If you could hear the conversations here at the Wade house you would hear a lot of "what could we do differently" kinds of conversations. We constantly monitor what we do in an effort to deliver a good service to novice traders. We have been beginner traders also and understand your struggles. In hindsight, we should have stayed away from the Euro and gone all in on stocks, but in real time you cannot make those kinds of calls.
This guy is Jason Goephert. He is the owner/publisher of the Sentiment Trader Website that we use frequently. He is basically a statistician and his data is used by brokerage firms all across the country such as Raymond James and banks such as PNC. Today he had this to say: I'll be taking a break from publishing fresh research this week. The last week in August is typically the lowest-volume one of the year, often with unreliable price changes. And, to be frank, we're seeing some of the most unusual conditions I've seen in 25 years and feel like time away from the day-to-day may help with some perspective.
Jason also had this to say:
Weirdest ever: I've watched nearly every tick in markets for 25 years. I've posted over 10,000 notes. And this might be the weirdest market I've ever seen. Once again on Wednesday, major indexes like the S&P 500 soared while the average stock fell. We've been noting these oddities for weeks, and they haven't mattered, at least for the S&P index that everyone watches.
What Jason is describing is breadth. Only 59% of S&P 500 members are trading higher than the 200 day moving averages. That’s an unusually low number with the S&P 500 at a record high. The only comparable period was in late 1999 and early 2000, before the burst of the Internet bubble.
The breadth indicator on the NASDAQ shows a divergence between stock prices and the actual shares participating.
Records were meant to be broken. How many times have you heard "It's never done this before"? We are in one of those kinds of times. It is just a very weird combination of Corona Virus, Economic Recession and Election. That is what I am blaming it on anyway.
We try to avoid making excuses and we take responsibility for making bad calls. While our track record remains good, most of us have not had a good month. The euro trade did a lot of damage to our bank accounts and our emotional accounts. The euro trade went to the July track record because we entered it in July. It was recorded on July's track record on the front page of the website. Here is where the August trades stand at the moment:
If you are trading right now because you are trying to get back a loss you suffered, then I really think you need to do like Jason and take a break. There is nothing wrong with stepping back from the trading a while. Before I began doing brokerage as a business I did that frequently. If you ever wanted to take a break, now would be a good time to take one. Until we get clear ICL's, there may not be that many good trades. The next ICL in gold probably won't be for another month and who knows about stocks. Tyler, Conny and I will continue to evaluate opportunities and post them on the website. We will be here for you when you are ready to trade.
I have never seen a trade which had so much going for it do nothing than this Euro. There is something not normal about currencies and stocks right now. Neither cycle or sentiment values seem to matter any more. Not sure if these are central bank interventions, or virus symptoms or election related. Most of us are underwater on the euro trade. It is not only damaging our trading equity but our emotional equity.
I am ready to move on to markets which are moving. There are different ways to trade that still seem to work and there are set ups that we can trade. We will be posting these ideas in The Pit today. In the mean time, let Tyler and I know how to proceed with your current positions. Do you want to hold on, do you want to reduce your current exposure 50%-75% or do you want out completely? Let us know.
By Tyler Wade
What was going to be an easy trade turned out to be most difficult. Sometimes at intermediate highs and lows we can see that smart money traders can manufacture breakouts and break downs that fool the dumb money traders into entering trades at the worst moment This is not what happened with our euro trade as we shorted too early. What I am talking about are the dumb money traders who bought the breakout after the euro broke out of the 12 year trend line. Of course today, the market closed back below the trendline leaving those who had just bought with some bad positions.
Just as the Euro broke above the 12 year trend line yesterday and closed back below it today, the dollar broke below support yesterday but managed to re-gain the support today.
The euro trade has left a bad taste in everyone's mouth including mine, but not every trade is going to be easy. Today, the dollar gave us the swing high we have been waiting on for weeks. Re-establishing positions we just lost money with is not an easy decision. This is a decision everyone will need to make for themselves but I personally have re-entered half the positions I previously had. Our original entry price on this trade was near 118. If you get in near 118 you can still make $5,000 per contract which is more than double what was lost per contract when our stops were hit.
While our feeling about this trade have changed, the reasons we entered this trade have not. Sentiment levels on the euro are at extreme highs and on the dollar are at extreme lows, even with today's big move in price.
What I will be looking for tomorrow is the dollar to close above the 10 day MA and even move above the daily cycle trend line before the market closes. If that happens I will be prepared to say we have had our daily cycle low in the dollar and are beginning a new ICL in the dollar which will push the euro down.
Many traders have already re-entered some of their original positions. It's your recentcy bias which is telling you it's a bad idea to take this trade and I can understand that but this is a new trade. It is a great set up and you should try at least one position.
If you have any questions feel free to message me on WhatsApp.
To offset any further increase in the euro we could put on a hedge. A hedge here would do three things. 1. A hedge would offset your losses on the euro. 2. A hedge would keep you in the game if it allows you to keep the positions you have. At some point very soon the euro and dollar will change directions and when that happens we could turn off the hedge. 3. A hedge would lower your stress
A hedge would simply be buying one December euro position for every euro short position you own. If the euro continues to climb and the dollar drop, your gain in the December euro would offset most of the margin calls you are having on the September euro.
These euro shorts will work but if you get taken out today and Friday the market reverses, my experience is that only about a fourth of the positions we have on right now will put the positions back on. Again, this should be a very good trade.
One hang up for many of you will be that you have an additional margin to fund. If you are near your limit now you might need to liquidate half your euro shorts to buy euros.
Let me know what you would have me do ASAP! We could activate the hedge if the euro moves to 1.19 or higher.
Trading is not easy and we are at one of those times when we need to make a difficult decision. I cannot make any bullish arguments to support the euro moving higher. The market will do what it wants to do and I guess it is always possible it can go higher. Anyway, here is the situation as we know it. The two most important charts are at the end.
First, we know that sentiment readings on the dollar are at the lowest levels since 2011.
Euro sentiment readings are at extreme levels as well.
Dollar weekly chart oscillators are screaming oversold.
And euro weekly oscillators are way overbought.
Looking at the big picture, the euro is pushed against a downward trend line which has held for 12 years. This is where we are today. A move higher will break this trend line. This should be some major resistance.
The final chart shows that the dollar is just above it's 9 year trend line. The dollar could drop from 92.7 to 91.7 to reach that trend line. IF that happens the euro will likely break it's trend line and it could possibly move a dollar higher which would cost $1250 per contract.
I don't have a magic answer here. There are no right or wrong answers and we won't know for a few days what we should have done. I may just close half my positions and ride it out with the rest. We could put your stops back on at $1.19. For now we have turned them all off. It is time to make a rational decision and not an emotional decision which is hard to do. Trading is not easy.
Let us know what you would like for us to do.
I have been asked a few times where I expect we will see the euro drop to. I really won't know that for sure until we get there in real time. What I will look for will be oversold indicators and a swing low. There are some targets however that I think we should reach before that happens.
Remember, we are cycle traders and today is the first day of a new cycle we think. As cycle traders we are contrarians meaning we like to do the opposite of what most traders are doing. We do need a trending move to be successful but we want to be in at the beginning of the move.
Regression to the mean is the bread and butter of most professional traders. When you have a strong cyclical move like the decline that pushes price to extreme levels such as we just had with the dollar you should expect a counter move which brings price back to average. Think of it like a rubber band being stretched. At some point the natural thing for it to do is to release the energy which was created and come back to it's natural state.
I think there are two likely scenarios. First, there is a previous area of congestion where the euro could fall to which is shaded. There is also the 200 day moving average. My best guess is we will see the euro drop to the bottom of that congestion area, and by the end of the month the 200 day moving average could be about in the same spot. This would give us around a $6-7000 gain on the trade.
The Speculation page is used for educational purposes and to talk about our opinion on trades and what is going on in the market. All trade recommendations are made in "The Pit". This is also a blog page where you can ask questions, post your thoughts, or ask for help. Be sure to use an anonymous name. If you have any questions feel free to reach out to us via email.