 1335 resistance level and closed in the lower end of the range on slighly increasing volume compared to previous session. Volume was 1.406m contracts traded in the S&P 500 Emini futures, fairly low volume I would say.
See chart below:

What's next? Below 1335 the bias is down. I see this 1325 support as a key level near term and basically above 1325 there is still recovery potential, below 1325 we target 1315, which has been a pivot level over the last months. Minor resistance is at 1335 now.
The feelling is that we will drift lower to 1315, but things can change very quickly in this market, so probably best to just follow the technicals.

Trading wise I sold more 1330 calls for expiration on Friday (29 Jul), so total short of 7 contracts now. Reason for selling these is that I have expect prices to drift down and since I have short a bunch of calls and long 6x futures, I actually wanted to be more negative delta as we go lower.

On the crude side I bought futures, looking for a move higher, but that once again stopped short of 101 and fell back late in the sessions as the API inventory data showed a larger than expected build.
Crude is trading inside this 97.50 to 101.70 range and contiunes to making false break outs and returns back into the range. Tricky to trade at the moment. I still think the upside is somewhat limited near term due to the release of the strategic oil reserves, but longer term demand looks decent, so I don't expect and big move down. I expect the 90 level to hold for quite some time. Crude daily chart below:

Good luck
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Old 07-28-2011, 06:53 PM
Per-Erik Karlsson's Avatar
Per-Erik Karlsson Per-Erik Karlsson is offline
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Default Trading recap 27th of July

See the trading recap at this link
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Old 07-28-2011, 06:54 PM
Per-Erik Karlsson's Avatar
Per-Erik Karlsson Per-Erik Karlsson is offline
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Default Trading recap 28th of July

See the trading recap at this link
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Old 07-29-2011, 05:50 PM
Per-Erik Karlsson's Avatar
Per-Erik Karlsson Per-Erik Karlsson is offline
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Default Trading recap 29th of July

see full trading log with chart images here

Wow, what a day, big swings in both directions and lots of news.
It is amazing how the politicians are once again able to mess things up. Instead of getting things done in time, they wait to the last minutes and play their games, so actually things fall out of hand. Seems like they like the drama and attention that they just cannot miss that by doing things uncomplicated.
It is not strange the approval rating of Obama is at an all time low.

Back to the markets. We gapped lower by 13 point at the open in the S&P 500 futures, but we saw a solid reversal after breaking below 1280 support to a low of 1278,50.
Buyers stepped in and we saw a rally to 1300,75. One thing I like to point out, we often see reversals when the daily bar reaches more than 500k contracts traded in the S&P500 Emini futures (ES) and the 2nd hourly bar of the day had 580k traded contracts. We should now have potential for a bounce up to 1311 or so at least at the start of next week. All the short calls for expiration today expired out of the money and I kept the premium received, very nice!!!!

I did buy EURCHF as we are at the bottom of the playing field and should see support down here. Another point is that the CHF has outperformed vs ES, see chart below and there is a clear disconnect, something has to give. My bet is that CHF is overvalued at this point and should drift back towards 1.20 where we have the 55 day exponential moving average. Another point is that I am short ES at the moment with the negative delta, meaning it also serves as a hedge trade.

Added a small VIX trade, sold 20 Aug puts and bot 22,50 Sep puts. My thinking is that VIX will drift back below 20 in a few weeks, meaning that we want to be around 20 level when it expires 16th of August. Then the 22,50 would be in solid profit.

Closed the gold futures and sold some more puts and only short 1550 puts, will keep that bias unless we break below 1580.

Also sold October 600 puts in the Corn (ZC) contract at 11 per contractm meaning break even is 589. That means we have to break that key low of 602 to lose money. Good volume down there, so expect that to hold well.

Have a nice weekend
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