The Local's Take: Late Day Commentary

Unemployment Number (all times Eastern)

The Local's Take: Year End Commentary and a Peak Ahead, Forex Style

Good afternoon Traders and Investors,

What goes down stays down. That has been the story for the dollar in 2009.
Now if we could get a storm over the Wasatch to stay on track and stall out, that would be just perfect. The holidays are ending, tourists are leaving and January still has short enough days where the sun doesn't spoil the snow too quickly.

No, the Head Local won't give you any weather predictions here or tell you his favorite spots in the Deer Valley trees.

If you were able to catch the move and understand it and you added to your commodity portfolio, well, you had a very good year Mr/Mrs. Trader.

Yes, the dollar was weak. If you think about it, all Central Banks weakened their currencies in order to stimulate their respective economies. Why then did the dollar weaken compared to the other currencies when all were devalued?

Maybe it is a blessing in disguise. When markets rally, the dollar weakens. The opposite occurs when markets crash - in the past the dollar has strengthened. In time of need, rely on Uncle Sam.

Will that continue to be the case if the markets deteriorate as the global economy goes into 2010?

Lots of questions will be answered as traders bring the markets back to life after the "Holiday" break. If the equity market rallies, overall volatility stays low and it will be the "grind it out trader" who plugs away each day. If the equity markets swoon due to any number of events, then the disciplined trader will have to quickly adapt to wider spreads and wider ATR's.

Notice that I am NOT making any predictions. I am not an investor in the forex markets and thus don't really care where the currencies go, as long as they go. Also, in order to sleep at night, I RARELY hold open positions going into the close. Therefore, it isn't important to "call" the markets for 2010, but understanding the big picture always helps in intraday trading.

Let's take a quick peak at a longer dated chart:
I only posted one chart as any currency related to the dollar is going to look fairly similar.

This look at the GBP/USD on a daily timeframe gives us a great view of the strengthening dollar during the economic freefall and then the weakening dollar during the economic recovery.

BUT, there is a divergence - the equity markets have leaked higher over the past month and the dollar has strengthened.

• Is it a small correction in a bigger downmove in the dollar?
• Is it a sign that the equity markets are overbought and buyers of the dollar are preparing for a downmove in equities?
• Is it fear that the Bernanke and the Fed will raise rates?

As I mentioned, I don't care as I am not investing long term in any specific cross pair. We will get new information in the markets to help us disseminate some of the questions I pose above.

The bottom line is, wether you are an intraday trader or an investor, you have to pick your spots and have money/risk management as things can change in a hurry.

If the past 2 years are any indication, change seems to be on the horizon and for traders, change is good!

Happy Trading and Be Environmentally Cool with Locals Have More Fun Apparel

The Local''s Take: Mid-Day Forex Setup

Good Morning Traders and Investors,

Yes, I played hooky yesterday to take advantage of the Wasatch powder. Locals Have More Fun right? It wasn't as light as usual as temps went from -11 early in the week to the high-20's, but still a great day on the mountain. I gave my wife a "practice" mountain tour, which included her digging out of heavy powder "somewhere" in the trees.

Seemed like a pretty good day to take off as the forex markets were sideways as we get closer to more economic data (PPI this morning a non-event) and the Fed tomorrow (a BIG event!).

Today already provided one DOUBLE FALL LINE trade as the dollar showed early strength (on the back of weaker equities in Asia and Europe).

As far as longer term setups, the EUR/USD has weakened substantially and has now found the first retracement level at23.6% If the trend in the dollar continues to be weak, this may provide a point of support. None of the other currencies have weakened against the dollar this substantially:

A bonus chart - USO retraced significantly over the past few weeks and with oil prices depressed to just under $70.00, seems like oil and hence USO is catching a little bit of a bid:

Happy Trading and Be Environmentally Cool

The Local's Take: Evening Commentary

Good Evening Traders and Investors,

Twenty inches of heavy snow due to higher temps - but hey, we will take it. It is supposed to keep snowing so it may be a half day tomorrow!! Looking at the week ahead, we have the Fed meeting on Wednesday, so it could be un-interesting trading anyways. Got to get the snow while it is good!

Let's take a look at the overall markets - using the charts of the ETF's to see if we can find any interesting insights.

As you can see, the broad markets are showing a strong uptrend since March. Over the past few months we have been relatively sideways (COVERED CALLS!). NOTE: the trend hasn't changed - we are still making higher highs and higher lows, but right now we are in a consolidation phase. The key to remember is we are NOT going down. The closer we stay to the highs, the better chance we have of busting through to the upside.

It is the old 3 steps up, 1 step down theory. You can also see the downmoves have retraced very little of the upmoves. That means more buyers than sellers - meaning strength.

A number of things can change this including rhetoric from the Fed, so make sure you read the statement on Monday.

Happy Trading and Be Environmentally Cool

Brian

The Local's Take: Mid-Day Forex Setup

Good Morning Traders and Investors,

Finally!!!

The currencies broke out and had an above average range. Meaning the daily average true range was bigger than the past week or so which provided some great retracement trades. It all started with the USD/CHF and ended with the USD/CAD

I would have updated this earlier, but just finished getting out of a late day USD/CAD BUFFALO BOUNCE!

Let's go to the charts:

The AUD/USD came close as well!

The bottom line, a sound trading plan and discipline and PATIENCE will lead you to be profitable in these markets. I waited all week for the setups and they finally came. As I mentioned on Sunday, I was pretty confident that either Thursday or Friday would be decent if we had economic data that moved us. I am not sure if it was the economic data or pent up demand for volatility, but either way, HALLELUJAH!

If the trade didn't materialize, well it would be off to the St Regis for apres ski lunch and drinks with friends - to be a local!

Happy Trading and Be Environmentally Cool

Brian

The Local's Take: Morning Commentary

Good Morning Traders and Investors,

Can you say diversion?

Let's take a look at a chart of USO, where it has corrected pretty severly over the past week.

Now let't take a look at some stocks in the "commodity" sector:

You can also look at X and FCX - these stocks are at or near highs, yet energy is getting killed! Even BP and COP are only down 6-7%, whereas USO is down over 14% from its recent high.

Is there a buying point at the "line of death" in USO around 35 or are the aforementioned stocks ready to fail and make lower highs/go sideways?

Heading to the St. Regis for some apres, even though I am not skiing??

Locals Have More Fun is also looking for "street reps" to sell our clothing during our summer event schedule. Please contact us from our site if you are interested!

Oh yeah, pray for snow!

Happy Trading and Be Environmentally Cool

Brian

The Local's Take: Evening Forex Setup

Good Evening Traders and Investors,

The Steelers are very likely to go to 7-6 tonight against the lowly Brownies (thanks Myron Cope) and snow is in the forecast for the Wasatch range. BUT that doesn’t help the volatility over the past few days.

Pretty quiet, BUT we have retail sales (snails) tomorrow and maybe it can be an outlier (miss analyst expectations) and give us some movement prior to the close. Keep in mind Friday’s can be a “1/2 day” in the markets and if the number is a dud, no one is going to hang around trading when there is “holiday fever” and honey-do’s to do before the in-laws come in!

Most of the majors were in tight ranges and didn’t provide much, but there were two DOUBLE FALL LINE TRADES:

1. The USD/CAD
2. The USD/CHF

Let's hope for one or two good trades before the weekend and the 16″ of Utah powder they are calling for!

I will be posting an early morning market commentary and a mid-day forex update so until tomorrow:

Happy Trading and Be Environmentally Cool!

Brian

The Local;s Take: Evening Forex Setup

Good Evening Traders and Investors,

I am thawing out after a long day on the hill. It was negative 4 when I drove to the mountain and we reached a daytime high of 14 degrees. At least there wasn't any wind! Mother nature has not been kind to us yet, but the excellent snowmaking and grooming teams at Deer Valley have a great number of runs in top shape.

Just like mother nature is taking her sweet time to arrive, it seems as if volatility is taking its annual December hiatus. I know there are moves out there, but the volume and liquidity is dying off, so BE CAREFUL.

Back in Chicago, my trading firm shut down for 3 weeks. Why? Because the entire world is on vacation. Now don't get me wrong, if something causes volatility, the traders will return, but there needs to be a catalyst. So if there isn't a catalyst, don't try to force things.

If you had a great year, you are somewhere warm with the guys or with the family. If you had a bad year, you hope next year is better, but you definitely aren't going to try to get it all back in late December!

So that is the trading psychology lesson for the month. On to the charts:

As I mentioned in last evenings blog, we are at a pretty crucial area of support for the GBP. If the equity markets cracked, so would the support level. What did the equities do today in the US? We were up 1/2 percent in the DOW.

The GBP flirted through support and came back and closed above. And the dollar to equity relationship continues...

Happy Trading and Be Environmentally Cool!

Brian

Ho Hum into November Options Expiration

Good Morning Traders and Investors,

Futures were down about a 1/2 percent from yesterday's close, but alas, we opened pretty much flat and without any data ahead of a shortened week, the trading looks lackluster at best.

As I mentioned yesterday in "The Holiday Setup", bearish to neutral going into the holidays with tight stops, using the $SPX highs at $1120 as an exit strategy. This also provides the opportunity to "cover" your portfolio or at least "sleep at night" if you have covered calls and/or married puts.

I could sleep a lot better at night if there was snow in the forecast! I know it is early, but we only get 4 months of it, so let is snow December through March and I don't think anyone should complain.

Speaking of complaining, if you put $100.00 in your savings account one year ago and pulled it out exactly a year later, you would earn a quarter. A QUARTER! The dollar is weak, BUT it is showing signs of a bottom - I am not saying it has hit its lows, but from a traders perspective, look at it against the GPB - it has come back down below its breakout level. Against the EUR, it is sitting on a trendline connecting the lows of the upmove from MARCH. Same with the AUD and it already broke that trendline on the NZD. The USD/CAD broke that trendline and is now using it as SUPPORT! The CHF is on the trendline.

SO, does this signal a shorting opportunity in equities and a long opportunity in the dollar. If you are right, double gains, if wrong, small loss. That is what trading is all about!

Happy Trading and Be Environmentally Cool

Park City Trading/Investing Club and The Holiday Setup

Hello Traders and Investors,

A big thank you and congratulations are in order to the Park City Trading/Investing Club - we had close to twenty members (free membership) show up to discuss short and long term opportunities.

Now if we could see 20 inches on the ground of light, fluffy snow, we would be in business!!

The markets are "cooling off" as we head into options expiration tomorrow. After 9 months of consistent gains, I warned about increasing volatility (bear markets) heading into options expiration - will we finish the week down? It has been rare as options expiration week typically trades in the direction of the trend and the trend as we all know (whether we like it or not) has been up.

Economic data has been flat (see initial claims) and Philly Fed and some data has been weak - see housing data. After 8 of 9 higher closes in $SPX, maybe an oversold level going into the weekend and next week's Holiday is enough for bears to be in control for a little. BUT, as I have written, the trend is still UP until we have a failure in sequence.

The dollar is a little stronger (holding the lows and making higher lows or double tops/bottoms against most crosses - see USD/CAD, EUR/USD, NZD, USD

I would have to be bearish to neutral if I were carrying trades overnight and into the holiday week with stops at old highs in the $SPX

Happy Trading and Be Environmentally Cool

More of the Same

Good Morning Traders,

Just as the 10 day forecast is bleak for snow here in Park City, it looks like another week of options expiration will go out WITHOUT A BANG. I am still pricing in a slight chance of a severe market correction in a short time.

The reasons:

• Since March (9 months) we have been higher than the previous month and we have options expiring on Friday
  

• At option expiration volatility can pick up
  

• Cheap protection! Buying puts to protect your portfolio/positions are very, very CHEAP

The market has been steady and yesterday the $SPX hit a new high, breaking through key resistance at 1100.00. The trend is still in tact until we have a significant pullback and fail to make a new high (lower high or double top or other pattern) as there doesn't seem to be a fundamental shift in sentiment or policy (see Bernanke's comments yesterday).

We have retraced over 50% of the downmove starting in 2007 and with the current trend, a 62% retracement seems likely - putting the $SPX closer to 1200 - quite impressive if you remember where we were about a year ago. PANIC was in the streets.

Have fundamentals changed that much? Is it time to start taking profits off the table (see commodity gains such as VALE or tech gains such as AAPL!) and start to get a little bit neutral with good risk management? Many stocks have gained over 100% in less than a year!

Remember, any investment or trade needs to have reasons for entry, reasons for a stop/target and management throughout.

Happy Trading and Be Environmentally Cool