A Major Event is Looming
After a firm opening in May 2015 we note the market is preparing for a major event event and we find it difficult to believe it is Greece. After analyzing the major European indices it appears recent gains are merely corrective before a bearish trend reversal will emerge. We are aware the Eurogroup meeting is due tomorrow but we also recall one of the EU members statements from the past week that no deal is expected with Greece on 11 May meeting.
In the Foreign Exchange market (Forex) our analysis is inconclusive. It appears that the New Zealand Dollar (NZD) and the Australian DOllar (AUD) are due for moderate gains, which may suggest safe-haven flows. We are aware that both central banks warned the current exchange rate of the currencies (NZD and AUD) is high and will not hesitate to intervene if necessary. We will therefore avoid shorting those currencies until further clarity is provided. Should a risk event emerge in the market the Japanese yen (JPY) tends to enjoy safe-haven flows. We are already holding a short trade in CADJPY and we are beginning to notice multiple entries that suggest a strong JPY in the Forex market. Our main concern about increasing our exposure to JPY is the required stop loss order, which at the time of this writing is likely to exceed +200 pips.
In regards to European indices, multiple short entries are being painted in DAX30, FTSE100, SPMIB40, CAC40 and Nikeei225. It is likely that the expected fallout will spill over to US equities, which will force the Dow (DJ30) and SP500 off their current levels. A tight stop loss order in the indices is unlikely as these are not intraday entries. Whatever the event is we expect it to have a major impact on multiple markets. It is early to conclude whether this will be a short-term event or a long-lasting effect on the market but we will attempt to capitalize over it.
One of the events that could trigger moderate losses in the leading indices and strengthen the Japanese yen in the Forex market is if one of the leading credit rating agencies, Fitch, Moody’s or Standard & Poor’s (S&P) downgrade China, which has been speculated by the market in recent months. Such an event however is unlikely to strengthen AUD and NZD but we should highlight that the People’s Bank of China (PBOC) slashed rates today by 25bps.
CAC40 Technical Analysis
We will begin our technical analysis with the CAC40.
CAC40 Daily Chart
Please click on the chart to enlarge:
CAC40 Daily Chart, 10/05/15
Before we explain our the reason for our bearish outlook for the CAC40 it is important to note the entry is provided on the monthly chart and we are simply attempting to enter through the daily chart in order to reduce the stop loss order. Recent gains have painted the right hand shoulder of a classic top Head-And-Shoulders (H&S). We highlighted on the chart the initial resistance level at 5,109 and the latter resistance at 5,146, which is firmed by the 21 Daily Moving Average (21DMA). At the time of this writing it is likely for the price to re-test 5,146 before trading lower. Regardless whether a re-test takes place or not the protective stop must be layered above 5,146. Had this been a monthly entry the stop should have placed above 5,285.
Our target is fairly conservative and we are comfortable with that. The entry price and stop loss order will be issued at the opening of the European markets on Monday morning. You will be notified via email and it will also be updated on this page.
CAC40 Trade Alert Details
Entry: To be updated on Monday morning
Take profit: 4,730
Protective stop: To be updated on Monday morning
Risk Ratio (RR): To be updated on Monday morning
Estimated duration: 21 days
FTSE100 Technical Analysis
Despite recent gains as a result of the UK elections (in which we have anticipated in the prior weekly update) the FTSE100 is also at a moderate risk of being affected by this major event we are foreseeing.
FTSE100 Daily Chart
Please click on the chart to enlarge:
FTSE 100 Daily Chart, 10/05/15
Unlike the CAC40 a strong resistance is noted at 7,058. Failure to close above may initiate the downtrend we are expecting from the index. It is important to highlight that the Bank of England (BOE) monetary policy will take place tomorrow, which is an event we must bear in mind. Similar to the CAC40 we choose to remain conservative with our take profit for the FTSE100. We are expecting a fierce battle should the price reach the 100DMA (in green).
FTSE100 Trade Details
Entry: market price 7,056
Take profit: 6,675
Protective stop: 7,120
Risk Ratio (RR): 1 : 5 (approx.)
Estimated duration: 21 days
We also have entries for the DAX30 and SPMIB40, however, we are unlikely to short all indices as it is unnecessary to have such a great exposure. Should we prefer shorting the DAX30 or SMIB40 we will outline our trading strategy with the trade alert’s details.
Dow Jones 30 Technical Analysis
The Dow is the only index that allows a relatively tight stop but from our experience it posses the greatest threat. Please read our prior approach to shorting the DJ30 in 2014.
DJ30 Daily Chart
Please click on the chart to enlarge:
Dow Jones 30 Daily Chart, 10/05/15
Please also note DJ30 weekly chart to note the resistance level at 18.272. Layering the stop simply above the resistance is unwise based on our experience. The price may reach 18,320 to take out the weak stops and possibly encourage fresh money into the index before reversing lower. In order for us to take the trade we would prefer a gap higher that will draw the DJ30 near 18,272 that will substantially reduce our stop loss order and enhance the Risk Ratio (RR) of the trade.
The target for the short trade is seen at 17,030. The entry and exact location of the stop will be determined at the opening of the markets tonight at 22:00 GMT.
DJ30 Trade Details
Entry: short at market price (17,177)
Take profit: 17,030
Protective stop: 17,457
Risk Ratio (RR): 1 : 5 (approx,)
Estimated duration: 21 days
USDJPY Technical Analysis
This may initially appear as an odd entry. The reason why we are opting for USDJPY is to reduce the rollover costs and to have a relatively tight stop when compared to GBPJPY for example.
USDJPY Daily Chart
Please click on the chart to enlarge:
USDJPY Daily Chart, 10/05/15
There are multiple resistance levels in Dollar-yen when observed via intraday time frames. We are focusing on 120.78 and 121.72. The best scenario is a re-test of 120.78, we would allow us to layer the stop above 121.72. However, it is possible USDJPY bearish slide would begin before such re-test takes place. We will determine our entry when the Forex market opens tonight.
USDJPY Trade Details
Entry: at market price (119.74)
Take profit: 115.65
Protective stop: 121.03
Risk Ratio (RR): 1 : 3 (approx.)
Estimated duration: 21 days
An email was sent to all subscribers notifying them of the trade alerts’ details.
11/05/15 UPDATE: FTSE100 is trading at 7,020 at the time of this writing.
FTSE100 Daily Chart 11 May 2015
Please click on the chart to enlarge:
FTSE100 Daily Chart, 11/05/15
We are closing 10% of the short trade at market price. DJ30 is also in a fair profit, trading at 18,139 at the time of this writing. We are not taking any action in DJ30 .
12/05/15 UPDATE: Our decision to wait for the DJ30 to retrace lower has paid off. The Dow is trading at 18,027 at the time of this of this writing, ensuring the short trade is in over +100 points.
DJ30 4hr Chart 12 May 2015
Please click on the chart to enlarge:
Dj30 4hr Chart, 12/05/15
We are closing 20% of the short trade at market price.
12/05/15 UPDATE II: The FTSE100 is trading at 6,957. We are closing 20% of the short trade at market price and shift the protective stop to the entry as a sufficient distance was gained from the market.
12/05/15 UPDATE III: The selling in the FTSE100 continues, trading at 6,887 at the time of this writing.
FTSE100 Daily Chart 12 May 2015
Please click on the chart to enlarge:
FTSE100 Current Daily Chart, 12/05/15
We are closing 10% of the short trade at market price.
12/05/15 UPDATE IV: The Dow is trading at 17,966 at the time of this writing. We are closing 20% of the short trade at market price and shift the protective stop to the entry.
13/05/15 UPDATE: USDJPY is trading at 119.26 at the time of this writing following a strong USD weakness in the Forex market.
USDJPY Daily Chart 13 May 2015
Please click on the chart to enlarge:
USDJPY Daily Chart, 13/05/15
We are closing 10% of the short trade at market price.
17/05/15 UPDATE: DJ30 triggered the protective stop at the entry. We were able to realize a fair profit out of the short trade. We are monitoring our short trades in the FTSE100 and USDJPY and currently have no reason to deviate from our projections for these instruments.
24/05/15 UPDATE: FTSE100 triggered the protective stop at the entry but we were able to realize a decent profit over the short trade. In regards to USDJPY, our protective stop was triggered, incurring a loss. We were able to downsize the exposure by closing partials with a minor profit.
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Last Updated on May 30, 2015