This is the chart of silver as it appeared in the “Ready to Sell Silver” post. I was looking at the weekly chart considering it to be in a blowout top and about to collapse. The move came few hours after the post was published, triggering the trade right after weekend opening. Silver fell sharply and the trade was closed later that week for 10 full points’ profit. Very rare occurrence, to be able to even catch such large move in this market so fast. Trade of the year, no doubt.

Another very good trade was in the USD-CHF in August. At that time, this pair had been falling seemingly forever, dropping over 400 pips on the last day of the selloff. This was a clear exhaustion move in an already severely oversold market. I went long at 0.7117   looking for a few hundred pips. Turned out to be a good decision, entering this market long near the all time low.

I adjusted my views as the situation unfolded, closing half of the trade 0.7517 for 400 pips gain and exiting the balance 0.7825. Of course, the USD-CHF rallied much higher in following months, but 700 pips in a few days during that period of high uncertainty was a great result.

I can only hope that in 2012 markets present similar opportunities like these. However, the truth is that markets will offer opportunities, but the trick is in recognizing them and then taking appropriate actions. Unfortunately, that is much easier said than done even after years of trading. A college degree is not necessary to trade currencies, but studying math and earning a GED online may help.Best of luck to everybody in 2012!

Mike K.

In spite of all that, the US Dollar continues to be a safe haven. The ongoing Euro debt crisis virtually eliminated the Euro as a replacement for the USD in that role, at least for now. This unresolved issue will continue in 2012, shifting attention from problems in the US. In addition, many central banks have been, and likely will continue, to intervene in the markets in order to weaken their domestic currencies. Others are in the process of forming potential reversal patterns, which include the commodity currencies. They are starting to feel the slowing growth in China, a process that will probably only get more pronounced. Even the much-vaunted downgrade by the S&P had the opposite effect. In response, money started to flow into US Treasuries indicating which market is perceived as safe haven by markets. Finally, even the Dollar Index started to recover, after falling to 73.51. In spite of its flaws and own undeniable problems, the USD could be the biggest mover in 2012.

The EUR-USD will probably remain a proxy of general Dollar weakness/strength. On the monthly chart of this pair, we can see mounting weakness, which suggests more downside. Of particular importance is the 1.2850 support. If broken, the objective for the price will be 1.1850. Due to huge scale of this chart, this might not happen for month, the EUR-USD could even spend a big part of the year above the 1.2850 support. However, chances are good for the downward pressure to prevail and the price to continue lower.

Gold should be another good indication of Dollar’s health. Here the price has already fallen sharply from the all time high of 1920, by about 400 points. One would hardly notice it on the monthly chart, because here it only looks like a minor correction. At the same time, this chart shows an ominous development. The price formed a “falling three method”, or its “falling two” variation, which is very bearish indeed and suggests more downside. It is difficult to find logical objectives for this pullback, because of the preceding parabolic price advance. That said, two possibilities stand out. One is at 1225, and the other one is the 1000 level, as hard as it may be to imagine now. The low from last week, at 1522, is the level to watch for signs of bearish breakout.

Since the January 1 came on Sunday this year, post New Year trading could be a little different than in years past. Normally this day is very quiet, producing tight ranges, which are suitable for simple breakout trading the day after. That is not really applicable in 2013, due to lively action on Friday. At the same, typical opening strategies are not necessarily suitable either. The economic calendar is almost empty, with the exception for couple of PMI reports from Europe. Hard to say if trading on Monday is going to be worthwhile. At this point, potential gaps, if they form, are the only possible developments that could trigger traditional trades. After that, we have to see what happens. Wishing everybody great trading in 2012!

Mike K.

One tool to measure volatility is the CBOE Volatility index, or VIX. This index surged by 160% in the third quarter, most of it in August, which the biggest quarterly jump in at least two decades. As of this writing, VIX has stayed above the 30 reading, for the longest period since early 2009. This is about twice its historical average. Because the volatility has spilled equally to all other markets, we can use it as gauge for currencies, too. Right now, the index appears to be in a similar position as it was back in 2008, when the “unwinding of the carry trade” happened and currencies had largest moves in years. Tomorrow I will look at couple of currency pairs and discuss how their present pictures compare to 2008.

On Friday, I focused on trading at the start of the London session, looking for short-term range breakouts. Unfortunately for me, the ranges preceding the opening had been wide, not even really “ranges” but rather market swings. For example, the AUD-USD had a high at 0.9796 and a low at 0.9714. A range formed after the London session started and I went short at 0.9712. Guess my objective was a little too ambitious at 0.9670, because the market missed it. In the end, I closed the trade at 0.9701, for a small gain of 11 pips. Have a great weekend!

Mike K.

Gold was of interest to me because of the rear instance that I took a trade in this market, especially a short-term trade. It was a position on the short side, with entry at 1873. This trade was closed at 1800 for 73 points profit, which just fine for only one day holding time. I will probably return to gold, when (if) I find a convincing set up to sell with a larger objective of 300+ points. For now, while I think that this market is ready for a sharp drop, I simply do not see a technical situation which would warrant a trade, like the one I found in silver earlier this year. Back to watching and waiting.

 Besides the already mentioned central banks’ meetings, we also have employment data releases from Australia and Switzerland. With so many big fundamental announcements I do not really want to position myself in some of these currencies prior to news. With this in mind, focus goes to the USD-JPY, which established a solid resistance at just above 77.70. IF this level gives way, a decent rally should follow, so I have a buy order at 77.77, seeking 100 pips.

Mike K.

If Franc was to be pegged, the SNB would have to shadow all policies of the ECB, something they clearly do not want to commit to. However, if the current action proves futile and over time they are not able to contain the CHF, they might have to do just that. Interestingly, should such time come, the decision should not be too difficult. After all, the Swiss pretty much committed themselves to inflation. With prospects for the Euro bleak, chances are the SNB will have to deliver on its promise time and time again, spending, by some estimates as much as CHF 0.5-1.0 trillion in coming months. Given the small size of Swiss economy, it is a staggering amount of money.

Of course, they could succeed in achieving their goals, too, like in a similar operation in 1978. At that time the Swiss National Bank managed to keep the Franc below 80 francs per 100 Deutsche marks in the two decades through 1998, before inception of the euro by Germany. During that period, Swiss inflation exceeded the SNB’s 2 percent limit in 12 years. At any rate, all this is speculative and will be discussed plenty of times in the future. Today, the EUR-CHF jumped over 1100 pips, the biggest intervention move that I recall.

As mentioned yesterday, I had both a buy and a sell order in the USD-CHF. The buy side of the straddle was filled and my objective of 100 pips was reached easily. Obviously, I had no idea what the SNB was up to, otherwise this trade would be on for much longer… Should not complain, 100 pips is 100 pips, but I’d be lying if said I was not a little disappointed….

For right now I will stay with the theme established yesterday, meaning gold. This market just made a divergence on daily chart, with a possible sell signal on the bearish engulfing line. I went short at 1873, targeting 1800, maybe 1775. Risks are small here. Ideally, I would prefer a longer-term trade with 300-400 dollars objective, but I simply do not see one here. One more thing on the subject of the CHF- charts are distorted now, and markets are jumpy, so I will let the them settle down before making more trading decisions.

Mike K.

The USD-CHF contracted sharply on Monday, as expected, so a simple straddle here is preferred strategy. Normally, I would hold a trade initiated in this way most of the day, until about 12-13 EST, anticipating a full day of directional movement. But this time I have objective of 100 pips either way and will still be watching it closely. Given the state of uncertainty that currencies are in and huge number of economic releases on Tuesday, I will just try to grab what I can.

While on the subject of economic news releases, Aussie will surely be affected. Among many announcements is the RBA Interest Rate Decision, followed by data from China, which also moves the AUD. The recent rally may have reversed, suggesting a downtrend, but there is also a gap from the opening, which indicates a potential small rally first. All said, the AUD maybe in for a rough ride on Tuesday, one that could spill over to other currencies. To add to confusion, the Aussie diverged from gold, too.

Gold shook off bearish jitters and resumed the uptrend. This means that my sell order in gold at 1700 went unfilled. It is however, still active. In addition, now that price is attempting new high, there is a chance for an MACD divergence. For that, we need to see a strong bearish reversal candlestick pattern on the daily chart, preferably on either Tuesday or Wednesday. If it does not happen, there will be no trade, as gold will likely try to test the 2000 level. Regardless, we are facing an interesting week, with four interest rate decisions and multiple employment and trade data releases from all over the world. Wish everybody great trading!

Mike K.

Perhaps more interesting and unpredictable, is the impact of hurricane Irene on US markets. Major U.S. exchanges are preparing to cope with power outages and flooding that might interfere with trading on Monday. The New York Stock Exchange and Nasdaq repeated on Saturday that, despite the arrival of Irene in New York, both expect to conduct a normal trading session on Monday. The Big Board said a final decision would be made over the weekend, particularly on its trading floor in the low-lying financial district of Manhattan, which could see a storm surge and flooding. In addition, many locals might not arrive to work, further impacting trading.

From a practical point of view, it is not too important to me what happens in early trading because I will not participate. Vacation time, a little travel and relaxation. However, the longer term gold chart looks very interesting at this point and I might just be tempted to keep my eye on it. In short, it looks oversold and ready for a serious correction. The weekly chart of gold is very similar to silver before the big selloff in May. It is in a parabolic run, with a through the roof volatility and finally showing some cracks.

Gold rallied to 1911 and looked ready to test the 2K level. Instead, it fell sharply, by about $200, before recovering late in the week. This action established a good sell point at 1700, with a 200 points objective. If the price keeps making new highs, I plan to simply move the sell order to just under next higher low and possibly catch a good down move, just like the silver trade before. I will worry about currencies upon my return before the Labor Day. Have a great trading week!

Mike K.

In other developments, the ever strengthening Yen is becoming a political issue in Japan. Finance Minister Noda now appears to be a candidate to replace the current Prime Minister Kan, who is expected to resign. Noda’s candidacy strongly increases the probability that Japan will act aggressively to stem the appreciation of the JPY. This could mean intervention, maybe even a series of interventions. The USD-JPY made an all time low on Friday, but bounced immediately, as if the 76.00 level was defended. We will see if the same happens on Monday.

Going long Swiss Franc pairs turned out to be a mixed bag. After closing the USD-CHF for a good gain, I switched to GBP-CHF with shorter time frame in mind. Here I was looking for a minor high to form on 4H chart, wanting to buy the next move above it, and/or a pull back of at least 300 pips. The price indeed made a minor high, pulled back a little over 300 pips, almost to the 100 SMA, where it created a reversal pattern. That provided a long entry at 1.2767, a trade which brought fast 213 pips. I went long again at 1.3130, on a breakout, but here things went sour. This trade was closed late on Friday for 118 loss. The price action is assuming a shape of a rounded top and I thought it would be prudent to get out. That said, if the possible rounded top does not happen, I want to go long again above 1.3115. Another candidate will be the 100 SMA support area on a strong bullish reversal pattern.

Another trade discusses earlier on this pages was a short in the EUR-AUD. This was a complete misfire, as bad as a breakout trade can get. Order was filled, but the direction changed immediately, so it was never even in a profit. I pulled a plug at -150 pips and that’s that. Now it looks like the EUR-AUD wants to go up, perhaps even to test the high above 1.4200, but I will leave this pair alone for the time being.

By comparison, the EUR-CAD looks like a buy here. On the intermediate term chart, the price has formed a base and is ready to break out to the upside, at 1.4260. This only has about 100 pips of immediate potential, as there is a potential strong resistance on the daily chart at 1.4375. While the set up looks promising, the price is a little too close to the breakout level in relation to the opening time. A gap here can create practical problems, so I have to wait until after the opening to decide the course of action. However, in principle I want to buy the EUR-CAD targeting 1.4375 or so. Gaps in other currency pairs are also possible and worth looking for.

Mike K.

After opening the week at around $48 per ounce, the price almost immediately dropped about 6 full points in 30 minutes. It rebounded a little bit, but then the down trend resumed all the way to 34.26 on Thursday, and probably it is not over yet. It s for me, though, or just about. I closed most of my silver short position earlier today. Ten full points in 4 days is enough.

The trade was opened at 44.45, using weekly candlesticks for analysis. My main reason was the parabolic nature of the rally, which, at this pace, was simply unsustainable. A sharp correction was more and more likely with every week, day even. My objective was 32 and realistically I expected 2-3 weeks for that level to be reached. The drop was so fast, that it is assuming parabolic characteristics itself. At this point it can easily jump 4-5 points in a matter of hours, so I decided to pocket most of the gains, at 34.41, for 10 full points and some change. The very small residual position will be closed at either 32, or before close of the week.

Since I am not a position trader, this is enough for me – I am out of the silver business for now. It still could move much lower, if 32 is broken 22 becomes the next objective, but it probably will be at a slower pace. It would be nice to be able to find set ups like these more often, but that is very unlikely. After all how often is it even possible to capture 10 points in silver in a less than a week ? Once every 30 years? As is, that is most likely the trade of the year.

Mike K.

Of course, that does not change the fact that silver has been in a serious bull market and the level reached last week might as well be treated as the all time high. However, the dynamics have changed to some degree and for the first time in weeks silver did not close at a high for a period. Also, gold seems to become more popular now as if players are shunning silver. Has the money started to flow away from silver? Hard to tell, but the weekly chart suggests indecision, forming an almost perfect doji.

Given the size and duration of this rally, the weekly chart is probably the best for analysis of this market, at least it paints a relatively clear picture. We can see a parabolic price run, almost straight up, with MACD reading practically of the chart. Same with the ATR, which has not been at this level since 1980. At this stage of the trend this over-sized Doji is a warning flag for anybody still long silver, and an opportunity sign for those who want to short it. Like me.

Since a doji of this magnitude and that late in a trend is extremely rare on weekly charts, one might be very tempted to simply go short when the markets open. For me, however, a doji itself is not a reversal signal, in most case it should be confirmed by another bearish candlestick. Here the confirmation will be move under the low of last week, where I have a sell order at 44.45, giving the week about 15 cents breathing room. My objective is $32 level, or just above the most recent resistance, which could change into a support. Ultimately, silver might drop to $21,50, based solely on charts, but that is very ambitious, a trade which would take too long for me.

Should the market continue higher, it very well may, my sell order will be moved under the next week’s low, but the objective will remain the same. At any rate, I think that the uptrend is about exhausted and expect a major sell off soon, with a good profit potential. Will discuss currencies tomorrow.

Mike K.