Financial Markets

YHOO - UPDATE

2007-09-28T04:23:00.000-07:00

Position closed at 26.83 for a 3.15% gain.

I closed Monday morning's position on Wednesday after a strong move up. It turned out that the stock made a final push up to reach a high of 27.07. It seemed to have found resistance around this level and I got out on the way down. Apparently it was the right time as I was solely in it for the 20SMA breakout of the 50SMA. It would move lover and yesterday's close was at 26.27, heading down to my buy price.

I was right in not sticking around for too long as all the corporate news about Microsoft and Facebook, Google and DoubleClick was going to be influential. After all, my reasons were purely technical. There are a lot of fundmental questions in play with Yahoo cutting costs, restructuring, and eliminating costs.. all mentioned in
Yahoo to Silence Podcast Service.

I'll take my 3% in 2 days any day.

YAHOO - 20 SMA Breaks Through 50 SMA

2007-09-25T11:56:00.000-07:00

Yesterday on Monday morning I have decided to act on Yahoo! (YHOO). After following the stock closely for about a week and deciding to hold back because of the unclear technical outlook, I decided to act on a possible opportunity. The stock made a huge bearish move since reaching a 52 week high of 33.61 at the beginning of May. Facing strong competition and suffering through the market turmoil, the stock hit a deep decline. Although, the outlook shows a very real possibility of losing further market share to the giant we know as Google, Yahoo has been very active with acquisitions and upgrades to their existing services. It is practically an all-out race in the digital age for acquiring growing communities, networks, and market share for ad revenue, one that includes Microsoft (MSFT).

Well, the aforementioned bearish trend looks like it has formed a double bottom around the 25 dollar mark. Shortly afterwards, YHOO has marked seven consecutive sessions of gains with the 20 day moving average rapidly approaching the 50 SMA. The momentum looked good and on Monday morning, I anticipated this breakout with a buy order that was filled at 26.01.

Shortly thereafter there was a quick move up to 26.40 (within the hour). I decided to wait it out as I anticipated a bigger move. In fact the breakout of the 20 over the 50 SMA wouldn't be confirmed until we had a close. There was a further run-up to 26.65 on Tuesday and it was probably a good time to close out the position as I don't want to remain it for too long. There's also too much speculation about Microsoft's relationship with the large social network, Facebook. The market is also jumpy. It is now off its highs.

Given current market conditions, we have to be careful in letting the gains ride. Although, I would put the ultimate limit order at 1.2750, near the 200 SMA, I might not want to wait that long. However, YHOO still looks steady on its way to the 200 SMA so I'll ride it out a little longer.

The NZD on the hourly - Update

2007-06-14T05:33:00.000-07:00

RBNZ's criteria for using intervention is to use it when most effective and to take advantage of thin markets. They did so in a thin market (Australia was closed for example). However, raising interest rates and selling their currency is just going to counter each other, another reason for the intervention to be short-lived. At the end, the SHS pattern didn't come into play and the NZD/USD indeed rebounded (actually very close to the 200 SMA). At least for the short-term it returns to its uptrend. It will be interesting to see if the BOJ decision stirs anything up but with bond yields up across the board, changes in carry trade strategies probably won't be a factor.

ATTENTION TO THE NEW ZEALAND DOLLAR ON THE HOURLY!

2007-06-11T08:46:00.000-07:00

The

New Zealand

dollar has made a significant move in the last hour (17:00 Spanish time) from a high of 0.7497 to 0.7464. It looks like a possible head and shoulder formation is coming into play. The NZD is building on downward pressure catapulted by last night’s central bank intervention. We see the bearish spike go from 0.7623 to 0.7530 approx.

-http://www.rbnz.govt.nz/news/2007/3036605.html

The currency may be finding some support on the 200 hour moving average. A very similar technical outlook on the NZD/JPY is also taking place in respect to both the head and shoulders formation and SMA(200).

Traders must also take into account that the New Zealand Federal Reserve surprisingly hiked interest rates to 8% last week putting the carry trade strategy back on the forefront.

Remember that carry trade liquidation was a central issue a few months back since Japan started raising interest rates upon reappearing inflation signals. However, if New Zealand does not let up on their hikes, the interest spread will remain wide enough to incite carry traders (8% for NZD vs. 0.50% for JPY).

No rebound has been seen since the NZ bank’s intervention yet, however, it is important to remember that the currency market is very difficult to manipulate, even for central banks. Thus, this will unlikely have a lasting effect. The currency market is an immensely liquid market with over 2 trillion dollars traded on a daily basis.

PATIENCE IS A VIRTUE

2007-06-11T04:20:00.000-07:00

Successful traders will let opportunities come to them instead of chasing them. The EUR/USD has had a relatively low volatile experience in the last couple of weeks, rarely varying a little over 100 pips. It has roughly been trading in a tight range since May 18 between 1.3400 and 1.3550 if we take into account some low and high spikes.

Of notable interest was the significant support being formed around the 1.3400 level, tested at least a couple of times meaning that a breakout could have been significant. It would have been very difficult to capture any big movements in the meantime unless we were looking at a very short-term picture. As we can see on the above hourly chart, in retrospect, a breakout of this range would look tempting, especially on the downside.

Such was the case as the biggest profit-taking opportunity came after 3 weeks of range trading. Ideally we would place a limit entry sell order around 1.3400, confirming the breakout of the horizontal support. A stop order of about 30 pips (1.3430) would save us from a significant rebound. We would ride the breakout until it ended around 1.3340, closing our position and taking a 60 pip profit. Note that this significant breakout of the range gave us a very attractive reward to risk ratio, risking our 30 pip stop but getting 60 pips in return!

The Scale is Tipping Towards The Euro

2007-03-28T06:45:00.000-07:00

The EUR/USD may get very bullish if we take into consideration that the balance of pros and cons favor the Euro. While the US concerns about sub-prime lending and the housing market continue, positive economic reports are coming out of Europe. The German IFO report shows a healthy manufacturing sector and strong business confidence. This was despite worries that the raise in German taxes would hamper the results.

Meanwhile new home sales in the US were reported lower as well as consumer confidence although the latter may be very well tied in with the first. Consumer confidence may very well be a result of increased volatility in the markets and increased negative press coverage. By human nature consumer confidence can be swayed by such factors. The just released Durable goods orders was also a poor reading, although it represented a rebound from the previous report. More importantly than the indications of a slowing economy is the increased variation between actual results and expectations. What really drives the market is anything that strives away from market expectations. Also, we can not take lightly the fact that the revisions to previous results were made to the downside. These add more impact to the already negative results.

Looking at interest rates, it is becoming clearer that the US can not afford to raise rates again. For one part, it will definitely not help the sub-prime lending market. Most likely the FED will not lower rates either as inflationary pressures remain. On the Euro-side, the International Monetary Fund supports further monetary policy tightening for the euro. This supports the hawkish BCE view and we can expect to see them raise interest rates to 4% in April.

With US rates remaining at 5.25% we will continue witnessing a decreasing interest rate differential. Although the EUR/USD is breaking upwards, it is surprising that the USD is not taker a harder hit. Rarely do the scales tip so far to one side. Some resistance may be due to the EUR/USD closing in on all-time highs but more likely analysts are waiting for what FED president Ben Bernanke has to say as he can cause some volatility.

JPY Is Rallying Across the Board Once Again

2007-03-13T13:17:00.000-07:00

I was strongly advocating getting in new short positions and claiming that the USD/JPY was going to test 115.35 again. This was when the pair was around the 117.10 level. The problem, and a common one, was that prudent investors most likely placed their stop orders too close. Trading this as a medium to long term strategy like I claimed would lead one not to place very close stops, however, my position got stopped out as well being that the USD/JPY passed the 61.8 Fibonacci line in the retracement of the previous rally.

However, after I saw that the JPY was rallying again, I placed fresh shorts in USD/JPY and NZD/JPY (has the biggest interest rate differential for carry trades) and is now making tremendous gains as we speak! The USD/JPY is already at 116.03 as we speak, look at where my screen shot left off minutes ago!

In regards to fundamentals (long-term view), Japan's economy is fueling up. In regards to short term technicals we see that a head and shoulders formation played out.

Influential Speakers

2007-03-13T11:48:00.001-07:00

•BOJ- Traders note a Bloomberg report this afternoon quoting Vice Fin Min Tanaka who states that further BOJ policy changes may take some time.

•ECB President Trichet toned down his degree of hawkishness to signal a pause in April and potentially in May as well.

News Highlights

2007-03-13T11:46:00.000-07:00

•China Trade Surplus Widens, Yuan Gains On Speculation

•…shares of New Century Financial were suspended for trading this morning, raising concerns that the company may have no choice but to file for bankruptcy

•In addition to subprime mortgage lenders, who make loans to people with poor credit, the market was worried about retailers, which the Commerce Department said eked out a meager 0.1 percent rise in sales last month

USD/JPY will likely retest 115.30 levels

2007-03-07T11:27:00.000-08:00

Continuing on the question whether the Yen will continue to rally as people liquidate their carry trades, there were interesting articles on dailyfx.com pointing out that the Yen will likely continue to appreciate. The volatile stock markets will likely cause higher risk aversion and investors will turn not use their low-interest rate debt to fund the riskier investments. This mean less short positions on the Yen but if this is not enough the Bank of Japan will likely continue their plans of raising interest rates. There has long been arguments of the Yen being undervalued as the BOJ occassional would buy USD in order to keep their currency low to help out exporters.

Most importantly is that interest rate differentials are decreasing as opposed to increasing. The US was raising interest rates at a solid pace while the Japan rate was down to zero percent. Now the tides have turned and BOJ is raising rates while the FED starts considering lowering the USD rate. I would use the recent USD/JPY rebound (115,19-116,75) to put in a fresh short position as I think it will test the 115.30 levels again.

Medium Term Opportunity Perhaps?

2007-03-06T11:51:00.000-08:00

The Japanese Yen had a big rally having gained 160 pips vs the USD heading into Monday morning. We see a very close relation between the stock market decline and the JPY rise. Mainly, a strong JPY will hurt exporters, a country which relies strongly on selling abroad. Many of us might wish we got into this rally earlier for some quick gains, however, it may not be too late yet. The long awaited rise of interest rates in Japan have some large implications for its currency. Although the USD/JPY is since bouncing back, carry trade strategies tend to be longer term in nature. Thus, it might not a bad time to go long the yen for the medium term as more people decide to liquidate their Yen-based debt. In addition to this, more Japanese will begin to repatriate their yen.

Global Selloff - Here We Go Again

2007-03-05T13:42:00.000-08:00

Being the first ones to wake up, the Asian markets will be the culprit once again for starting a chain reaction in other stock markets. Many of us towards the west woke up to find out that Japan's NIKKEI lost 3%. China's stock market plummeting was last Tuesday so this marks the fifth trading day of continued selling pressure. Of course analysts said almost at once that there was no need to worry, that it was just a temporary correction. However, you wouldn't expect them to announce panic from one day to the next. Although agreed that there is no need for panic, the market can very well be indicating a coming recession in the business cycle. Remembering that the market tends to anticipate the business cycle, we should take into consideration the factors related to a recession such as changes in monetary policies. Interest rates will have to be modified not just to control inflationary prices but to either spur or at least not deter economic output.

US interest rates unchanged

2007-02-01T04:43:00.000-08:00

As was expected, the FED kept interest rates the same at 5.25%

Without making a move since June 2006, the FED shows they are willing to wait for more signals before making a decision. Fourth quarter USD GDP surprised at 3.5% but most of it was driven by consumer spending meaning that it might have just been consumers taking advantagous of warmer weather and lower oil prices. Analysts believe that this growth will not be sustainable and (if so) when this is reflected in the economic data the FED might then decide to lower rates.

The EUR/USD rallied back to the 1.30 level but we can still expect movement to be contained in the current range.

Keeping It Steady

2007-01-31T02:45:00.000-08:00

Today we'll see if the FOMC decision knocks the EUR/USD out of its 1.29-1.30 range. Market expects them to keep interest rates the same but the focus should be on what inflationary pressures may be out there.

The following are my big 3 inflation factors:

1. We are currently facing a rebound in oil prices with colder weather, however oil prices are still moderate and I wouldn't expect any big hikes without OPEC or oil reserve data.

2. After a big cooldown of the housing market in 2006, this year it appears prices will be moderate.

3. Wage inflation and Democratic party talk of higher minimum wages, this Friday's NFP numbers will also factor in inflation considerations.

IDEA: It would be interesting to chart weather temperatures and study their recent correlation with the markets.

We'll see what hits the wires around the 2pm EST FOMC decision...

I Like It When Things Get 'Interest' ing

2007-01-19T01:52:00.000-08:00

It's boring when expectations are always met. But it looks like the Japanese don't mind making us jump from our seats. Interest rates decisions are probably the announcements that least digress from market expectations. That's why analysts play such close attention to subtle changes in wording... any hint towards the next rate decision or change in monetary policy.

However, the Bank of Japan gave us some fun yesterday as they decided to keep interest rates the same. The market was expecting another .25 hike to .50 but instead was kept the same for fear of slow economic growth. This might make trading JPY interesting as using it as a carry trade strategy can still be a good idea. In contrast with the European Central Bank who are implementing steady hikes, the BOJ may be very well content with sporadic hikes and lengthy pauses in between. As the interest rate for EUR raises at a speedier clip than BOJ, the EUR/JPY currency pair can make for a very interesting long-term strategy!!

US Economic Data On A Role

2006-12-15T08:11:00.000-08:00

I forgot to mention today's important release of CPI data in my blog entries this week.

Well, it turns out that CPI came in unchanged after analysts expected a 0.2% increase. At the same time industrial production also increased 0.2% after two months of declines. The FED might as well pat themselves on the back. With the economy resilient, the FED wont be in any rush to lower rates, and will continue to keep an eye on inflation.

This news was more than enough for the USD to continue gaining. And just this week I was fearing an extensive EUR/USD trend, but looks like it stopped in its tracks!

USD shows some life

2006-12-14T09:50:00.000-08:00

USD bulls capitalized on today's positive economic data. With an increase in November's retail sales of 1%, the USD gained about 65 pips against the EUR. The pair continued that momentum to place itself at 1.3155 on Thursday afternoon.

It was good to see a pro USD reaction as it seemed that the EUR/USD was ready to take off.

We will see what the next catalyst is but I don't expect much movement beyond the 1.31-1.32 range.

read more at dailyfx, Retail Sales..

-Jose M.

Please feel free to leave your comments, enhancements to this blog will follow...

The Federal Reserve, A Very Focused Group

2006-12-13T00:54:00.000-08:00

The FED reminded us yesterday that they are tough to budge on monetary policy. They give the impression that there must be very dour economic indicators to start lowering interest rates. This is in contrast to three years ago when they did not hesitate to bring rates to historic lows at 1%. Much credit must be given to them however, as the US recovered nicely from the 9-11 aftermath, and now inflation must be kept in check.

Analysts were hoping for indication of a rate decrease by March. In my opinion, it is a good idea to keep rates steady while the economy holds up as there's always a delay before the affects of rate changes are seen.

The real worry for me however is the currency exchange rate. The USD resisted rallying after two of the most influential reports were neutral to positive for the USD. Especially, the trade deficit coming in at a five year low. And no indication of interest rates lowering anytime soon! (Except a comment about substantial cooling in the housing market) Yet there was minimal move in the EUR/USD . The only reasons I could see are the exceptions to the positive news, mainly that changes to the deficit are mostly oil-related and that things with China did not change much, as imports still increased.

Resistance to these reports indicate to me that the EUR/USD is likely marking a clearly prolonged uptrend. We have two more chances to spark a rally by the way of economic reports, retail sales/consumer demand through the holidays and the next employment report. If there happens to be US positive news and the USD still resists a rally, then I wouldn't be surprised if we started testing all-time EUR/USD highs around 1.36 in early 2007.

FED decides whether to change interest rates

2006-12-12T02:45:00.000-08:00

As the FED decides what to do with its monetary policy, it seems that the market has priced in that they will keep rates the same.

However, it seems like the likelihood of taking a new stance in monetary policy is the highest in a long time. Although most agree that rates will be unchanged for now, there seems to be a high level of uncertainty of what future policy will be. A moderate 3rd quarter GDP seemed to have eased some fears as the economy wasn't suffering as bad as some analysts thought. This will most like decrease pressure from the FEDs and they will be willing to leave rates unchanged for some time longer before they start descending.

There could be some interesting reactions depending on what comes out of this afternoon's report.