Key Words To Watch For From Greenspan

Today should prove to be a pivotal day with regards to future trading.  You will recall that last weeks big spike up in interest rates got the stock (and many other markets) moving around quite a bit.  In fact, last Wednesday and Thursday were some of the best HVT days I had seen in several weeks.  By week's end the market seemed less preoccupied with high rates.  As we start this week the market should get some answers, compliments of Mr. Greenspan.  While it is not important that we understand all the macro development he may talk about, we should be aware of a few key words as it relates to how stocks will likely react.  These are the times and venues to hear what Greenspan might say in congressional testimony at 2:30 pm ET Tuesday or 10:00 am ET Wednesday. Wednesday is deemed most likely for any "surprise" comments, since the topic is "The Economic Outlook" at the Joint Economic Committee. However, there is also a chance for something market-moving on Tuesday which is on "The State of the Banking Industry" before the Senate Committee on Banking, Housing, and Urban Affairs.

Any indication that the Fed is still in "patient" mode should help firm the equity markets.  While that is good for investors, a market that sells-off is more conducive to short-term traders.  Either way, it is just something to be aware of, in the end, you have to trade price action, not opinions or conclusions.

At present the S&P's have recovered nicely from the sell-off in recent sessions and now sit back above the 50 EMA.  This level (1127-28) should continue to offer some good trade set-ups in the underlying stocks if it is re-tested.  Assuming no verbal bombs are dropped today, the market is gearing up for another run at 1161.  Not only was this the previous resistance, it is now also validated by some Fib extensions.

Since I did not trade much yesterday given the quiet session ahead of Greenspan, I do not have any solid trades to share with you, good or bad.  I did two trades and did not want to force in a quiet market.  I will however share with you my thoughts on a "position" trade I placed yesterday morning based purely on my anticipation of what Mr. Greenspan may say.  It is entirely possible that last week's sell-off on inflation fears may have been a bit overdone.  Sure, who am I to say the market is wrong?  However, it is entirely possible that Mr. Greenspan will indicate that a couple of reports are not indicative of a rate hike, even this year.  Based on this and a minor positive on the daily chart, I decided to pick up some shares in XLF, (Financial Select Sector SPDR).  My stop loss is tucked just below last weeks low.  C'mon Greenspan!

FX (Forex)

FX continues to be quiet, however, there are tentative signs that some solid trades are setting up.  The EUR/USD is on the verge of taking out some key support which may open the path down to the 1.14 level.  I was having a conversation with a fellow FX trade yesterday and one thing we both agreed upon was that ultimately a path of a currency is somewhat easy to identify with some basic technical analysis and more importantly good macro analysis, the hard part is enduring the inevitable whip saws on the way to that "final" price objective.

FX sometimes gets described as the market that trends.  While that is true, take a closer look at the travel range that occurs on a daily basis while that trend is being formed.  Trade management and proper risk controls are imperative.  Trading large and from the hip has no place in FX.

I am still looking for a good entry for a short on the GBP/USD after it broke the neckline of a nice head and shoulders pattern on the daily chart.  At present it has re-tested the neckline (very common on H&S patterns).  A break of this level, 1.7965, will set the stage for a move towards 1.66. 

I am also short the EUR/USD from last night, looking for a move towards 1.1450.  Based on Fib time analysis, April 21 should represent a potential trend change.  Given that I consider the move over the last few days simply a counter-trend bounce, the "trend change" represented by the Fib time analysis should result in a new leg lower.  I will keep you posted.

As always, feel free to send me your comments and questions.

Dave