The ECB ABS Program Trading Opportunities 2014-2015

The ECB ABS Program Details

The European Central Bank (ECB) surprised the market by introducing new Quantitative Easing measures (QE) in the form of Asset-Backed Securities (ABS).  Mario Draghi, the chairman of the ECB confirmed more details on the ABS program (QE) will be revealed in October, leaving the market’s top analysts to flood the media with their outlooks and expectations from the ABS program. We have, however, failed to find the trading opportunities that may arise as a result of the ECB actions.

Although little has been revealed, it is no secret the ECB hired BlackRock Inc. services to construct the ABS program. Early estimations suggest the size of the QE may exceed EUR 500 billion in an attempt to boost stuttering economies and regain the lost confidence of global investors. We are certain central banks have studied the Great Depression and understand the US central bank at the time failed to introduce any forms of QE measures to boost the economy and instead decided to drain Germany, which we know has led to the rise of Hitler. Ben Bernanke aggressive actions revived the US markets and prevented the great depression from repeating itself in our era. It is debated whether the Fed bond-purchasing program, which is being reduced on a monthly basis since Yellen took over has indeed revived the ill-markets. A fact no one can argue with are the current levels of the DJ30, NASDAQ100 and SP500.

As crude as it may sound, the aim of QE measures is to support the banking sector, which may hopefully spill over to the private sector. In simple words, global investors  that capitalize over the upcoming QE may achieve a decent Return on Investment (ROI) within the next 6 months. One of the fundamental obstacles global investors must be wary of is the European Stress test results where over 120 banks will be tested will hypothetical scenarios in order to determine whether banks can survive an economic downturn.

In our special report we would like to cover the Foreign Exchange market, Stocks, Indices and ETF’s ahead of the ECB QE measures, We will be using the monthly/weekly chart to provide long to medium-term projections via technical analysis.

Credit Agricole Technical Analysis

Credit Agricole monthly chart shows the stock has been firmly on the rise since June 2012.  The recent dip painted a left-hand shoulder of the reversed Head-And-Shoulders (H&S) reversal pattern. The bullish entry was missed as the price is edging higher towards the neckline of the reversal pattern with no imminent breakout at the time of this writing. In order to join the established uptrend, a breakout must be affirmed on the monthly close and a re-test of the breached neckline is required in order to provide a decent entry into the stock. The re-test is essential as it will eliminate the possibility of a false breakout, allowing to layer the protective stop loss order beneath neckline.

Credit Agricole Monthly Chart

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Credit Agricole Trading Strategy 14/09/14

Credit Agricole Monthly Chart 14/09/14

 What also contributes to our bullish projection for Credit Agricole are the monthly moving averages. The 21MA (in black) is threatening to cross the 55MA (in purple), a signal that our concrete our bullish outlook.  Despite the recent probe into the bank for violating sanctions and conducting business with Iran, if a breakout will be confirmed the expected gains may be inevitable, possibly due to the ECB ABS program that will boost the banking sector. The initial target is seen at 15.65 with a fair possibility of reaching 17.80 (50% Fibonacci retracement).

We would also like to highlight a possible entry via the 4hr chart. We note the risk for a bullish flag due to the tight price range for several sessions. A firm break above 12.00 may pave the way for further gains, which may allow to join the monthly trend via a 4hr entry, which may also substantially reduce the protective stop loss order.

Gold (XAU/USD) Technical Analysis

Gold has been suffering from heavy losses since Cyprus was bailed out as EU officials warned the Central bank’s gold reserves liquidation may act as a template for future EU bailouts. We have unsuccessfully attempted to locate the reversal point of gold in the past and we believe current levels may provide us with another decent entry. There is a strong possibility for reversed H&S on the monthly chart, supported by a minor positive divergence in the monthly chart.

Gold Monthly Chart

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Gold Trading Strategy 14/09/14

Gold Monthly Chart 14/09/14

 Near-term risks such as the Fed monetary policy meeting and Scotland referendum for Independence are expected to have a great impact on the safe-haven commodity. In light Mario Draghi’s actions to tame the Euro we wonder if the Fed will temporarily halt or reduce of the pace of its QE tapering. Of course, in such a scenario the US Dollar will be heavily sold across the board, boosting the yellow metal. We cannot predetermine this will be the outcome of the Fed monetary policy meeting but from a technical angle moderate gains are expected. Key support is noted at 1,216, which we expect to contain any further weakness. Our bullish target based on our technical models is seen at 1,429.

Societe Generale Technical Analysis

Societe Generale found comfort on the 21MA (in orange), containing the weakness of the bearish dip. 33.17 represents the levelling of the shoulders of the reversed H&S pattern, indicating the gains may continue to neckline at 54.10.

Societe Generale Monthly Chart

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Societe Generale Technical Strategy 14/09/14

Societe Generale Monthly Chart 14/09/14

 Upon a monthly break of the neckline may expose the stock to the market bulls, driving the price towards 83.00, which is our bullish target for the stock. We believe the ECB QE will be the key fundamental trigger for the expected rallies in Societe Generale.

Similar to Credit Agricole. a possible bullish flag is being painted in the 4hr chart where 45.18 is the key resistance. A firm break above 45.18 may encourage further gains, which could very well act as an intraday entry to the monthly trend. Trading on a monthly chart requires placing the protective stop loss order below the 21MA. Attempting to capitalize over the intraday entry will require a stop below 39.90 based on the 4hr chart.

GDX ETF Technical Analysis

Market Vectors Gold Miners Exchange-Traded Funds (ETF) monthly chart presents a decent entry for a long-term trade. Similar to our prior trading strategies, reversed H&S is constructing the bullish path for GDX ETF. Although the optimal scenario is a monthly re-test of 23.02, if the left-hand shoulder will be painted by the monthly close it may provide a long-term entry, targeting 31.30. Upon the confirmation of the reversal pattern, gains are expected to target the neckline (in blue), 26.00. When the neckline is breached, the yellow-brick road is paved towards 39.00.

GDX ETF Monthly Chart

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GDX Technical Strategy 14/09/14

GDX ETF Monthly Chart 14/09/14

 The upcoming Fed monetary policy on Wednesday is seen as the near-term fundamental risk to GDX.  There is no intraday entry to the GDX unless the market gaps lower on the opening and re-tests 23.02.  The other alternative for an immediate entry, which currently we do not suggest due to the high exposure is to execute the long trade at market price, layering the protective stop loss order below 23.02.

AUDUSD Technical Analysis

The Australian Dollar (AUD) was heavily sold across in the Forex market against a basket of currencies. Our initial expectations were further losses as a rate cut by the Reserve Bank od Australia (RBA) is not overruled and possible budgetary cuts, but the monthly chart states otherwise by painting a possible reversed H&S.

AUDUSD Monthly Chart

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AUDUSD Technical Strategy 14/09/14

AUDUSD Monthly Chart 14/09/14

 The key support is seen at 0.8890. The price must near 0.8890 or re-test the support level in order to ensure its credibility. Under such circumstances we would expect the Aussie to correct higher towards the reversal pattern’s neckline (0.9560), where a firm breakout paves the way for further gains towards 1.0330, which is seen as the 100% objective target of the reversed H&S). The 21MA (in pink) is acting as the nearest resistance, currently at 0.9402.

A 4hr entry may be possible upon the opening of FX markets but it is intertwined with a great risk. No noted support is seen at current levels aside a weak reversal pattern on the 4hr chart, which we are uncertain whether it should be capitalized on. When the Foreign Exchange market opens we will review all AUD pairs and crosses and determine whether we have a decent intraday entry. Despite the tight stop loss there is a fair possibility of the trade being stopped out before any profit can be realized. The main AUD currency pairs we are focusing on aside Aussie-Dollar are GBPAUD and AUDCHF.

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Last Updated on May 16, 2015