YHOO - UPDATE

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

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

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!

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

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

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

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.