Hopeful Rally Meets End Of Day Equity Selloff – August 26th 2015
Another crazy day in the markets, but after yesterday did you expect anything less? The bottom line is that massive massive fear is gripping the market. I’ve been getting a ton of emails on one subject and it goes something like this. “Sterling, I’m long equities and I don’t know what to do. What should I do?” First, I’m not going to answer that question directly. The reason I say that is I’m not putting the success of your financial future on my shoulders. That responsibility is yours and yours alone. I will give a short review of history which is the best guidance you will get. The first thing is you should have been reading the commentary and following the recommendations BEFORE this happened. Since we can’t go back in time lets look forward.
Historically retracements of around 50%, maybe a bit more tend to always occur after the first drop. What worries me is the market made nearly a 50% retrace after the drop yesterday. Was that the retrace? If I had to guess I would say no and I would expect to see the retacement come over the next few weeks sometime. If your looking to get out then that retrace will be your best bet. The reason most people miss it is that once it occurs greed kicks in and the thought of the market running higher takes over and makes people hold on. Then when the market turns back over and starts to run down they hold on hoping for the retrace that many times doesn’t happen again. Be decisive and have a plan BEFORE the market gets to that point. Go take a look at past historic market crashes and build a plan. On to today’s plan.
EUR/USD Pushes Down & Then Retraces
The EUR/USD is in an interesting point right now. Yesterday I favored the move down and the move down is exactly what we got. Things would have been very simple if the market didn’t produce such a large retracement near the end of the day. That retracement really calls direction into question and makes we open to trade long or short based off of any valid setup. If the Euro is going to go long it does have a solid lower manipulation point from which to do so. If you think about a stop run of today’s lows think about the liquidity that could be located below that level. There is really no other lower level where the liquidity could be located to the downside in my opinion. For those on the long side of the market it is a very likely stop location. Again, because there is not another recent level around it I feel it is even stronger. Like always level selection is the first step. The next step is seeing a valid entry at that level.
Pound Creates Stop Run & Reversal Back Down
It would have been nice to get a chance at the stop run of the highs today on the Pound. On the 15M chart it just didn’t hit our criteria. The 1H chart shows a beautiful stop run of the highs but regardless of timeframe I think it would have been a hard trade to catch given the hesitation near the highs. I favored the move up in the Pound yesterday and we got that push early on but it was meet by even more aggressive selling once the market tried to break and hold above 1.5800. I think the stop run of that level gives us some insight into tomorrows direction. The probability of a push down is definitely much higher and the only manipulation points I would look to go long from would be major lower manipulation points that are quite large.
The Pound has a very clear lower trend line it has been holding on the 1H chart. If that level start to break it could really get smashed. At this point that is just an option. The reason we let the stop run from a high probability manipulation point determine our entry is because belief is only just a belief, it is not fact. When we have a stop run of a high probability manipulation point that is a short term fact in the market and thus where I put my faith on a daily basis.
Forex News For August 26th 2015
US Core Durable Goods M/M 8:30 AM Eastern: This economic data is a bit of a tricky one over the last 6 months. There is no doubt it is capable of creating a 15+ pip spike on the release. The reason this news has more than likely hurt a lot of traders lately is due to the fact that is often ends up reversing the market more often than not. Keep that in mind if your trading this piece of news.
FOMC Member Speech 10:00 AM Eastern: This is not the beautiful beast aka Janet ‘Piglet’ Yellen, this is Dudley. Not sure why this is market as a high impact as generally other Fed members don’t create much of a move. I would recommend making sure you have access to the speech or at least squawk based news when this comes out if your in a position as it is a wild card. More than likely it won’t be a huge mover.
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