The unraveling carry trade

Hedge funds and brokerages typically borrow low interest rate Japanese Yen (JPY) to buy US and European equities. This creates a flood of cheap liquidity boosting the markets. What happens when this situation dries up?

Below you will see a chart of the S&P 500 (blue candlesticks) with the US dollar vs. JPY imposed above (the red line). This illustrates that the weaker the US dollar is vs. JPY, the weaker the US stock market. It is very important to note this trend and watch it closely.

Good luck trading!

Trading the Euro (vs. USD)

It’s important that every investor realize that we are not limited to stocks, mutual funds, ETFs and bonds. There are other asset classes, such as commodities and currencies (forex) that offer profit, too. Trading anything requires consistency and a system to be regularly successful. The same systems that analyse stocks are applicable to intraday trading of foreign exchange futures.


Remember that this is a very speculative play that requires sophisticated technical analysis skills and an established system to successfully trade.

The first system is bottom trading a downward trend (note that the EMA is moving downward). That means, if we see the Euro become “oversold” (or if it’s sold on very high volume, and dips below the lower Bollinger band) it is likely due for a technical rebound upwards. Because of the weakness at this point, I only hold the Euro until it peaks the EMA and sell the futures contracts there. This is a bullish sign, but it’s also a point of resistance.

The second system is momentum trading. I trade the upward trend, purchasing futures contracts as it moves above the moving average, which you will notice is establishing an upward trend (notice upper/lower bands). As the Euro crosses below the EMA again and the bands begin to widen indicating increased risk, I sell.

Psychology of trading gold

Gold trades myopically based on fear and greed, generally not taking the larger picture in to consideration (long term: weakening dollar, US economy slowing, inflation growing). As such, opportunities arise to exploit fear and greed to yield a high profit.

As you can see in the image below, gold oversold based on fear this morning that the market would collapse based on credit concerns. I bought here $675.00 because I felt gold, being down about $20 from the day before, was oversold.

gold fear trade

As you can see, it quickly rallied to $686.00, where I sold, because I felt the rally was overdone by traders relieved by the Federal Reserve injecting $19B in liquidity to banks suffering from a lack thereof.

That’s basically how the fear/greed trade works. This is a single trade that can span minutes, hours, days, weeks, even months and years depending on your strategy and outlook.

Brief – Economic concerns weaken dollar [UPDATE]

The US Dollar slid vs. the Euro amid expectations of lower economic growth in the US, pushing gold higher. US Markets are poised to open higher as better than expected earnings from General Motors, Waste Management and Sun Microsystems beat Wall Street expectations.

UPDATE: The dollar’s strength was increased by news of slower domestic inflation. This caused a sharp turn-around against the Euro and as a result pushed gold futures lower.

A stock on the moove

Exxon Mobil tanked 8% on bad earnings and market weakness, but I don’t think they’re done moving by a long shot. Today we saw a technical bounce bank, but relative strength should gain again as investors cast off myopic fears spawned by weak earnings of last quarter and begin looking forward to this quarter’s earnings. Crude prices have neared $80 a barrel on purely a supply/demand basis, without any disruptions in supplies from political or natural events.

Watch this stock and do your homework. If you believe Exxon Mobil is oversold then I encourage you to buy purely on a technical basis.  As a long term investment, Exxon Mobil is an excellent energy play as well.

Moo Trades of the Week

Welcome to Moo Trades. We’re here to provide bullish insight to investors about stocks and options through technical analysis, trading strategies and informative opinions.

Moo Trades aims to provide weekly coverage of the markets. This week’s Moo Trades are chosen for the anticipated Q3 2007 tech rally. We know we could mention Apple (AAPL) or Google (GOOG), or some of the other popular names. That’s not our aim, though. We believe investors are saturated with the most well known names constantly and need a breath of fresh air.

We’re currently watching Seagate (STX) and Corning (GLW). We believe the market is positioned to trend higher based on good earnings, solid economic outlook and moderating treasury bond yields. The price of fuel has not yet had a tremendous impact on profits.

Seagate (STX) is the global leader in storage, providing the best quality hard drives to the greatest number of customers. They are currently positioned to grow their storage revenues from increasing demand driven by Microsoft Windows Vista and increased data storage demand for videos, music, photography, etc.

Referencing the chart below, we believe the target buy-in price for Seagate is $22.50. Seagate is strongly above its 50 day moving average (in black), the RSI (chart bottom) indicates it is not overbought and the stock between the Bollinger bands (in gray). We feel this means the stock is in a good position to be acquired.

Corning (GLW) is lighting the way for the US fiber infrastructure build-out that companies like Verizon, Comcast and ATT are participating in to bring their broadband networks in to the 21st century. Corning’s fiber is also being used in Verizon’s FiOS Fiber-to-the-Home offering, which is growing rapidly. We believe Corning is poised to continue its upward trend given the high demand for its products.

Referencing the chart below, we believe Corning’s stock may be overbought (see high RSI) at this time. There is increased inherent risk given the stock gravitating towards the top Bollinger bands. Conversely, we feel the stock may continue to ascend in price from aggressive purchasing. We at Moo Trades encourage caution when purchasing these type of growth stocks unless you are a savvy investor.