May 122010

Some additional positive sentiment has reappeared overnight with the star of the show being fantastic growth in the MSCI. Earnings from nearly 70% of the leaders in the major European indexes beat estimates. His is of course tempering the debt issues. At home international trade continues to show larger deficits which of course puts pressure on the dollar which in turn can help fuel any upswing in the Euro. The other big star this morning is Gold which trades in the mid 1200s. Overnight volume deltas lean to the long side with large traders leading the pack, but volume is not all that impressive considering which makes me wonder if the overnight rally is a bit overcooked once again. Days ago we called the mid 40’s as what we felt was “fair value” considering the big picture and we still look to that as the line in the sand to define support. If we hold 46/47 today I think it will be a significant win for the bulls and we will move on to retest former highs. As I write the Euro rally has flattened despite the news pressuring the dollar and the bidding lifting the 10s has returns. We think we rotate down to test the close at least off the open and if order flow confirms we will consider our first major fade trade there to the long side from 51.25 or so. If we do break through we will watch 46/47 closely to see if it holds and if it doesn’t you breakout traders may consider selling into the next key test level of 44/45 which is our second fade spot. The third is 40/41 which is supported by the day session S1 and is also the OL and YL. However, you MUST be careful there as there is the HUGE selling tail beyond it and if volatility increases and causes a probe slightly under it may cause some panic selling as all eyes will be there and fade traders could be easily run over. On the other side we will only scalp the OH and 62 as we doubt either will hold. We will likely want to test somewhere near YH but it is too hard to call the level in that tail. Watching order flow is the only way to handle it as the rejection may come anywhere between 66 and 69 really. Past that the same thing is true about all the rejection spots between 69 and 75 as well. You really have to feel your way through these prices as volatility will be high and nothing is cut and dried. We do think that whole line is potential interim resistance and 75 is the absolute top for the next full rotation. The high side is much tougher to call than the low side today so I hope we get the clean gap fill rotation short and we get our one trade there. Then I don’t have to bother with the long tests. Tough stuff there guys so be careful you don’t get steamrolled…

 Posted by at 9:17 am

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