technical analysis

Get Ready for a Euro Rally. Or Don't ... and I'll Get Ready for You

The US dollar has had a torrid rally. But my charts suggest a correction is due.

Maybe that is what this latest bout of currency-market volatility is telling us.

Volatility is often a precursor to a change in trend (in all time frames). We know dollar sentiment is overwhelmingly bullish – it seems a one-way bet right now. But Mr. Market is watching because he loves one-way bets. 

I'm not betting big on a correction right at the moment.  But I have told my subscribers to get ready. Today’s price action plus sentiment data suggest a speculative extreme may be near. 

Sentiment extremes suggest a turning point is imminent. Be careful, all you euro bears!

I watch open interest levels in the currency futures market. It is a good longer-term measure of sentiment. Often times, open interest reaches an extreme just ahead of a trend change. Below is a currency futures chart for the euro. The open interest level is huge and sentiment for the euro is extremely bearish: 

The red circles denote peaks in open interest that corresponded with key lows in the price of the euro. Given the extreme levels, I think euro bears should be very careful.

I am monitoring the major pairs closely.  Because if a correction lower in the dollar does materialize at these levels, it would likely be at a least multi-day, and probably a multi-week, event -- in other words, something playable. 

Analysis like this is one way I  keep my subscribers prepared. Until recently, it's been up to them to follow along and follow through.

Now, however, they don't even need to! 

They can check out for a day ... a week ... or a month at a time and not have to worry about missing profit opportunities. That's because I'm launching a new auto-trading opportunity they can use to replicate the trades I recommend and execute in my personal account ... in their own accounts!

This is open to new subscribers as well. Read more about it at this link.

Thank you. And be careful out there.



The $5 Trillion Answer No One Wants to Hear

Unbelievably, the average individual forex trader loses 3% per week.

I found that shocking statistic in The Wall Street Journal yesterday.

Combine that with what I told you last week:

We review...
all the fears and anxiety
...which are so
inherently symptomatic...
...of a losing team.
The mind is a strange thing, men.
We must begin by asking it...
...”What is losing?”

Losing is a disease... contagious as polio.
Losing is a disease... contagious as syphilis.
Losing is a disease... contagious as bubonic plague...
... attacking one...
... but infecting all.
Ah, but curable.
— Two-bit carny hypnotist, The Natural

An observational study of 12 million actual forex trades made in the course of one year showed that traders’ losing trades are 80% larger than their winning trades.

The Wall Street Journal sums up the situation:

“The National Futures Association ... found that 72% of individual forex accounts were unprofitable and that the average life of an account was only four months.”

Four months?

In the words of the late Harry Carey, holy cow!

Despite the unfortunate proportion of losing traders, forex remains a $5 trillion market, all that money changing hands faster than we can imagine. So I have to ask:


The $5 trillion answer ...

No one wants to admit they lose.

“I lost $2,000 on a stupid euro trade last week because I was wrong about their inflation numbers.”

“I got killed on USD/CAD because I guessed wrong on the Canadian employment report.”

“The Bank of Japan added stimulus money to their economy and I got clobbered in JPY because I didn’t have a stop-loss in place.”

You probably don’t hear traders say things like that even though there is no shortage of losers out there.

People don’t want to talk about losing because losing carries a stigma. Losing suggests you’re wrong. And you don’t want to be wrong. In our own minds we equate being wrong with being inferior, inept or just plain dumb.

If you harbor thoughts like that, your trading account will surely be wiped out in four short weeks.

It’s why I told you yesterday to get your mind right. And last week I said you don’t have to know – or even think you know – what’s going to happen in the market in order to make money.

You must accept that losing is an integral part of trading. And managing losses is an integral part of success.

The Wall Street Journal article even acknowledged this.

I share this with you so you acknowledge it too. And so that you might do something about it.

Easier said than done. I get it.

It took me many years to develop a disciplined systematic approach that wins by keeping my personal rationalizations from sabotaging my success.

So I offer you my service, Black Swan Forex.

And I also want to offer you a way to further straighten your path to forex profits.

I’m rounding out a working relationship with a reputable firm. I’ll share the details with you later this week. But consider the arrangement a way for you to get all the success of Black Swan Forex without requiring your constant attention.

It will be like having your own personal money manager at a tiny fraction of the cost.

Until then, trade smart, learn from your losses and stay tuned.


AUD/USD: Up then Up ... or Up then Down?


The Australian dollar is rocking and rolling. The move is very much in line with our expectations in the analysis we provided last week and the week before. And, as I see it, there are two possible scenarios once AUD/USD hits the $0.9330 level ...

To teach what we preach, the first Aussie chart shows the near-term 61.8% Fibonacci retracement target. That retracement is accompanied by a nearer-term 100% Fibonacci extension level. Basically, that confluence of Fibs is likely to pose at least some resistance:

After that level is achieved, I see two potential outcomes (based on Fibonacci levels.)

Outcome #1: UP

Lending credence to this view, the end of the Aussie's strong downside move this year represented a 61.8% extension. In other words: the Aussie may have higher to climb in order to sufficiently retrace this larger decline:

But there is potential for the Aussie's drop to continue (especially if you want to think about it in the context of our expectations for a rising US dollar too) ...

Outcome #2: DOWN

Rather than a third-wave extension of just 61.8%, the Aussie may embark on a third wave that extends at least 100% of the larger third wave down:

Granted, these are longer-term setups we're looking at here. Maybe you trade forex in these time frames; or maybe you don't.

One could use the CurrencyShares Australian dollar Trust (symbol FXA) to take these sort of positions. Or one might consider managing shorter-term trades based on the key Fibonacci levels within these larger setups.

In fact, I know that's how Jack prefers to play it.

He uses these Fibonacci levels and modified Elliott Wave in short-term time frames to make profitable decisions for his BSFX members. Wanna be one? Subscribe here ...






Fibonacci: You think you know, but you have no idea ...

As I plan to share with you next week, I'm gravitating further and further away from believing fundamentals can drive prices in the near-to-intermediate term.

I'm relying more and more on my technical analysis. And it is paying off.

And that's because technical analysis is the yard stick for consensus decision-making. Price action is, simply put, a manifestation of human nature.

Basically, I've concluded that anyone who thinks they have the market figured out (simply because they have the fundamentals figured out) has no idea.

Consider an excellent book I am re-reading ...

The Wave Principle of Human Social Behavior and the New Science of Socionomics


The book was written by Robert Prechter and published in 1999. Allow me to paraphrase (and hopefully not botch) a few of the studies explained in the book:

Psychological study by a guy named Lefebvre at University of California asked subjects to choose between two options, of which they had no strong feelings.

Their responses could be divided into 62% and 38% Fibonacci proportions. [In other words: 62% of respondents chose one option and 38% of respondents chose the other option.]

They were also asked to sort indistinguishable objects into two piles. The piles were divided with 62% in one pile and 38% in the other.

When asked to evaluate friends on bipolar qualities, pole showed positive qualities 62% of time.

When asked what percentage of people take good moral versus bad moral actions, the study found – yep, you guessed it – a 62/38 breakdown of right versus wrong.

When non-Chinese people were asked to choose Chinese characters and then asked if those characters (which they know nothing about) were positive or negative, 62% were deemed positive and 38% negative.

This is really a good one ...

The new science of socionomics takes hundreds of popular notions about mass psychology, culture and the stock market and stands them on their heads.    Click here to read more  about ordering the Socionomics Box Set directly from EWI

The new science of socionomics takes hundreds of popular notions about mass psychology, culture and the stock market and stands them on their heads.

Click here to read more about ordering the Socionomics Box Set directly from EWI

Subjects were asked to move an object a certain distance. After doing so they were then blindfolded and asked to move the same object half the original distance they previously moved the object.

They move it, on average, to a spot 61.5% of the original distance.

What did the study authors conclude?

“The experiment demonstrated that the phenomenon of the golden section is related not to the primary processing of visual information, but rather to the work of the central processor operating with "generalized information."”

Basically, our brains are hard-wired with the golden mean ... well, in mind.

I’m not one to disagree. These findings are consistent with all other natural growth findings in nature. And it really provides the intellectual basis for why Fibonacci levels and Elliott Wave analysis can be so effective.

It really is great stuff. If you want to track down the book, I recommend the section on “herding” – it is amazing.

It all effectively proves this game has little to do with external events (insofar as we often expect) and most to do with internal human social behavior.

Be sure to stay tuned -- I plan to share more on my evolution and belief in Elliott Wave. In fact, I plan to offer all subscribers to BSFX a special report and comprehensive PowerPoint slides that detail every bit of my personal trading framework.

If you're serious about trading FX (or any market for that matter), you don't want to miss that offer.


P.S. We provide a free resource from Elliott Wave International. You can check out their Live Updates on our website anytime. Just click here ...


Boom: The Aussie delivers profits just as anticipated

Let me recall an urgent question I put forth last Thursday: JPY, GBP, AUD: Big moves coming ...???

Now, if I were going to say I told you so, this is when I would say it.

My chart analysis suggested a big move was possible for the Japanese yen, the British pound, and the Australian dollar. But my indicators had not trigger any trades at the moment. In fact, only today does it look like a trade idea will trigger on the yen.

Anyway, that's why I suggested the indicators I use serve better as an early alert system than a precise timing tool.

Also as I suggested, Jack uses indicators that do offer precise timing for trading ideas that can anticipate big movements in currencies.

In fact, his indicators worked perfectly on an Australian dollar trade he issued Thursday (shortly after I wrote to you). The position is still open and is showing gains of around 80 PIPs ($800) per lot of AUD/USD.

Once this trade is closed I'll share with you the chart setup he used to make this trade recommendation.

What's more, he also added a position in GBP/USD this morning. Remember: my indicators still haven't triggered a GBP/USD trade either, but it appears a trade might be triggered as early as tomorrow. Jack, however, is already positioned accordingly.

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JPY, GBP, AUD: Big moves coming ...???

I (JR Crooks) mostly follow the daily charts of currencies. I want to alert you to something I'm seeing ...

Some of the indicators I apply to currency charts -- and all markets, for that matter -- suggest big moves are going to happen soon.

Take this chart of the British pound, for example:

Momentum, the yellow line across the bottom is neutral. At the same time, the Bollinger Bands and Keltner channels are narrowing and flat. 

The same can be seen on a chart of the Australian dollar:

And a chart of the Japanese yen too:

So what does this mean?

It could mean we see some very sharp moves, lasting a week or so and happening as soon as next week.

I'll continue to monitor these indicators. But the trouble is these indicators aren't as precise as I would like. In other words: often times they lag the price move by a day or two. In order for a signal to be triggered in one direction or another, several conditions need to be met to generate a high degree of confidence.

So, ideally, one will have other indicators to help anticipate the direction of the breakout.

Luckily, I know a guy who can help ...

Jack has a forex trading service (we call it "BSFX") that offers these indicators that help anticipate price action. And he's just added a new feature for his members.

This new feature keeps them updated with the same key support and resistance levels Jack calculates early each morning before making any trading decisions.

In fact, have a peak at what his new BSFX Members' Only Dashboard looks like:

The 'Recommendations & Updates' are emailed directly to members and posted automatically.

The 'Key Levels & Comments' are posted for each major US Dollar pair ... each day.

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If you're not already a member of BSFX, you can sign up real quick right now and be ready for the impending breakouts in some of the major currency pairs.

That's all I have for now. Happy trading.


P.S. Did I mention Jack's forex trading service -- BSFX -- had an ROI of 42% in 2013?? Yeah. Seriously. And the ROI is currently 11.1% year-to-date, assuming a $50,000 starting account size.

Here's the YTD profit curve:

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December: History versus Taper

It's that jolly time of year again.

The bears are in hibernation and the bulls are getting fat. I've been seeing reminders here and there: Decembers are good for the market, don't you know?

Very well. Without pretending I did the research, let me steer you to Variant Perception for some stats to back up the December-to-remember claims.

The moral of the story: Buy today and come back once your New Year's hangover wears off.

If, however, you're monitoring potential reasons the consensus will get caught in a long-winter's nap, you don't have to look much further than taper talk.

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In every December on record till now, the market has not had to deal with "tapering." To be sure, I am confident the Fed is NOT going to taper in December. And though a lot can happen in three months, I'd be willing to bet they don't taper in March either.

But guess what? What I think generally doesn't matter to the consensus.

What matters is how the crowd wrestles with this idea. Let's assume incoming data remains positive. Belief that the Federal Reserve tapering decision is data dependent will go a long way into feeding tapering expectations. Further, belief the Federal Reserve is dependent on growth and unemployment levels will be the primary catalyst should tapering concerns flare up.

This isn't to say the December exclamation point on this year's rally will be denied. December may turn into another positive data point. After all, though the charts of major US equity averages appear extended, they still look quite strong.

But it is to say be careful not to become complacent. If too many find comfort in the history of December, the market will become vulnerable. Just because there's egg nog to fall back on, doesn't mean the jolly souls won't freak out if they think the punch bowl is going to get taken away.

S&P 500 futures are at record highs, but momentum isn't confirming the move:


Can someone please pass the punch?

And then can someone explain what it would mean for stocks if bond prices are propelled higher here?

-JR Crooks 


Reason #1: An ENDING expanding diagonal in the Dow

There is a lifecycle of a trend. And breaking it down into five stages might look something like this:

Stage 1: Accumulation
Stage 2: Denial
Stage 3: Conviction
Stage 4: Doubt
Stage 5: Overshoot

Using the S&P 500, I think we may be nearing Stage 4: Doubt ...

A trend's lifecycle certinly doesn't have to break down into five nice, neat stages. But based on what we've seen from this trend since 2009, it appears as though we're nearing the start of Stage 4: Doubt. (I've drawn in an alternate scenario in red that suggests what coming action would look like if we're actually already in Stage 5: Overshoot. But that doesn't appear as likely at this point.)

But is there anything else to suggest Stage 3: Conviction is coming to an end?

Yes. I would argue there is a litany of reasons. In fact, we're preparing this long list of reasons for members of our Global Investor trading newsletter. And it will be published later today. If you're interested in staying plugged in to what's driving markets, and if you're interested in explicit ETF trading ideas, then I suggest you snag yourself an early Christmas present.

Anyway, the reasons span from deflation in Europe to contrarian signals in key sentiment guages. But because I'm a nice guy, I'll give you reason #1 right now ...

Reason #1: An ENDING expanding diagonal showing up on Dow Industrials

The trend described above is going on five years running. And as I said, the lifecycle of a trend doesn't always breakdown into five tidy stages. So let's zoom in a bit for confirmation that the technical setup may be turning bearish for US equity averages.

I point you to the Dow Industrials:

A review of Elliott Wave Principle by Frost & Prechter reminded me of diagonals, particularly ending expanding diagonals. That's what I've drawn in on the chart above. It suggests the Dow has exhausted its upside and is due for a significant retracement.


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That's all for now.

If you want the rest of the reasons we're nearing Stage 4: Doubt, then I encourage you to have your mind blown with a Global Investor subscription. [And don't forget: ClearPoint can easily and efficiently execute any of our trading newsletters.]

Have a great weekend.

-JR Crooks


IRELAND: The lifeblood of the eurozone for the next few days

The 20-period Bollinger Bands on a chart of EIRL (iShares MSCI Ireland Capped ETF) narrowed dramatically. And now they are expanding. Along those lines, an indicator I like to watch suggests EIRL is in the second day of a five-day move to the upside.

I suspect such a move could coincide with the last hurrah for Eurozone markets in the intermediate-term. After all, measured by EIRL, Ireland has been going bonkers since the middle of summer 2012. 

Spain, measured by EWP (iShares MSCI Spain Index Fund) has been going wild too -- it's run in just the last month and a half totals better than 24%!

Germany (EWG) and Italy (EWI) are following suit. 

But it seems as though this "buy the Eurozone because the worst is behind them" theme is about to run its course. And any further advances will need to be accompanied by legitimate improvements in the data or at least sentiment.

This article from the Telegraph explains how the apparent improvement in the outlook for Spain is not well founded: An apology of sorts -- Spain not bust after all

And this article from the Telegraph explains the chatter surrounding Ireland's likely exit from bailout territory. But it's got to be nothing but another PR gimmick to buffer the ongoing political turmoil with "good news."

After all, France's established political parties are undergoing a real test from a far-Right anti-euro party whose leader is running on the campaign promise that the euro must be dissolved orderly or France will exit uncooperatively.

And Greece is battling through similar polarization. But the difference is that Greece is still in bailout territory. And should things not go smoothly, more bail-outs would be likely. And that doesn't even factor in the potential bail-ins that would generate a sort of Cyprus-like deja vu.

As that last article implied, I'd be careful piling in with the hedge funds who are ready to bet the eurozone is out of the woods.

-JR Crooks