Dow Goes Negative For 2014, Start Of A Correction? October 13th 2014
Dow Goes Negative For 2014
Nearly 20 days ago Sterling pointed out a daily stop run in equities that literally nailed the top. If you haven’t read this blog post, its a must read, S&P 500 Potential Day Trade Setup Short.
Yes, the Dow Jones Industrial Average is down once again for 2014. It is a bit more concerning since we are creeping into the fourth quarter along with the battle over the daily 50 EMA over the last few weeks. Those that have been around will recall last year as I was quoting one of my favorite gloom and doomers, Grant Sumner from Phoenix Capital Research. His theory was to watch the daily 50 moving average and when there was the break below and couldn’t close back above the party was on.
Since then the 50 EMA has broken and held several times while also been a mode of support even more often which makes this current battle over it a little more concerning. Yes, the previous few times it broke Graham was wrong probably for the same reason I was wrong about the timing of any correction in that neither of us really expected the powers that be to take such action to maintain the status quo. Having said that I have to say I have learned my lesson and even though it seems that the Fed is pulling back while the ECB steps up for its turn to print I do think its only a matter of time before the Fed is told to “get back to work” and they go back to full retard, times two, or even ten.
For me, it will be a price break since the Dow is already far away from the fight at the 50. I think it will be the daily close below 16205 that will have a larger impact on direction. It could be the 15900.00 as well since it has been defended twice in the past while 16205.00 only once. The thing is, I am rather sure the Fed will step in again the only scenario I see that they don’t is this Ebola outbreak getting out of hand. How better can you shift blame for a financial meltdown than a plague that could easily wipe half the population from the face of the earth? Shall we say two or even three birds with one stone?
On to the charts…
With the EUR/USD making the second push Friday I will have a bias for the short on this pair. The risk-off scenario did play out even though there wasn’t a clear entry to take this pair short. I will say the trap was there but being it couldn’t at least test the Asian highs before the trade was too risky with the best entry being 15 pips from the highs. Today the best level to short will be at the daily low at 1.2664, but if they want to take the stops, they will push above 1.2673. If they do hold these highs during Asia at 1.2647, the Asian high does become valid for the short as well, but I will want to see them leave the Asian box closer to the lows or the probability that they test higher goes up.
The GBP/USD also had the second push agreeing with the risk aversion last Friday. It did have a deeper pullback at the end of the day showing its the stronger currency between it and the Euro, but I will still have the bias for the third intraday push here. The best level to short is the daily 1.6103, but as with the EU, this pair has a bigger Asian range at 32 pips, so the Asian highs are valid with a clear set up during the London session. With the next level being so close above I will want a good entry to get my stop well above 1.6103 to take the short.
EUR/JPY Extended Push
The risk aversion has a high probability of running its course today with all three pairs being in a second push scenario. The EUR/JPY made a lower daily close last week but still has overall lows to close below in order to confirm they will probably run it to 134.28. My concern now is whether or not I get an entry for the ride. This is not something I want to chase even though all things point in the downward direction. I would prefer to see the hourly close below the current lows to confirm but I do think that once we get that it will be off to the races without me so if they do pull it back up for a retest of the Asian highs and confirm the previous trapping I will short from around 135.76 if I can get that price. It already has the UJ working for it with conviction down, but the EU is holding it up at the moment. All Yen pairs have gaped down and closed them for the most part, so the probabilities are adding up. We will see.
If I cant get an entry during Asia, then I will look at the gap open at Friday’s lows for the short first and if that cant hold I will expect the 135.99 to be tested during the London session if it doesn’t break down without me. If it does break here, I will look for the backside entry at the 135.71 (the daily level we need to see a daily close below) or the Asian lows during the London session.
Forex News Today
The calendar is about dead today, so we should see more price action based moves unless we get a tape bomb of sorts. There is some Retail Sales data from the UK but it’s not the higher impact headline figures, so I highly doubt we will see much from it unless it misses terribly. The chance for the disappointment is much higher the way I see it but will most likely be a non-event.
There is also a Chicago Fed Member Evans speech, but again these guys are being more secretive about what is going on at the Fed so probably a non-event as well
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