Tuesday, October 02, 2007

I rarely use charts alone

As the title says, I rarely use charts alone for my trading signals. In the case of FXE, the Euro CurrencyShares fund, I'm using the chart to keep me away from a stupid entry point.

Looking at a weekly chart for the last two years, every single technical indicator that I see says that the relationship between the Euro and US Dollar has topped, for the time being at least. FXE exceeded the top of the Bollinger Bands. Common wisdom says that it will retreat at least to the midline between the two outer edges, which coincidently at this time is also the level of the 20 week moving average. For the last two years FXE has reacted exactly like a stock bouncing off an important moving average, in this case the 40 week moving average, which is almost exactly the value of the 200 day moving average on a daily chart.

Of the other common momentum oriented calculations, RSI, CCI, and all the stochastic measurements are signaling a top, and for all of these reasons I'm holding off from buying the FXE calls that I was looking at. There should be some consolidation here, over the next few weeks and I intend to look at market sentiment again, shortly before the next Fed meetings at the end of this month.

Overall I am bullish on the Euro vs USD, but the continued "higher highs, and higher lows" trace out a beautiful channel that can be traded back and forth in the short time frames, but also suggests more strength to come in the FXE product.

Unlike Pythagoruz, I prefer the long setups. But I don't like buying at the top any more than anyone else, so I'll let the usual chart tools line up before I enter. I'm looking for $138 for an entry long, when the rising SAR meets the price figure.

Update: I have bought a small position in the FXE Mar 08 $143 calls. With the Fed minutes coming out today, and Poole talking about "fragile financial markets", it seemed to be time to get into this market.


pythagoruz said...

Decided not to wait for that parabolic sar huh? Interesting.

The euro is pretty strong today and the fed minutes seem to affirm that action with the unanimous vote.

Even if FXE pulls back further, we both know its going higher eventually.

indigo-alien said...

Even if we don't get a rate cut this month, you know it's coming. I've given myself plenty of time with the Mar08 calls.