UPDATE TO 4-17-2007 EURODOLLAR

In the 1st post for today I gave you a daily analysis with a short bias. Now let's look at how we use the intra-day chart to flow with the market and confirm or amend our bias. The first chart I offered you today was the daily chart. Now let's look at the next most significant level which is the 4hr chart. The daily chart is the wave. The 4hr is the wave within the wave.

The first thing we notice on the chart is that price touched the 23% Fib level and is currently bouncing up off this level. This is typical price action. When price is working through Fib levels it will typically go something like this...

A. Touch 23% and bounce up to test prior pivot, then fall back down through 23% and...

B. Touch 38% and bounce up off that to test 23%, then fall back down through 38% and...

C. Touch 50% and bounce up off that to test 38%, then fall back down through 50% and...

D. touch 61% and bounce up off that to test 50%, then fall back down through 61%.

When there is a bounce back up off of a level and price should close above the next level on the intra-day 30min or greater time frame, that is a signal that the
pullback is over and the market is ready to resume the up move.

If you get a close below 61% the odds are high that the market will bounce back up to test 61% or even higher before continuing down to complete a 100% retracement.

This is not a rule but a guideline as far as tendencies. At this moment we are in phase A of this cycle.

Now when we look at this chart the prior bar (red line through it) closed up on low volume. This tells you that selling pressure has subsided for the moment. So you should look for a bullish pivot and for price to go up to at least 3560. I say 3560 because that is 3 bar equilibrium. Yeah I know. For those who have the system the full explanation of that is coming.

So, based on the intraday flow we know to adjust our short entry to 3560. This is good because if we enter and the trade goes against us this lowers our risk by 6 pips. Then consider we still are not going to enter short just because price touches 3560. It must touch and pivot. I like 30min and 1hr pivots, but many times 15 min will work.

But the main thing is this...we are flowing with the market. This is important when considering a counter trend trade.

Now consider the volume trendlines I have drawn on the chart. Notice how the down move has declining volume as opposed to the prior up move that had rising volume. Also consider the magnitude of the two volumes. The up move has dramatically more volume in totality than the down move. This is another reason we want to wait for an intraday short pivot before we enter short.

Remember, the only reason we are considering this short trade is because the market is due for a pullback on the daily and is exhibiting early signs that it wants to do so. In any event, I suspect that the real deal will be disclosed at the U.S. trade data this morning but I want you to get the idea of how I am mentally processing trades as I flow.

And by the way, yes, I do use indicators like moving averages, stochastics, and Macd. But these are icing on the cake and are used to confirm these other things I'm telling you about. I'll get into how I use those as we go along but they are secondary not primary and I only put them in play if the other analysis is not clear. See, operators know that many traders use these averages and easily manipulate price action to make these levels appear real. And differant charting systems will show the same moving average or other indicator, and you can use the same input values and these indicators will look differant for every differant data provider.

You're probably thinking, Jerry if you said yesterday that you don't like the way the Eurodollar is moving, why are you focusing on this pair. It is because, if you can get it with the toughest pair, then the rest will be easy.

If you find this blog helpful you should check back every 4 to 8 hours for continuing update. Take care...

Jerry
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EURODOLLAR 4-17-2007

If you are thinking about a trade in the E/D today this is what I suggest.

Enter short 3554=low of bar A which is a tepid reversal bar because it is a Sunday bar

Stop 6 to10 pips above 3578=High of bar A

Take profit 3485=38% fibonacci retracement

Risk 29 to 35 pips

The reasons I consider this a high risk play is because the measuring bar A is a Sunday bar for the bear pivot reversal. Even though yesterday's down day occurred on higher volume the higher volume occurred in relation to a Shortened trading day. So, Friday would be a more reasonable day to compare volumes and yesterday's volume did not conquer Friday's volume.

Then we should consider that the trend is up so this is a trade against the trend and as we know most surprises occur in the direction of the trend. However, in light of what I said in yesterday's post it is a calculated risk. Then we are in a position for a reasonable stop-loss if we wait for a pullback to 3554 before we enter. Yes you could enter now but your risk goes up to around 50 pips and counter trend. But each according to his/her own risk tolerance.

If you wait for an intra-day short pivot reversal after a pullback to 3554 like I'm going to do you will be playing it conservative as you can use that pivot as your stop which would probably cut your risk to around 15 pips on a 30min to 1hr short pivot, and place your mental stop above that pivot measuring bar. This is just me being a little conservative since I've been off for a while I'm not feeling so cowboy just yet.

Also, consider that there is important U.S. data coming out at 8:30 am EST and you might want ot wait for that instead of staying up all night waiting for a sharp move when the move is waiting for the data. Many times there is an intra-day pivot just before the news comes out to give you an indication on which direction the move is likely to take.

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Eurodollar 4-16

The objective of today's commentary is to give you an idea where we are in the market landscape. Before you know where you're going you first have to know where you are. Once we get a feel for where we are we can get more into specific trading opportunities and situations.

The other currencies usually move in relation to this pair but there seems to have been a seperation from that over the last couple of weeks. Looking at the chart the E/D seems to be moving strangely compared to the other pairs. After doing some checking I found that some very large trading houses (operators) had some very large option positions above 3350 to 3550 so now I understand better having just returned to the market why this pair has been flowing unusually.

On the chart you can see that the market has been working within the range of bar A until several days ago when it finally broke out of this range. What's unusual is how this bar garnered so much respect in relation to the volume it carried. This was an up close day on lower volume and as expected the market started down the next day. However, the high and low of this bar held as support/resistance for 2 weeks. The close below bar A was on a Sunday but Sundays are usually not real unless there is a major news/geopolitical event somewhere in the world causing the move.

You can also see how the trend has been moving up since bar A but the volume has been getting smaller in relation to the volume before bar A. This contraction in volume trend flys in the face of the price action. This is my favorite pair to trade since it usually sets the sentiment for the other pairs but I am reluctant to enter this pair at the moment. However, volume did break out of the volume trendline I've drawn on the chart for you to go along with the price breakout of the trading range so I have not choice but see the breakout as valid but with some trepidation as far as the overall uptrend.

You can see how bar B was the first bar to breakout and close above the range but it was obvious that it was a false breakout because this bar had lower volume than the previous day. Anytime you see a range breakout on lower volume don't trust it.

Bar C is the valid breakout bar as evidenced by the higher volume than the prior day. You can also see that after the breakout the next bar pulled back to test the breakout, which is now support, before continuing up just as I teach in LCM. Since the trend is up you should be looking for an opportunity to enter long if you decide to try an entry but not now. The breakout has continued for 3 consecutive days without reversing to test the breakout. So, it is about that time for a pivot reversal to come back and test support if the uptrend is to signal a continuation. If you enter long now your risk is all the way back down to support. I'm not saying we won't continue up from here I'm saying the risk far exceeds the potential rewards.

If you're game for a high risk play, a short entry back down to support would make more sense right now. Especially in light of the gap up today. This appears to be an exhaustion gap. I say that because gaps usually signal a reversal unless price gaps through a support/resistance level. Reviewing your back charts will bear me out on this assumption. Remember, nothing is absolute but we have to consider tendencies.

It's good to be back.

Jerry

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