Feb
1

Balancing Caution and Opportunity Costs

fxe_001

Keep an eye on FXE (EURUSD) if you haven’t been. There is a confluence zone at $137.50 (note the horizontal support and 300 DMA). I mentioned last night that EURUSD is in bear mode. That doesn’t mean it can’t recover and its oversold state makes it quite likely that we could see a countertrend rally.

I operate under the assumption that the direction of FXE will correlate with the market. So if FXE rallies, the market should rally a bit. Meanwhile, if FXE breaks through support in the $137.50 area I believe that will take the major indexes down to their 200 DMAs.

I hate urging caution because I think there are always reasons to be cautious. If you are too cautious, it does have an opportunity cost in the long run. With that being said, I think the easier trading environment started in December and ended 2 weeks ago (the recent high on the major indexes). For my style of trading, I believe it makes sense to wait for a confirmed uptrend or downtrend to commence before I put any serious money to work (or perhaps a range bound market).

More on this topic (What's this?)
EURUSD Toward New Lows? (Short-Term Trading, 3/1/10)
EURUSD: Elliott Wave View (Short-Term Trading, 12/20/09)
EURUSD Stages A Corrective Rally (Oxbury Publishing, 2/2/10)
EURUSD Slumps As Greece’s Top 4 Banks Downgraded (Oxbury Publishing, 2/23/10)
Read more on Currencyshares Euro Trust, EUR/USD at Wikinvest
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  • Guest
    Staring at the unemployment chart today I realized reality...the truth. It took 10 years from 1970 to 1980 to get to the peak in unemployment and then from 1980 to 2000 to get back to the 1970 levels.

    There were ups and downs, but from 1970 to about mid-90s you had to really compete for work.

    http://bit.ly/9nXWjj
  • What makes many longer term bearish (next few years) is that many of those jobs (home building, brokers, mortgages) are directly tied to the credit market and the credit market will simply not be as large as it was during the boom years.

    Good point on how much time it took. Good news for the market is that it didn't have trouble rallying in the early 80s in spite of your data. Bad news is that it might be because things were so bad in the 70s.
  • Guest
    Did you see that last minute pop above 1087? I think we are setup for a move higher from here.

    http://bit.ly/do4N4e
  • rosocecasita
    =) Always appreciate the insight!
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