A-B-C-D Trade - page 215

 

We are in closing minutes of the European session. Use caution. London closed half-hour ago, but we like to draw the line at 16:00.

 

Watch for BAJA bullish divergence on 30-min and 1-hour, that will signal end of down move.

Bernanke to speak in about 1.5 hours, and President Obama's Job Speech is scheduled for 19:00 NEW York time.

 

Excellent show today (again) on bloomberg t.v. - Tom Keene's Surveillance.

Bill Gross of Pimco, which manages more than USD 1 Trillion in bonds.

Try to see the replay.

 

Meanwhile, EUR/USD seeking hit to 1.3910/12

 

Here's a split-screen on EUR/USD which shows the price hitting the 200% channel level and 200% extension horizontal level.

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EUR-USD_9-82.jpg  157 kb
 

Yes, we can multi-task by shorting EUR/USD while watching and learning from Bill Gross.

Not to diminish the distinguished guest Michael Spence.

Michael Spence - Wikipedia, the free encyclopedia

 

AS the Bernanke speech has now concluded and he is taking questions;

EUR/USD mades its 127.2 horizontal extension to 1.38868, based on wide plot 1.42805/1.39710, and probing lower.

SPX500 down slightly.

Nothing new from Mr. Bernanke, who reiterated that FED has wide range of tools. Emphasis back to politicians/Congress.

 

A guest on a financial show yesterday, Mr. David Winters of Wintergreen Fund, was hailed as a great stock picker (value stocks). When we looked him up, we saw that they also pair trade for arbitrage. Our recent example of the correlation between Gold and CHF uses the same principles.

http://www.gurufocus.com/news/143141/analysis-of-david-j-winters-wintergreen-fund-and-his-top-holdings

“Deviating from most equity funds, the Wintergreen Fund dabbles into both arbitrage and debt investments. In terms of their arbitrage strategy, the firm utilizes pairs trading as their basis of arbitrage. This strategy at its very core calls for the simultaneous purchase of an equity, and the short sale of a correlated equity that deviated at a larger value than normal from the purchased equity. This strategy relies on the deviation to be corrected in order to yield a capital gain.”

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The attached 4-hour chart applies indicators for XAU_USD (yellow) and SPX500 (pink):

Multi-Instrument (4)

CurrencyPairsCorrelation (CPC)

The 2 instruments normally trade in opposite direction. We highlighted 2 periods in which they were trading in the same direction.

We placed vertical lines to mark time when they return to normal direction, and where CPC indicates signal.

The CPC merges moving averages into price to produce one line for each instrument.

It displays cross-overs and green/red color for BUY/SELL signals and periods for the lead instrument. This does not mean the user is prevented from trading the 2nd instrument.

This indicator is provided to assist in the strategy we outlined. You can adjust it to your liking. A template with the 2 indicators is attached. It compares XAU_USD against SPX500, just as the attached chart illustrates.

The chart also features the indicator RSI(4) which applies to XAU_USD only. It registered BAJA divergence for each trade scenario’s exit. Both were BUY XAU_USD positions.

 

Here's an opinion article from bloomberg, entitled

View: Gambling Bankers Need a Capital Intervention

View: Gambling Bankers Need a Capital Intervention - Bloomberg

This article points out how over-leveraged most banks are. The "capital ratio" simply means how much assets a bank has, compared to how much they loan out.

Obviously it is more complicated than that, with banks using CAR and CRAR, but this gives a general idea.

 

The decline in EUR/USD is pictured in attached 1-hour, which is updated from last post.

Fib channel plot moved to Moon 0-degree and Moon 180-degree.

ABC plot: Sept 8th 13:00/Sept 8th 20:00/Sept 9th 02:00

FE 100 = 1.37853 and at 61.8% extension channel

FE 161.8 = 1.36925 and at 100% extension channel

The Euro remains under pressure due to PIIGS debt, with 92% chance of default by Greece, according to credit default swap market.

Note that Greece's debt is governed by Greek law. This allows them to change terms without approval of lenders, should they decide to go that route. That would also estrange them from further loans.

At last report, Greece is demanding that 90% of their debt (and holders) agree to swap the short-term debt for long-term. Thus far 70% has verbally agreed, as we understand it.

In any event, it is a big hole to dig out, and the "bet" by the market is that they don't have a chance.

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