iShares Silver Trust ETF chart analysis (SLV)

I am a buyer of silver on a pullback to around 12.5 - 13.0$

High-frequency trading

Stock Traders Find Speed Pays, in Milliseconds (New York Times):

It is the hot new thing on Wall Street, a way for a handful of traders to master the stock market, peek at investors’ orders and, critics say, even subtly manipulate share prices. It is called high-frequency trading — and it is suddenly one of the most talked-about and mysterious forces in the markets.

Powerful computers, some housed right next to the machines that drive marketplaces like the New York Stock Exchange, enable high-frequency traders to transmit millions of orders at lightning speed and, their detractors contend, reap billions at everyone else’s expense.

These systems are so fast they can outsmart or outrun other investors, humans and computers alike. And after growing in the shadows for years, they are generating lots of talk.

Read also this article: Is Wall Street Picking Our Pockets?

Gold

Weekly chart of gold price over the last 10 years. The psychological level of 1000$ per ounce of gold acts as a strong resistance, but for how long?

Volatility index, VIX

Volatility (nervousness) of the markets has come back to the levels of Sept 2008 before the market krash started.

US Dollar index chart analysis

The USD Index measures the performance of the US Dollar against a basket of currencies: EUR, JPY (Japanese Yen), GBP (British Pound), CAD (Canadian Dollar), CHF (Swiss Franc) and SEK (Swedish Krona).

The crossover to the downside of the 200 day moving average (red line) by the 50 day moving average (blue line) in early June 2009 gives a long-term bearish signal for the dollar.

EUR-USD chart analysis

To analyze the EUR-USD relationship, let's start from the very long-term view by looking at the monthly chart of the EUR-USD:


1) the Euro was decreasing against the US dollar from 1995 till 2001: it went from a high of 1.44 to a low of 0.86
2) as from 2002, the Euro started appreciating versus the US dollar until 2008: it went from 0.86 to a high of 1.60 in June 2008
3) as from mid-2008, the Euro fell abruptly against the dollar to go from 1.60 to 1.24; this corresponded to the period when the stock markets krashed
4) the EUR-USD stands now at 1.42, exactly at the midpoint between the low of 1.24 and the high of 1.60 !

Let's now zoom up to the weekly chart:


1) I use the 200 day moving average to determine long-term reversal points
2) in August 2008, the EUR-USD crossed below this moving average, giving a short signal (sell the euro, buy the dollar)
3) Mid-May 2008, the EUR-USD crossed above this moving average, giving a long signal (buy the euro, sell the dollar)

Now let's further zoom up to the daily chart:




1) the EUR-USD is in an uptrend as it has been making higher lows over the last 3 months
2) the EUR-USD has been consolidating in a trading range since early June
3) a resistance appears at the 1.43 level.

My conclusion?
1) the trend is going up; therefore trade only in the direction of the trend and only initiate long positions in EUR-USD
2) wait for this currency pair to leave the trading range and go above 1.4330-1.4350 before entering into a trade, and always beware of possible fake moves as the one that occurred early June (see the above chart)
3) if the EUR-USD can go above 1.4330-1.4350, we can expect a huge spike up, first to the 1.4600-1.4700 level, then much higher
4) this scenario would become obsolete if the EUR-USD goes below 1.3800 as the trend would then reverse and go down

Comment for today

Stopped out today of UNG @ 13.0$
Stopped out of my long EUR/USD position @ 1.4230
I am now 100% in cash !!
Nice run up today of all major indexes worldwide.
The Nasdaq has been going up 12 days in a row!

EUR-USD: new trade

Entering again in a long EUR-USD position at 1.4264 as mentioned in my previous post of this morning.

The previous resistance at 1.4260 was broken this afternoon around 17:15 CET.

Next targets: 1.4300 (1st planned exit) and 1.4340 (2nd planned exit)

EUR-USD

I sell all my EUR-USD long positions at 1.4255.
Resistance at 1.4260. If it breaks above it, I will go long again with 1.4350 as target

I sell USO @ 34.79

UNG: raise your stop to 13.0$

Initial stop upon buying UNG at 12.2$ was set at 9.80$.
UNG price is now at 13.84$ (+13.4%).
Raise your stop loss to 13.0$.

Summary of portfolio positions

Remark: I am not including the trades on the Forex in this portfolio as this portfolio is dedicated to equities and ETF's.

EUR-USD: open trade

Let's look at the above 60-minute chart:
1) In my previous post, I went long EUR-USD on the Spot Forex market at 1.4220.
2) EUR-USD trades now at 1.4213.
3) My stop loss is at 1.4150 (- 70 pips compared to entry price)
4) My 1st exit (selling 50% of my position) will be at 1.4300 (+70 pips; risk/reward 1:1)
5) My 2nd exit (selling the remaining 50%) will be at 1.4400 (+180 pips; risk/reward 1:2.6)

EUR-USD and US dollar index : new update

My 2 setup conditions to enter into a long trade in EUR/USD (=buy the euro and sell the US dollar) are now fulfilled:
1) US dollar index fell below 79.5
2) EUR-USD is above 1.4150: it currently trades at 1.4220 at 13:50 CET

I go long now in EUR-USD @ 1.4220 (on the Spot Forex market).
Always beware of possible fake moves though.

Natural gas and oil price relationship

An interesting piece of information on the relationship between oil and natural gas prices was published in this CNBC article on July 17: http://www.cnbc.com/id/31965616.

Extracts:

"Supply and demand are the most important factors in determining the price of anything, but Dan Niles, Co-Chief Investment Officer at Alpha One Capital Partners, is closely watching another way to view oil prices, and that is their relationship to natural gas. Oil has historically traded at 8x to 10x the price of natural gas. One of the reasons it usually stays within that range is the law of physics: On a thermal basis, it takes roughly six times the amount of oil to generate the same amount of heat as natural gas. Looking at today's prices, however, oil is going for a hefty 17x the price of natural gas, far outside the historical norm.What does this mean? Either oil is overvalued right now, or natural gas is incredibly cheap. Dan told me he believes that oil will get crushed or natural gas will go up a lot over the next year “because the laws of physics do not change.”

Natural gas: an update

Let's look at the weekly chart of natural gas price above. A support level (double bottom) appears to have formed at a price of 3.2 to 3.3$. Will it hold?

Article in Bloomberg today: Natural Gas Gains Amid Speculation Drilling Cuts to Lift Prices

Extracts:
- Natural gas futures rose in New York amid speculation that exploration cuts will reduce production later this year, sending prices higher for the industrial and power-plant fuel.
- “We’ve shifted from the clear bearish trends we had” as the supply surplus went up, said Tim Evans, an analyst at Citi Futures Perspective in New York. “I think we’re shifting to a deficit. We have a downtrend in production already documented from February to June and July will be lower than June.”
- “You’ve got rig counts in the 600s, you’ve got peak cooling season, you’ve got peak hurricane season,” Jarvis said. “It’s not going to take much to see prices move higher.”

--

We bought the natural gas ETF (UNG) at 12.2$ (see my previous post of July 9). The price stands now at 13.25$ (+ 8.6% compared to the entry price).

EUR-USD and US dollar index - chart analysis update

Let's look at the EUR-USD chart:
1) There was a buy trigger signal activated this morning at our predefined price of 1.4150 (see my previous post of last week).
2) Do I buy? not yet! because the second set up condition to enter into a trade for me is that the US dollar index has to go below 79.5, which is not yet the case (see the chart below).

Let's see what happens in the next few hours and tomorrow.

White paper on liquidity black holes

"Liquidity Black Holes: what are they and how they are generated" (2003) written by Avinash Persaud, Managing Director and Global Head of Research, State Street.

The author interestingly writes that the presence of liquidity problems in the largest markets suggests that liquidity is not about size, but diversity of market participants. Although this article was written in 2003, it remains more than ever relevant in the current markets.

Interesting extracts from the article:

"In an illiquid market the same size of sell order will push the market down further than in a liquid market. Imagine a market where there is a large number of market participants, using the exact same information set, in the exact same way, to trade the exact same financial instruments. When one buys they all do and vice versa. Market participants would face volatility and illiquidity when they came to buy or sell. This would not be reduced by having more players, only by increasing the amount of diversity in their actions. (Indeed, on these assumptions it is possible to show that the bigger the market was, the less liquid it would be). Now imagine a market with just two players but with opposite objectives or opposite ways of defining value. When one wants to buy the other wants to sell. This market is small, but the price impact of trading would be low and liquidity would be high."

"Diversity matters and probably more so than size in the development of liquid financial markets. Markets can be large, but prone to troublesome liquidity black holes if they are not diverse. This can be seen in the foreign exchange markets today and there are worrying signs that diversity is falling in other major financial markets. Diversity relates to numbers of players and instruments, but in markets prone to herding, a critical role is played by the diversity of decision rules. Market-sensitive risk management systems reduce diversity of decision rules and the encouragement by regulators for these systems to be used across industry players will increase the number of liquidity black holes."

EUR-USD and US dollar index

If the US dollar index breaks the support at 79.5$, we might be heading for a sudden fall of the dollar. Something to monitor very closely tomorrow !

On the opposite side, the EUR-USD chart below shows a potential buy trigger if price breaks out above 1.4150. But always beware of fake moves that might simply bring the currency pair back within the trading range between the two green lines showed in the chart.

Summary of portfolio positions

I am 80% in cash now and 20% invested in UNG (natural gas) and USO (crude oil).

United States Oil Fund (USO), Light crude oil

Light crude oil is rebounding as expected in my previous post of yesterday. Buy trigger at 61$ is activated.




I buy USO @ 33.4$
Stop loss @ 31.7$

Light crude oil

Crude oil price seems to have stopped its fall at a support level around 59$ (see chart above).

This price corresponds to the Fibonacci ratio of 38.2% (see the ETF USO on the chart below) adding to the probability that oil price might stop its decrease at this level and get ready for bouncing up. Additionally, the slow stochastic indicator is in oversold level.

White paper on toxic equity trading

"Toxic Equity Trading Order Flow on Wall Street. The Real Force Behind the Explosion in Volume and Volatility"

This paper explains why volume and volatility on the stock markets have increased so much since 2007. This makes for an interesting reading.

Sold SKF @ 45.0$

Summary of portfolio positions

Natural gas chart analysis

I buy the ETF UNG (US Natural Gas Fund) at 12.2$ before market close.
Stop loss: 9.8$
Price fell 6 days in a row. This can't continue forever! Betting on a rebound in the next few days.
Natural gas price is very cheap from a fundamental point of view!

US Dollar index: bullish reversal coming?

In the long-term, I believe the USD will decrease in value versus the other currencies (EUR, JPY, AUD, CAD) especially if it loses its status of worldwide reserve currency.
But for short-term trading purposes, the US dollar index could probably go up if it goes above 81.5 (see chart above). I am a buyer at that level and 80.5 is my stop loss.

ETF to focus on: PowerShares DB US Dollar Index Bullish Fund (ticker: UUP).
Personnally I trade directly on the forex by shorting the EUR-USD currency pair.
Will keep you updated when I enter into a trade.

Oil chart analysis

Let's quickly analyze the chart of light crude oil:

1) the rising trend was broken mid June
2) a support level has now been confirmed @ 67$
3) price is now evolving in a price range between 67$ and 73$
4) the resistance stands @ 73$.
5) If oil price goes above 73$, it's a buy signal. USO (simple oil ETF) or DXO (2x leveraged ETF) are the ETF to focus on.