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This is an update of the chart posted above. I realized I posted the wrong chart (Road Block?) because it didn't have the 100 Day average converging with the 50 Day average, sorry about that. Price has stuck its head up over these moving averages but has failed to close above them. This whole idea of closing above is "Old School" in my opinion, it harkens back to the days before 23 and 24 hour trading sessions, but many people still want to see that little hash mark on that bar above that line.
This next chart is My Version of a "Cram Course" in the use of Open Interest, albeit an extremely basic study. What I'm focusing on here is the turn around (if it is) at the bottom of the chart.
I've posted before I use the TOTAL of all contract months when analyzing volume and open interest , this aids in seeing the continuation (or not) of the accumulation of contracts in OI during the expiration of one contract and the rollover into the next contract. Using the COT "snapshot" data I can see a steady increase in net short positions, these are the red numbers on yellow bars. The sideways price action as the March contract was about to roll shows a slight drop in net short positions and an OI number almost 5000 contracts less. I believe this is an indication of a lack of commitment to the direction the market is headed. But the next release of COT data shows net short positions increased by 20,000 contracts while the market was trading 100 points lower. The bar with the yellow circle travels UP and exceeds the previous two COT "snapshot days" and OI increases, this tells me there's an agreement in direction. The following day the COT data is released again and the increase in net short positions grew by +/-4000 contracts. The green numbers to the left are OI numbers, 202,055 is the OI on the bar with the yellow circle, the next bar is marked, THEN back out to the left and these are the OI readings of the next 3 bars, as price was making higher lows the COT data shows net short positions increased by an additional 20,000 contracts. Now, the steady increase in OI tells me there is a disagreement in direction. For a total of seven consecutive days OI increased, in (on average) smaller ranges. Mario moves this market, then NFP day. The combination of these two days lifted price through the 20 period high/low bands that I use, as described in a previous post up thread. A steady increase in OI can mean an agreement of direction and it can also mean a disagreement of direction, context is king. Nothing "works" all the time but a knowledge of OI is very helpful, IMO.
This chart shows since price traded above the 20 period H/L bands OI contracted by 17,791 contracts, and is now starting to (slowly) add contracts. I chart the COT data in a somewhat crude fashion on a chart but mainly I keep it hand written in a notebook (old skool). This chart shows the last turning point and it is clear (IMO) where the "line in the sand" is between the Bulls and the Bears. On the left side of the chart the COT data shows the net short positions turning to net long, and then when price dropped trades switched again from long to short, then long again. The purpose of all this nonsense is to get a visual picture of an area where maybe the "Perma Bears" have their den. I believe if price can stage a rally and lift price into the area at and above 1.3155 a sleeping giant may be awakened. IMO, resting stop loss orders in this area could provide fuel to lift the Mighty Euro to 1.3200 and beyond creating a situation where a short covering rally could be a whisper away any time the market had the stimulus to move higher. One such stimuli might be the Retail Sales numbers due for release Friday. I know these charts are busy and very crude but as I said, It was a cram course.
This is what I saw at the London open. Pretty strong selling on my studies on the break below 3096. I figured we'd get at least a 14/16 rotation below the WHOLE number. Selling remained constant so the BUY number was a distinct possibility at 3064. I covered in the mid 70's.
The chart, farthest left, is CASH.
CME posts a final bulletin of trade data for the prior day's trade each morning. This data includes the open interest of the prior day, the benefit of this data allows traders to see yesterday's change in the OI during trading hours. It is my understanding printed pages of this information is available to floor traders each morning for all products traded at the CME.
These last few posts are examples of how I view the longer term movements in the market. There was a time when I was a longer term trader and held positions for several days or weeks at a time. I also dabbled in options, mostly selling out of the money options in currencies and of all things, Soybean Meal! Since deregulation, the uprising of bucket shops in FX, the stampede of traders to the screen and the slow death of trading floors, I shortened my time horizon and recalibrated my efforts to intraday trading, but old habits die hard. The whole notion of identifying a market reversal that may carry 500 points seems meaningless when the average range of that market is 100 points and 250 point ranges are not that uncommon. But I do believe the longer term assessment of market behavior is beneficial to my intraday trading even though my current system/method seeks out targets of 20 ticks. I believe there are two ways to increase profits when a trader finds a consistent method of trading that fits his/her personality, trade more often or increase size, I chose the latter. So, "here's the deal." The evaluation of a markets longer term direction is not that difficult (IMO), but I'm finding posting the process I use, is. So to, "Begin with the end in mind," I'm committed to follow through with this "line of thought" until; A.) The 6E travels 500 points intraday above the 20 SMAHigh Band the day of the signal or a target price of 1.3475 or B.) The 6E travels down and closes below the 20 SMA Low Band which negates the Up trend and signals the start of a down trend. Of course the idea is the trend moves higher and thus the lower band lags along and "closes the distance" over time so at this time I can't post a "drop dead" price that will end this discussion, but the number is always known at the EOD. So let's rock on!
Part of the difficulty of posting is the time requirement, I hope to return to this post with more detail before the Sunday Night open, sorry, but duty calls.
If anyone is following this thread with the expectation of discovering a sure fire way to magically predict the direction of the next 500 point move in the Euro you may be disappointed, that's not what this is about. Right now do I think the Euro will rise to 1.3475, yes, but I'm also aware anything can happen in the market and it can happen fast, without warning. News and economic reports move markets, people move markets, and one of those people is Mario Draghi. This chart, as simple as it is provides a lot of information that I'll use in the coming week. This is basic stuff but often overlooked when trading short intraday moves day in and day out. First take a step back and realize this market moved 394 points in six days, and one of those days was an "inside day," that's an impressive move. When I stick my nose in a five minute chart and never look up for 2, 3 or 4 hours I often fail to acknowledge such feats. Numbers like these bring my "projection" of a 500 point move back to reality. Most traders learn the hard way, but they will learn to never form an opinion that prices are to high or prices are to low, the market is the judge, and the market reveals its verdict to everyone simultaneously. No one knows the HOD or the LOD until the EOD! This chart shows ECB Monetary Policy Decision dates (yellow) and U.S. NFP Release dates (white). In the volume sub window are two moving averages of volume a 10 day (solid) and a 20 day (dots). When policy/statement dates and major economic reports are known well ahead of time the market usually trades on lower than average volume for a few days prior to the event. What's also true is the market will trade on lower than average volume for a few days after the event. This chart is a bit skewed due to the Christmas/New Years holidays but I believe the declines are notable. The theory is this, this time of low volume trading after the event is the time to; a.) Get out of all losing trades and b.) reevaluate the market and initiate new positions. Why, because higher volume is coming and prices are going to move to another level. So what comes first the chicken or the egg? Does volume move price or does price movement attract volume, my answer is yes, and yes. So chew on the previous statements as long as you need, and then look at the "hard right edge" of this chart. Low volume before the news/report and low volume after, now what?
This is one ugly chart, even in my book! But I wanted to add the horizontal grid lines to give a scale to the trading ranges of these news/report days in comparison to the before and after ranges. The grid lines are 50 ticks, (chicken or egg).
So here we are, 5 days of volume under the 10 period average after an almost 400 point move. If you're charting and trading the Euro yourself you've probably identified support and resistance levels similar to the charts I posted up thread. I believe the pullback on Sunday night/Monday morning was a lifesaver, the 1.2950 level was rejected and never revisited all week. Surprisingly 1.3050 proved to be rock solid whenever tested but gave a little more ground on Friday than I thought it would, but buyers came out of the woodwork on a Friday afternoon and pushed it hard to that &^#$@*& 100 day SMA with force! The Mighty Euro, the Big E, the E ster ,,,,,, ok ok .
I'm excited about the bullish show of force on Friday because I can make a case for trouble with the levels on this chart. The Sunday/Monday low was the 50% retrace of Friday's move. This chart shows, (IMO) a 50% retrace of this 400 point move would throw a monkey wrench in the machine. If price tests the low of Friday (1.3042) and exceeds what I call normal price rotation, a level 14/16 ticks below (in this case) a whole number 1.3050 (in this case) or 1.3036/34 it could send the Euro searching for support. In that search the next level (target for bears) would IMO be 1.2950 which is the 50% retrace level. I'm not saying this is all going down in one big move, I'm just being the Devil's advocate and calling it like I see it. The 50% retrace seems to show up about 50% of the time, when I want it it never comes, when I don't want it, it often creeps to that level and "turns tail." IMO this market is going to move, I'll be watching the data out of China Sunday and my thoughts are, the Asian traders might just grind this thing up to 1.3150 and pass the torch to the Europeans. If the data out of China isn't enough and Greece doesn't slide into the sea, then I could see this market rotate around 1.3100 until the Tuesday ZEW numbers come out. That's my two day outlook. Remember, Large Spec were Net Short on Tuesday and OI is building I'm sure more than a few are "switching sides" but it's like turning an oil tanker, they need a lot of room and a lot of time, after they make the decision.
We all know the Forex Spot or Cash market is many times larger in comparison than the Futures market. I don't want to get into the pros and cons of each but I did want to follow up on a statement I made a few days ago; "I've seen differences during moves of 20 ticks or more between the futures and spot and could never bring myself to trade the spot. I think I captured a couple charts the other day of a spike that proves what I'm saying, I'll look for them." I found the charts I mentioned and wanted to use this opportunity to make a couple points. I trade the futures mainly because it's a regulated market, but there are times when caution must be observed primarily when traders pull all their orders prior to a news/report event and cause the market to go illiquid. This lack of liquidity causes the erratic moves that catch unsuspecting traders off guard, if you ever witness one of these moves first hand on your DOM you'll never forget it, if you happen to have an open order you'll certainly never forget it!
Here is an example of such a move during the ECB Interest Rate Decision on April 4, 2013.
Out of curiosity, later that day I drilled down to a 5 second time frame and it showed the completed move in one bar!
The bottom chart shows the Spot market had ample liquidity to contain the move and prices never went higher than that bar until both market re-aligned themselves again. I should say the re-alignment took place inside that 5 seconds I spoke of. This is why I refer to the Spot/Cash market as the Big Dog and the futures market as the "tail," the Big Dog wags the tail.
Another point I want to make is always, the Big Dog always wags the tail. Let's say the 6E Future contract is trading 5 ticks higher than the Cash and you're holding a winning trade and price is heading straight for your target, the +2 SD Band from your VWAP study the target price is 1.3158. Price trades thru 1.3150 and trades 54,55,56,54,55,56,54,55,56 What's happening here? Yes, the Big Dog is refusing to trade on 1.3152,,,,, if it did the future would trade on 57,,, so to get a fill on a 6E Futures contract at 1.3158 the Spot/Cash (Big Dog) has to trade on 1.3153. So to further the example a 6E order resting on 1.3150 would only require the Big Dog to trade on 1.3145.
These are simple examples at hypothetically extremes, there are exceptions, just as often the futures will trade a tick or two higher than the 5 ticks. The point I'm try to make is, if the Big Dog is sleeping under the porch the 6E ain't going to move either! Until Mario calls him.
Trying to hurry along here and post an update before the 9:00 GMT News. Volume is rising, open interest is rising (there's interest in this market at this level by bulls and bears) and I'll stick my neck out and say the 1.3050 level showed its Quality again. The ZEW is a market mover (most of the time) BUT if the market stays in the 100 point range of last Tuesday I believe all eyes will be on the Fed's Beige Book report tomorrow. It is Tuesday, "snapshot day" for COT report that we won't see till Friday afternoon.
I'm just throwing up a quickie here. This is a weekly profile, a lot going on near the HIGH of today,,, but the low is also busy IF I look at the bigger picture. Remember resistance at 1.3150, I'd have to bet that will be the first line of defense, why, because that was the area that changed the game Yesterday ,,, and when did the game change ,,, At the EU CLOSE. This tells me positions were being adjusted. Also remember that "#$%^(^" 100 day ave line? Where is it now? And the Pivot, And the volume from the adjusting of contracts at the close (MY Opinion). Fundamentals don't support this up move at all. I think it is obvious traders are tired of Mario Draghi's drum beat, an hour before the move he spoke and the Big E showed him, it rallied a 100 points!! No news out of EU to get in the way of this move all week,, last hurdle (IMO) is the today's Beige Book numbers this afternoon. But the Mighty Euro has proven to me it doesn't, "need no stinking numbers" to decide direction!!!! To the up side I think there's a glass ceiling at the 50% Fib number of the last move down (second chart) IF I was long up there I look for the "Big Dog" to start tapping on the brakes around 1.3220. Remember the rule of three.
EDIT: I threw this post together VERY quickly ,,,,,, the LOWER CHART is a few DAYS OLD,,,, the levels are NOT CORRECT,,,,,However; the Fibonacci levels are.
