Trading Strategies in DJ30, SP500 and Gold Ahead of the Greek Elections

Greece Presidential Elections 2014

As we have expressed in the weekly market update, Greece is expected to play a major role in the upcoming risk aversion event. Anotonis Samaras, the Greek Prime Minster (PM) was forced to reschedule the presidential elections by several months to please Greece’s creditors. It is essential to boost the country’s confidence amongst its investors if it wishes to survive through its everlasting  financial turmoil, which is why it is important the ruling party is successfully able to place its nominee, Stavros Dimas, as a President.

The Greek Parliament consists of 300 members. The President is elected through the Parliament member’s votes rather than public elections. 200 votes are required in order to affirm Stavros Dimas as the next President of Greece. If a majority is not obtained, a second vote takes place at a later date. Should no majority will be maintained the second time, a third vote is held where only 180 votes are required instead of the 200. Unlike a regular vote, please note the MP’s do not vote YES or no NO but simply require to be present at the call.

Watch the Greece Elections Live Broadcast

The vote will begin at 10:00am GMT on Monday, 29 December, 2014. We were able to find a live broadcast of the vote. The vote will dictate the outcome of our trades in the market.

ΠΑΡΩΝ means “present,” which is against the new President to our understanding.

CORECTION: We are uncertain if we transacted the term correctly but Greece has rejected the new President. Samaras will hold a meeting at 12:00pm GMT.

CORRECTION II: Samaras required 180 votes, which were not achieved. We have translated the word correctly.

29/12/14 UPDATE, 11:03am GMT: The vote is over. The TV channel below continues to cover the voting results, which we had expected in our trading strategy.

(the video has been removed as the voting is over)

Risk Aversion Event

Under an event where the leading party is unable to secure a majority of 180 votes for its candidate for Presidency, the parliament is dissolved within ten days and a date for parliamentary elections will be scheduled, often referred to as snap elections.

The current ruling party in the Greek government, New Democracy (ND), had to bypass two elections in 2012 in order to reign the Hellenic Republic. There are only 129 members of the New Democracy in the Parliament. ND have joined forces with the Panhellnic Socialist Movement (known as PASOK) that currently have 33 members in Parliament. In total, there are 162 potential  votes that are likely to favour the new President, 18 members short of the minimum requirement for the third vote should it materialize at the end of December.

The first vote in case you missed it took place on Wednesday, 17 December, 2014.  155 votes were from ND and PASOK  plus 5 members from other parties, far short from the 200 threshold. The second vote will take place on the 23 December, 2014 in midday where 200 votes are still required.  Failure to secure enough votes for the new President will drag Greece into the third and last vote on 29 December. If  180 votes  will be unachieved we are heading into general elections at the beginning of 2015,

There is a great concern ND will not succeed in electing their candidate, which will result in snap elections at the beginning of 2015. However, we will cautiously say we do not believe snap elections will take place. It does make great headlines but the complexity of the matter states otherwise.

Political Games

ND and PASOK do not have a choice but to collaborate with their rivals to secure a vote. We are certain the opposition sensed the distress of the Prime Minister, paving room for political games. Samaras proposed to forward the legislative election as early as next fall (from June 2016) if return for passing the new President. We expect public and secretive negotiations to take place to allow a safe passage to Presidency in the next votes. We are almost certain Samara’s arm will be twisted by his rivals and he is likely to face no choice in accepting the terms for the benefit of the Greek nation.

Being the Prime Minister, Samaras does have a small leverage over one of the most radical parties in Greece, ‘Golden Dawn.’ Golden dawn party general secretary Nikos Michaloliakos, Christos Pappas (second in command) and other members of the party are due to face trial at the beginning of 2015 for the murder of Pavlos Fyssas (a singer known in Greece as Killah P) in September 2013. Golden Dawn members are charged for forming a criminal organization although the party has denied it the accusations and stated the murder was an action of one man and not the entire party. On the 17 December, the court appealed Golden Dawn’s to attend the parliamentary vote for the day before being returned to prison.

Political Leverage

The taste of freedom Golden Dawn’s members enjoyed although for a brief moment may be capitalized on by Samaras as a last resort option to prevent snap elections in 2015. There is a strong possibility Golden Dawn imprisoned members are offered freedom by dropping the criminal charges (aside Giorgos Roupakias which is accounted for the murder) in exchange for voting with the New Democracy and PASOK. Under such circumstances if they indeed materialize, Golden Dawn may either risk imprisonment for their beliefs or ‘temporarily’ trash their cause to escape a harsh sentence. We don’t see the MP’s refusing to the taste of freedom. To play the political game, the second vote on 23 December will most likely be rejected even if an agreement has been made and it will all be down to the last vote on 29 December, 2014. The reason this game must be played is to boast to the party’s voters that they are (or were) not easily turned.

If Samaras manages to have Golden Dawn in his pocket, political arrangements with other parties (aside Syriza that stated they will not vote with ND and PASOK) are likely to bade made to ensure a sufficient majority for the President.

The Speculation that Drove the Indices Higher

We have studied the markets and believe it is time to execute short trades in the indices following Thursday’s rally. As we have explained in the streaming market news, the Swiss National Bank (SNB) slashed its interest rate to -25bps (-0.25%). The negative rates will be effective as of 22 January, 2015., the same date the European Central Bank (ECB) will hold its monetary policy meeting. It has been speculated the SNB will join the ECB should it decide to expand the QE into sovereign bonds to protect the 1.2000 floor in EURCHF.

The fact the SNB chose the rate cut to take place on the same day the ECB convenes fuelled speculations Mario Draghi, the ECB Chairman will go ahead with the QE at the beginning of 2015. The speculations triggered heavy selling in EUR pairs and crosses in the Forex market while global indices such as the SP500 benefited from moderate gains. Traders are yet to price in the probability of snap elections in Greece, which we believe may occur as early as next week if not in today’s session.

SP500 Technical Analysis

This is our first trade in the SP500. The moderate gains in the index based on the market speculation we mentioned earlier allows us to exercise the following technical strategy on the weekly chart.

SP00 Weekly Chart

Please click on the chart to enlarge:

SP500 Technical Strategy,19 December, 2014

SP500 Weekly Chart, 19/12/14

What caught our attention is the last week’s session where a bearish engulfing was formed, covering four of its preceding candlesticks. This is a strong indication a trend reversal is due. The corrective gains are merely technical as it often occurs with Japanese reversal patterns. However, on our last attempt to short on of the US indices the market peaked above its high before slamming lower. We have learn our lesson, which is why we will initiate only 50% of the trade size at market price and add the remaining 50% when the price approaches the upper end of the Bollinger bands. We will update our subscribers when an entry is provided.  Our bearish target for the SP500 is 1,940, protective stop layered at 2,146. Please note this is a substantial stop as the analysis made on the weekly chart. The Risk-Ratio (RR) is approximately 1 : 2.

DJ30 Technical Analysis

We are adopting the same technical analysis to the DJ30 (Dow Jones 30). The bearish engulfing assists us in playing our strategy, backed by a risk-aversion event that we expect to spring into action some time next week or even in today’s session.

DJ30 Weekly Chart

Please click on the chart to enlarge:

DJ30 Techincal Strategy, 19 December, 2014

Dow Jones 30 Weekly Chart, 19/12/14

Similar to the SP500, we are executing 50% of the short trade at market price, targeting 16,905, protective stop layered at 18,386. Similar to the above, we execute the remaining 50% when the price tests the upper Bollinger bands. Please note the stop loss for DJ30 short trade is not a tight stop due to the selected time frame.

Gold Technical Analysis

As we are expecting a risk-aversion event as the markets will soon price in the probability of snap elections in Greece, XAU/USD (Gold) may benefit from safe-haven demand. Rather than placing the trade on a weekly chart we are attempting an intraday entry via the 4hr chart to capitalize over the safe-haven flows.

XAU/USD 4hr Chart

Please click on the chart to enlarge:

Gold Trading Strategy, 19 December, 2014

XAU/USD Weekly Chart, 19/12/14

Reversed Head-And-Shoulders (H&S) is being painted at the time of this writing, neckline marked in orange. We are executing the long trade at market price, targeting 1,250 (weekly target), protective stop layered at 1,177. We will post updates regarding all trades at the bottom of this page. Also note this is substantial stop and we would look to shift the stop to the entry should we gain a sufficient distance from the market in today’s session.

In regards to Greece’s credit line, it was confirmed by Germany but conditioned to Greece’s return to the money markets. Greece may apply for the credit line in March 2015. Although it is rather early to say but do mark the date for the next potential European crisis in your dairy.

23/12/14 UPDATE: Gold long trade was stopped our in today’s session following the poor US Existing Home Sales data, which triggered heavy selling in gold. Thin market conditions were responsible for the exaggerated price movement, which triggered our protective stop loss order for the trade.

24/12/14 UPDATE:  DJ30 is trading at 18,051 at the time of this writing. We are executing the second 50% at market price, same protective stop loss and take profit as the previous trade. As Greece voted against the nominated President in the second round, risk aversion is likely to re-emerge in global markets. We are not increasing the trade size in the SP500 at the time of this writing.

29/12/14 UPDATE: Greece Presidential elections will take place today at 10:00am GMT. This is the third and last round of votes that is critical to our trading strategies.

29/12/14 UPDATE II: Instead of increasing the SP500 short by 50% as specified in the above strategy we are placing  the remaining 50% as a short trade in the FTSE100 as we have discovered UK banks may be over-exposed to Greece. We highlight this is not a tight stop as we are accustomed to in our trade alerts. We are executing the short trade at market price (6,628), protective stop layered at 6,678, targeting 6,460. Please note we are over-exposed to the upcoming vote at 10:00am GMT and are unlikely to place any new trades before the vote. All our subscribers were notified via email to this new trade.

29/12/14 UPDATE III: FTSE100 short trade is in a modest profit as the index is trading at 6,607 at the time of this writing. Extreme volatility may be seen when the vote begins. Unlike an economic figure, the voting is scheduled to begin at 10:00am GMT and may take 30-40 minutes.

30/12/14 UPDATE: FTSE100 is trading at 6,558 at the time of this writing. We are shifting the protective stop loss order to the entry as a sufficient distance from the market was acquired and close 20% of the trade at market price.

31/12/14 UPDATE: DJ30 is trading at 17,934 at the time of this writing. We are closing 20% of the second short trade in the index at market price.

02/01/15 UPDATE: To maintain a healthy risk management, we are closing the second trade in the DJ30 at market price (17,882) with a profit of +169 points.

02/01/14 UPDATE: We are in a hefty profit on our short trades in DJ30, SP500 and FTSE100. DJ30 is trading at 17.773 at the time of this writing, almost +100 points profit. We are liquidating 20% of the short trade at market price and shift the protective stop to the entry. The SP500 is trading at 2,048 at the time of this writing. We are shifting the protective stop to the entry and liquidate 30% of the trade at market price.  The FTSE100 is trading at 6,519 at the time of this writing. Our protective stop loss order is already layered at the entry, we are liquidating 10% of the short trade at market price. indeed, a hefty profit that was wroth the time.

05/01/14 UPDATE: All our short trades are in a decent profit at the time of this writing. We are closing 10% of each trade at market price. DJ30 is trading at 17.720, SP500 is trading at 2,042 and FTSE100is trading at 6,472.

05/01/14 UPDATE II: FTSE100 short trade triggered the take profit. We are closing another 15% of the short trade in DJ30 and 10% of the short trade in  SP500 at market price. DJ30 is trading at 17,615 and SP500 is trading at 2,031at the time of this writing,

11/01/14 UPDATE: Moderate gains in the indices resulted in our short trade in DJ30 triggering our protective stop loss order at the entry. Our SP500 short trade is still in the market despite the moderate correction.

13/01/15 UPDATE:  SP500 is trading at 2,018 at the time of this writing. We are closing 15% of the short trade at market price.

16/01/15 UPDATE: SP500 is trading at 2,008 at the time of this writing. We are closing 20% of the short trade at market price.