Darshan's Blog

Darshan's Daily Market Ponderings

Will Europe play while the USA is away?

Monday 18th January, 2010

Happy Monday all!

Hope you've had a very relaxing weekend.
Whilst the rest of the world will be trading today, in the USA - there is Martin Luther King Day - so only forex will be trading. In other words, I expect more fun and games, whilst Wall Street is away. I'm going to focus today's blog on profit opportunities for the week, as there is not much macro information to talk about. Either way try to keep it real this week - if you do make a profit, then donate some to help the people of Haiti http://www.redcross.org/ (Even if you don't - please do think about giving whatever you are comfortable giving).

Last week was a very successful trading week and I recommended the following trades last Monday:

"1) Sell the EUR/USD near 1.4590 (if it gets there) with a stop at 1.4630 and aim for 1.42 and then 1.4070.

2) The FTSE should be top heavy near 5600-5625 - so a short there, with a stop at 5655 and a profit target of 5500 and then 5400 is possible.

3) The Dow - can make a possible short term top near 10720 (Let's see if it can get that high first) and then head to 10350ish before heading back up for one final peak.

4) GBP/USD should max out near 1.6250-6300 for the week and then head towards 1.57. So a pretty nice trend trade, if it all goes to plan.

As a bonus - I also think that Gold could take a serious kicking here - it's now back up to $1158 but it could easily dive to $1090 from here before resuming the final move to $1300"

I hope some of you took those trades:

1) EUR/USD reached 1.4585 and then headed down many times and eventually finished the week at 1.4370 - thereby providing a 215 pip profit for those that went short at the highs.

2) FTSE topped out at 5609ish and then had a weekly low of 5450ish - again a very healthy profit for those that went short.

3) The Dow topped out at 10731 and then flew down the rest of the week to 10550. Once more bags of profit on that short!

4) GBP/USD topped out at 1.6352 and then headed down to 1.6212 - lovely again.

5) Gold was our major winner! It went up to $1161 one then flew down to $1117 mid week (I took profits and notified you on the blog comments section) and then meandered through the rest of the week, ending at $1130. Some serious profit there.

So where can I see this week heading? Well I think all of the above trades still have merit. I can see the Dow and the FTSE rising a bit more - the FTSE even as high as 5550 if it wants tomorrow (Kraft just upped their bid for Cadburys) and then everything flying back down at some point this week. The FTSE 100 can actually hit 5357 (the 50 Day EMA) and the Dow can easily pull back to 10400 and then 10250 if it wants. Gold can drop to $1080 once it heads up slightly at the beginning of the week. I actually think both Cable and the Euro are near their peeks and even if they get a short term lift this week - selling on the rallies is the way to go. Euro is headed to 1..4070 and then 1.38 if the pattern on the daily works out.

So all in all there is some room for everything to move marginally higher overnight and then everything to come down over the week. Especially since Options Expiry is now out of the way, the market can work off all the negative divergences that are piling up all over the place. I still do not think we have seen the ultimate top just yet but we are definitely getting closer. Members of the Fed are getting more hawkish and also we are getting closer to the telegraphed exit plans. Obama is also laying a $90bn levy to recover TARP payments and overall, despite the banks showing that they don't care - in reality it shows that a political PR game is being played against the banks at the moment. Rightly or wrongly, it means the banks should be worried for the time being.

I suspect they want to take profits down to support levels, so the markets can be run north in February for the final blow off top. That could see the SPX reach 1160 and towards 1200 and the Dow towards 10850 and perhaps even 11250. Overall, it seems it might actually tag the underside of a long term upwards sloping trendline, and whatever happens they will aim to close each week close to or below 10650 on the Dow.

Keep those levels in mind and please protect yourself with puts if you are long at these levels. If you are short, be nimble - the bulls have plenty of surprises in store before they let this tank.

Good luck for the week! If you have any questions please do let me know.

Happy trading

Darshan

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