An Early Look At The Best Currency Trade For 2015

The currency markets have seen some big moves in 2014 and in many ways they have provided better opportunities for forex traders than stock markets have.

While the S&P 500 is currently up around 13% year-to-date, volatility has been low for most of that time and most shorter term traders have struggled to make profits in individual equities this year.

Currency trends

In contrast, the currency markets have seen some spectacular moves and trend followers have been handsomely rewarded for sticking to their trades:

  • We have seen USDJPY soar past the 120 level under the Bank of Japan’s aggressive monetary easing policy, the highest level in five years.
  • We have watched GBPUSD climb to 1.70 in the first half of the year (when analysts were predicting end-of-year rate hikes from the BOE), only to see it reverse twice as fast and drop through 1.55.
  • And we have seen the greenback rally against the majority of its peers as markets began to price in the possibility of 2015 rate hikes from the Fed.

Without doubt it has been a good year to be long the dollar.

However, with the greenback having come such a long way in such a short space of time, one of the key questions for 2015 will be whether the dollar has any more upside left to go.

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Fundamental indicators

A useful method for analyzing the longer term direction of currency markets is to first consider the fundamental indicators for each market at the present time. After this is done we can then begin to analyse future trends to decide where markets might head.

One way to do this is to look at country specific economic data. The next table is derived from stats from tradingeconomics.com:

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 When will the Fed raise rates?

A common belief among traders at present is that the Federal Reserve will likely move to raise interest rates some time in 2015, and markets currently expect this to occur in July.

On some levels this makes sense. The Federal Reserve have already stopped their program of monthly asset purchases and the US economy now appears strong enough to withstand a gradual increase in rates. (more…)

By Chris Ebert

Nobody, not even the most seasoned expert with the most extensive analysis, knows for sure who will win next week’s Super Bowl football championship. And not even the best trader in the world can say for sure where the stock market is going next week.

What is known is how the winners will feel, and also how those watching from the sidelines will feel. In that respect, the winners of a sporting event are no different than winners in the game of trading stocks. Understanding those feelings can make or break a trader in the stock market.

underdogFeelings not only depend on winning or losing, but whether a win was the expected outcome or whether it represents an upset. Take the classic announcement, “The Giants win the Pennant, the Giants win the Pennant!”, when the team won against all odds. That’s just how traders feel when their team, the Bulls or the Bears, come from behind to win in the stock market.

The basic problem that every trader faces comes down to this: choosing a side in the stock market is dangerous, because the chosen side is always at risk of losing. Yet, how can one trade without picking a side?

The answer:

  • Choose the side that’s winning; and be ready to switch sides in an instant.
  • Don’t be a Perma-Bull or a Perma-Bear; be a Bull when the Bulls are winning; be a Bear when the Bears are winning.
  • Most importantly, be ready to switch sides quickly when the underdog wins.

Combined with healthy risk-management and proper position sizing, that’s really, truly, all there is to being a good trader – being on the winning side. So, all that’s necessary is to find a method of determining who is winning.

While no method is perfect, and there are times when the winner can be difficult to determine by any means of analysis, there are other times when the winner is clear – particularly after a victory by the underdog. If a trader does not know which side to choose, waiting for an underdog moment can be enlightening.

Underdog moments happen all the time in the stock market. An analysis of the options market, as the analysis that follows, is one way reveal those moments.

The premise is rather simple; there are 11 Stages the stock market can go through. When the market enters a new Stage (as measured by a broad index of stocks such as the S&P 500), it represents a new victory for either the Bulls or the Bears. Sometimes the victory is expected, and indicates nothing more than confirmation that the side everyone though was in control, is still in control. Other times it’s an upset.

The analysis, which is presented right here each weekend, begins as always with three simple option trades, determines which of those trades are profitable and which are not, and then uses the profit or loss to determine the current Options Market Stage.

 Stocks and Options at a Glance 01-24-15

* All profits are calculated at expiration, as a percentage of the underlying SPY share price. SPY is an Exchange Traded Fund (ETF), the SPDR S&P 500 ETF Trust (NYSEARCA:SPY) that closely tracks the performance of the S&P 500 stock index. All options are at-the-money (ATM) when-opened 4 months (112 days) to expiration.
EXAMPLE: If Long Call premium paid is $2 when SPY is trading at $200, the loss is 1% if the option expires worthless.

You are here – Bull Market Stage 2 – the “Digesting Gains” stage.

On the chart above there are 3 categories of option trades: A, B and C. For this past week, ending January 24, 2015, this is how the trades performed on the (more…)

By Chris Ebert

Ever wonder why stock prices sometimes bounce higher after a decline, and other times do not bounce at all, but continue to fall?

ball or falling knifeIt’s a phenomenon with which every trader and investor struggles. Sometimes a stock may behave like a bouncing ball, other times like a falling knife; and sometimes the market as a whole takes on these attributes, affecting a major stock index, for example the S&P 500, the Dow or the Nasdaq.

While no single explanation is likely to describe how a stock will bounce off a support level or fall through it, here is one worth consideration: It is not simply the act of hitting support that determines how or whether a stock price will bounce, it is how the act occurs; and that depends a lot on the nature of support itself.

Support can be:

  • Hard or soft
  • Fixed or in motion
  • Horizontal or tilted

The manner in which stock prices bounce off support, or in fact whether they bounce at all, can be entirely different if the support level is tilted at an angle, for example, than it would be if support was perfectly horizontal.

It’s actually quite similar to the way a ball might bounce differently upon hitting an incline than a flat surface, grassy soil versus a hard wooden floor, or a stationary bunt as compared to a baseball-bat amidst a home-run swing. Thus, if the nature of support is known, it should be easier for a trader to determine the outcome when a stock price hits that support level.

The following analysis of the S&P 500, which is presented right here each weekend, looks at the stock market from an option trader’s perspective. Of the many clues revealed by options are levels of support and resistance in the S&P 500. This week: a look at the nature of those levels, with insight on whether the S&P may act more like a ball or a knife in coming weeks.

Stocks and Options at a Glance 01-17-15

* All profits are calculated at expiration, as a percentage of the underlying SPY share price. SPY is an Exchange Traded Fund (ETF), the SPDR S&P 500 ETF Trust (NYSEARCA:SPY) that closely tracks the performance of the S&P 500 stock index. All options are at-the-money (ATM) when-opened 4 months (112 days) to expiration.
EXAMPLE: If Long Call premium paid is $2 when SPY is trading at $200, the loss is 1% if the option expires worthless.

You are here – Bull Market Stage 3 – the “resistance” stage.

On the chart above there are 3 categories of option trades: A, B and C. For this past week, ending January 17, 2015, this is how the trades performed on the S&P 500 index ($SPY or $SPX):

  • Covered Call and Naked Put trading are each currently profitable (A+).
    This week’s profit was +3.3%.

    Options Market Stages

    Click on chart to enlarge

  • Long Call and Married Put trading are each currently not profitable (B-).
    This week’s loss was -1.4%.
  • Long Straddle and Strangle trading is currently not profitable (C-).
    This week’s loss was -4.7%.

(more…)

By Jeff PIerce

When the XLF:XLP is under the 50 week ema the market is bearish and vice versa when it’s above the 50 week ema. This is simply a case of risk on vs risk off and it appears that risk off is starting to win with new multi month lows on this chart. With the recent volatility moves in the market it’s clear that we’re in an unstable environment and that is generally when big moves down can occur.

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