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Equities Run Stops and Reverse, Short Squeeze? Oct. 20, 2014

Dow, S&P Run Stops Before Reversal

A quick look at the daily charts on the Dow Jones and S&P 500 this morning sure looks like the clear stop run we look for before entry. At this point it isn’t something I would trade since it don’t look even close to where I would be looking to enter. However the potential for this being the short squeeze before a larger drop is a higher probability considering news events of late. The wild card is the Fed here again and whether or not they will start another round of QE in the near future. The Bullard interview last week sent them rushing to buy even though Bullard isn’t even a voting member at the Fed right now. As I mentioned before they always do the verbal intervention first and I am relatively sure that’s what this was in the interview. We will have to wait and see what happens at the next meeting or if any other voting members change stance along the way. Otherwise the price to watch on the Dow is 16497 where the 200 daily EMA sits just below the 50% Fib retracement level Sterling mentioned as a possible trade last week.

EUR/USD Daily Analysis

The EUR/USD stayed within the chop it showed last Thursday leaving the daily pin in question along with direction. If a risk appetite situation is unfolding the EU has potential to rise but for the moment its looking more like a USD strength move. With no clear direction for the day I will be open for the long at the current Asian lows as long as they widen the range with a push up this morning, leave the Asian box closer to the highs and run down for the test during the London session. Otherwise if they do hold a tight range and then run stops above 1.2778 showing a clear trap I will be open for a short there. The safer level to short is up around the four hour 200 but if they push there I would rather be long waiting to take profit.

EUR/USD 1 hour chart

GBP/USD Unchanged Friday

With the GBP/USD closing within a few pips of its open Friday along with showing a 80 pip reversal my thoughts are they will be pushing this pair up this week but that’s not enough to give me a bias on direction unfortunately. As with the EU today the safer entries will be at the high or low of Fridays range. However the 1.6057 low during the NY/London overlap has the confluence with the hourly 200 so although its riskier I will consider a long from there if they push down first when London opens today. Otherwise if they push it upwards I will look for the short around 1.6116 or just above where the 20 psych level is around Fridays highs.

GBP/USD hourly chart 10-20-2014


The conviction on the EUR/JPY along with the 100 pip push upward Friday does give me a bias for the long on this pair today. There was also a nice gap to the upside this morning that has made an attempt to close falling short by 9 pips or so. At this point I will consider the Asian lows for the potential long today but will be cautious with the Friday close and hourly 200 sitting just below. They may want to close the rest of the gap even if its doubtful with the attempt and rejection already. I will be open for the short from Fridays highs during London providing they don’t make any conviction move up during Asia this morning. If they do then I will be looking for a backside entry with a clear set up at the gap open at 136.68.

EUR/JPY conviction with gap up


Forex News Today

News events today are at a bare minimum with only German PPI data early in the day. Expected to rise above zero but has potential to disappoint. As long as the miss isn’t big we wont likely see much but a bigger drop below zero has potential to get the Euro moving.

There is another Fed member speech later in the day to watch out for. More mention of QE in the future will reassure the big boys somewhat and we will see equities and potentially the EUR/USD rise.

Asian session traders have the RBA Meeting Minutes to watch out for tomorrow along with Chinese GDP and Industrial Production. Big misses or even small disappointments will likely make them run Aussie pairs early tomorrow.

Happy Trading



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