July 20, 2011

Morning Prep; EU Looks for Confidence in the markets ahead of important meetings

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The James’ Report:  Professional Resources for Professional Traders

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 Today’s Global Overview

 – Growing optimism on a ‘shock and awe’ plan to prevent contagion in Europe

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***Speakers Overnight:***


– EU Finance Ministers are said to meet ahead of Planned Thursday EU Summit (in line with speculation); the officials may discuss a narrowing of the options for Greece. Officials are said to have discussed allowing the EFSF to buy bonds in the secondary market.

They are considering allowing the bailout fund to recapitalize banks and consider using rescue fund for precautionary credit lines. The report noted that the EU officials want to show the markets that they can prevent contagion. The report added that the meeting ahead of the EU summit may be delayed until Thursday morning.

– France Fin Min Baroin commented that the planned EU summit on Thursday would send a strong message and that the Euro zone was currently in agreement regarding objectives, methods and schedule regarding Greek aid. He added that France was in favor of lower dependence from rating agencies and looking at creating an European Rating Agency. He reiterated the view that Euro was a strong currency

– Ireland PM Kenny: EU Summit on Thursday will not offer full solution (similar to German Chancellor Merkel view)

– Japan Fin Min Noda reiterated the view that current FX levels did not reflect the country’s economic fundamentals. He noted that the FX markets were reflecting concerns over the US and European sovereign debt outlook

– BOJ Dep Gov Yamaguchi commented that the strong JPY currency is not affecting the real economy while reiterating the view that the central bank was closely monitoring JPY levels and its impact and would take decisive action as needed.

– Japan Business Association: Now is the time for fx intervention

– China State Administration of Foreign Exchange (SAFE) stated that it would expedite its CNY currency reform and reiterated its view that China would diversify its currency reserves. The FX regulator reiterated its call for US to take measures to strengthen confidence and protect the interest of investors. SAFE added that CNY currency appreciation would not cause FX reserve losses
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 UK Treasury panel released its Independent Banking Commission (ICB) report and noted that additional information required regarding ICB’s proposal for British bank reforms. Failure to address the issue of corporate governance was serious omission in the ICB interim report and there were worries that full structural separation of retail and investment banking has not had thorough analysis

– BOE Minutes saw no major surprises. Members Weale and Dale again voted for a 25 bps interest rate increase. Member Broadbent again voted for unchanged interest rates at his second MPC meeting. Ultra-dove Member Posen again voted for an increase of asset purchase target by £50B. The minutes did not mention any potential further QE measures and noted that UK CPI was likely to rise over 5% despite decline to 4.2% seen in the June data.

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Currencies/Fixed income:
– The USD was weaker during the early part of the session aided by an improvement in risk appetite ahead of Thursday’s EU Summit on Greece. Far East names were cited as buyers of Euros and complemented by comments from China State Administration of Foreign Exchange (SAFE) who reiterated view that China would continue to diversify its currency reserves.
The EUR/USD moved above the 1.42 level on growing optimism for Thursday EU Summit on Greece
– The GBP recovered following the release of the BOE minutes. Unlike June, the MPC was not as dovish. GBP/USD recovered from earlier losses to trade at 1.,6125 ahead of the NY morning.

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 In the Papers:
– The Telegraph’s Ambrose Evans-Pritchard noted that markets have concerns about Germany’s long-term commitment to the EU. A German court ruling, which is due in September, could determine whether Germany’s participation in the EU bailout mechanism was legal. Concerns that Spain and Italy could move into double dip recessions have completely changed the EU debt crisis.

– The ECB’s exposure to peripheral countries is estimated to be more than €400 billion, or about 20% of the total balance sheet, according to the financial press. The central bank’s balance sheet is about €2 trillion with capital/reserves of about €81.5 billion. The ECB has expressed concerns about its non-standard measures, such as its SMP bond buying program. If Greece were to default, it could require the ECB to further expand its balance sheet.
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Use this to make our profit today…

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Today’s Economic News for Day Traders:

Today is Wednesday, which means we have a busy day ahead of us with crude oil and the dollar index.

First we begin with 830am news from Canada regarding Wholesale Sales, followed by the US Markets opening at 930am.  I will be watching for crude oil trading opportunities around the 830am news this morning, reading tape looking for clues. 

10:00am today we have Existing Home sales which will be easy to watch the US dollar Index correlation to make educated trading decisions.  Higher readings on this news report will be bullish for the US dollar index, so trade accordingly. 

At 10:00 we also need to apply the ‘3 Phases of Crude Oil Inventories’ so we dont get in trouble trading into a poor time of the morning with crude oil.  Watch your clock and remember my biggest mistake is made getting into the trade at 1035am a little too early.  You can almost always expect the market to get the first move after the news WRONG, and then look for the REAL MOVE to come around 1040-1050am est today. 

After we transition into lunch (summertime lunch is more dramatic slowing down) at 11:00 we then have a special Bank of Canada Press Conference at 11:15am where we may see some action to the US Dollar and the Crude Oil Futures markets. 
Its hard to say if there will be any summertime volume at that point in the morning, but if there is we know why and we need to look for opportunities going into the 11:30am European Close just afterwards. 

Remember today as you trade late into the morning when the markets become too dangerous to trade.
Today’s News for Day Traders

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Looking at the Day Trading Charts today…

Let’s begin with the US Dollar Index, getting pushed lower this morning after confidence builds in the EU plan for avoiding collapse.  We have a big meeting planned in the EU on Thursday and the talking heads are throwing it around this morning trying to stir up some confidence which is causing the US Dollar Index to drop.

The US Dollar Index is best used on a very fast time frame (for day traders) so I chose something quick enough to show me the ‘short term trend’ such as the 13range chart.  I will also use the 89range for the long term trend, but for this purpose of day trading we focus on RIGHT NOW for most effective assessment of market personality.

Using the 89Range chart of the US Dollar Index 09-11 contract you can see a bearish price channel using the trend channel drawing tool in NinjaTrader7, and we are sitting here on the BMT, which we know from experience means that today has potential to be a very sloppy and sluggish day.   

US Dollar Index Fast 13Range

US Dollar Index Slow 89Range
Crude Oil Futures are looking a little nasty on the 89range chart this morning.  You can see we are trading inside this major price wedge, and the wedge is getting very narrow around 99.0 up to 100.00.  We know the transition into these long term wedges are usually pretty sloppy.  If this price wedge was on a faster timeframe it would not be as concerning, but in this case we know this price structure is all about the big round number of 100.00 so we know this area is major resistance and support while traders battle to control rising prices back into 100.00.

The best way to trade crude oil today is very carefully, watching the clock for inventories later today, and also watching for trades you could normally get away with, but today in summertime trading and in this area we need to be selective.  You can trade this, but you need to know where your best spots will be:  at the highs and the lows of the ranges we are trading in.

Sell the highs (99.50, 99.73) of this current trading range and buy the lows (97.80, 97.66).  Remember to buy as price drops to support and sell as price rises to resistance.  We are trading right at the PHOD, so if we make new highs we are buying pullbacks for an OUTSIDE DAY, and if we fail at these highs we know buyers are failing and we then sell the highs and take it back down into the range from Tuesday.

Crude Oil Slow 89Range

Crude Oil Fast 34Range

Gold Futures are showing us once again why you cant trust the talking heads on television. Day Traders know the new highs on Gold will only last for so long and then we get excellent selling opportunities as people take profit on their new highs.
Members, you can see that we have a nice swing trade short triggered with divergence indicator at the new highs, along with momentum crossing at the right time, and the right location for the trade.  Trade Management will be easy with the very obvious levels of support below us for you to take bits of profit out of your short position.
We can see Gold has come off the highs and will be testing the major support (lows of the trading range) at 78.1 down to 76.2.  I want to look for buying opportunity at the lows of this range, but be careful because it may get very sloppy.  watch your speed as price tests support, and keep an eye out for price going quickly through support and heading back down into the range below 76.00 which we can see is the price channel in pink.  You can also buy at 64.5 support as price falls.
With this strong bullish trend we have, our highest percentage trades will be buying pullbacks with new highs, and as price drops im looking for buying opportunities using price reversals at support levels (76.2, 64.5, 41.0)
Look at the 34range chart on Gold and you see PLOD is 82.7 so OUTSIDE DAY below this level says to sell retracements with new lows, so use this as your short term opportunities as price drops, and then look for larger moves off major support levels from the 89range chart, such as 1576.00.
Gold Slow 89Range

Gold Fast 34Range
Hope you all are having a wonderful week!  I miss the action of the live trade room, but time away helps gain perspecive, and Im excited to resume trading on Monday! 
Remember, our live trade room is closed this week, re-opening on Monday the 25th at 745am est.
I’m always improving this prep, I  love your feedback, please post it here!
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    Click Here to Leave a Comment Below

    Russ - July 20, 2011 Reply

    I love this, works well: "The James' Report: Professional Resources for Professional Traders".

    John Cutts - July 20, 2011 Reply

    The morning prep just keeps getting better and better. I appreciate all your hard work. I like to do my own and then compare with yours. It is a great way to learn.

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