The Bigger Picture

Good morning, Friends. Our trading here is driven by the methods taught by Todd Mitchell, which are based on his solid understanding of technical analysis, and of the behavior of traders. I keep an eye on the news, because that’s part of my job, and on flows, because I can, but I keep coming back to the chart set-ups that I learned here at TradingConcepts, particularly when the going gets tough. 

With that in mind, the foreign exchange market has probably become a little too one way in EUR/USD, to the point where good news is likely to generate a fairly strong countertrend move. This morning, the European Central Bank has been an aggressive buyer of “peripheral” sovereign bonds, those of Italy and Spain in particular, and this is in turn generating a move higher for the Euro. This should aid a recovery in our equities.

Most of the people here trade futures from the 3-minute charts, which I also enjoy, when I’m able to partake. At the same time, it’s helpful to have a sense of where significant levels are on the longer-term charts. At the moment, on the daily chart of the SPX, good support seems likely to come in around 1210. On top, a trend line comes in around 1260 today. Both of these levels are fairly distant, but could conceivably come into play later. It’s worth noting that despite a lot of gloom and doom, the SPX in this time frame remains in an uptrend, although the inability to retest the recent high at 1243.97 is a concern.

It’s worth keeping half an eye on a chart of EUR/USD, as U.S. equities have tended to follow it very closely of late. Best of luck.

P.S. It’s after the close now, and the Euro ultimately had a pretty tough day, as did stocks. The latter reached support, briefly breaking 1210 before bouncing back on what appeared to be no more than end of day short covering. Both the European situation and the likelihood that the Congressional committee charged with coming up with consensus budget cuts will instead come up empty are making gains tough. I agree with Todd that seasonally we should be looking for a rally, but it’s also not a time of year when money managers are going to stay with trades that aren’t working. We’ll see how it plays out, and whether the trend manages to keep pointing long or changes to the short side, we have the tools to play it successfully.

About the Author Brian Keith


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