Carry Traders Rejoice

I keep telling you guys that the news don’t matter. Which doesn’t mean they can’t spike the tape for a few hours – but if you trade on that time scale you’re either a pro and have the inside track or chances are you usually find yourself on Lester’s side of the trade (don’t ask).

Let’s talk about the Dollar – as gmak pointed out this morning, its inverse correlation relative to equities is holding up well and although we don’t trade correlations it’s clear right now that a rising buck presents a headwind for bulltards. So, I wasn’t surprised to see a drop in the DXY this morning after the Greek bailout news made its rounds.

The chicken hawks are ready to buy the dip and the bears should look towards the DXY (or EURUSD) for clues as to whether this is just the completion of an Minuette c wave (i.e. Soylent Orange) or the beginning of a Minor 2 retracement (i.e. Soylent Blue). Well, let’s consult 2sweeties’ DXY oracle – as usual courtesy of retracementlevels.com – I recommend you go and check out the wide selection of statistical trading tools available.

Rule #1 is that we must not breach 78.45, which is the top of Minor wave 1, according to my current count. If we do then it’s back to the ole’ drawing board.

There was no daily long RL right above 78.45, which is why I cheated and set the 100% mark at 78.386. It’s not that I wouldn’t expect a bounce there – it’s just that I probably would not want to go long for more than a day as my wave count would not be clear. Again, if you don’t put any stock in EWT then just ignore this bias and trade what you see according to your own system.

As you can tell the odds are not too great until about 79.171, so it’s possible we drop into tomorrow – be cautious and set your stops if you go long at 79.656. Again, this is assuming you use stops – 2sweeties does not and instead adds positions on the next long RL. For more details I strongly recommend you go and peruse his tutorials – it’s a different trading system than what I’m doing. It’s working fine for 2sweeties and if you have the discipline and the capital it might work for you.

The frequency tab is a bit more accommodating. I see a high frequency of support starting at 79.65 all the way through 78.38. 16% is a strong reading and if you combine the roughly 80% odds at 79.171 with close to 16% frequency I’d say that it’s reasonable to assume a bounce there. IT BETTER! Because if it fails that mark the Dollar bulls (i.e. equity bears) could be in a world of hurt. I’m talking Soylent Green here – not Soylent Blue (see my Sunday analysis for details on this).

Alright – hope this helps my stainless steel rats – always remember that Rome wasn’t built in one day. Give it time – expect snap backs – follow your charts/systems. BE DISCIPLINED – don’t let your bias go in the way of your trading – I know it’s hard and I keep telling that myself on a daily basis.

Cheers,

Mole

P.S.: Thanks for gmak for whipping out a post this morning – really appreciate that considering you are fighting off the Hantavirus and H1N1 at the same time.

This entry was posted on Tuesday, February 9th, 2010 at 4:25 pm and is filed under Currencies, Elliott Wave Theory, Retracement Levels. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.