Yellowlion's Daily EURUSD

[yellowlion]

Hi All,

Not an easy read for the US Dollar going into next week. Some markets are at key levels.

Crude oil is testing monthly Fib support,
September mini S&P's are testing daily 200sma support,
STOXX Bank Index is testing key support,
September 10yr US T-Notes has broken the June contract highs but was resistant to a close above.
Weekly EURUSD testing 21sma / trendline support.

COT analysis for EURUSD suggests a reversal lower and US Dollar Index COT, while not as conclusive, is mentioning that a low is not too far off. Price has not yet been cooperating.
Hints of Summer in positioning this past week adds to the mix.

I believe the key will be in the behavior of the markets mentioned above.

If support in the S&P's and European Bank Index breaks, and T-Notes break higher or remain firm, then the Dollar and T-Notes should get safe haven buying.

If The STOXX Bank Index holds support while and the S&P's break and T-Notes stay firm, the Euro could remain supported on rate differentials.

If the S&P's hold and Crude firms cautious risk-on may return.

Crude Oil should be watched for any sign of firming after government intervention subsides indicating market speculation of a 'soft spot' in the global economy rather than a retrenchment. I don't see inflation concerns coming back immediately on firming Crude.

Initially, if the markets open above support, early traders should look for a bounce.

charts are available here.

all the best,
yellowlion

 

[yellowlion]

Yellowlion's Daily EURUSD 07/04/2011 London Open

Hi All,

I thought it would be a good time this July 4th US holiday for a closer Elliott/Fibonacci technical look at EURUSD.

This was not an easy task because price action over the last 3+ years has been dominated primarily by the schizophrenic fundamental side. Several disconcerting issues in high and government finance has cloudied the technical picture. We're at a value for EURUSD that was considered fair in January 2008 and again in October 2009 before arriving here again in July 2011. It is a choppy, nonconvergent, and asymmetrical technical landscape.

There is minimal convergence of pattern ratios between time periods, and numerous patterns and targets were left uncompleted and unreached. In my experience, when lack of convergence is the case, continuation of the trend is suggested. Yuck.

For all intent and purposes it looks like 1.50/1.55 EURUSD is in the near future but hourly technicals are overbought and may need a correction in price for EURUSD to head higher. Hourlies have the potential to take price back to 1.42.

Initially, traders should be cautious into strength and watch longer term hourlies to relieve the overbought condition. Once this is done...we'll have another look. The analysis is available here.

All The Best,
yellowlion

 

[yellowlion]

US Dollar Index and EURUSD COT analysis for 07/05/2011 open interest

Hi All,

Calling a dollar summer range from COT data.

US Dollar Index COT analysis
EURUSD COT analysis

all the best,
yellowlion

 

[yellowlion]

EURUSD top-down analysis for 07/10/2011 market open

Hi All,

Here's this week's EURUSD top-down for the 07/10 market week.

all the best,
yellowlion

 

[yellowlion]

07/13/2011 London Open

Hi All,

US Dollar Index, Gold, 10yr US Treasuries, and EURUSD in the London Open basics.

As always, feel free to contact me with any questions, comments, or suggestions.

all the best,
yellowlion

 

[yellowlion]

Hi All,

Here's today's London Open basics.

all the best,
yellowlion

 

[JahDave]

You do very good work Yellow Lion and I respect that. I have almost everything against the USD as a leading diagonal in favor of the USD............Do you have those counts???

 

[yellowlion]

You do very good work Yellow Lion and I respect that. I have almost everything against the USD as a leading diagonal in favor of the USD............Do you have those counts???

Hi Dave,

Thanks for your kind words.

Here's my working Dollar Index weekly. Looks more like a little corrective pattern up to the trendline and 65 week EMA.

Could you post a chart of your count?

all the best,
yellowlion

 

[yellowlion]

Yellowlion's Daily EURUSD weekend basics 07/17/2011

Hi All,

Hope Everyone is having a splendid midsummer weekend.

EURUSD is in the process of resolving a minor degree wave e' underthrow of an intermediate degree horizontal triangle by retesting the lower portion of the triangle from below.

Underthrows normally resolve into an impulse higher which breaks above the triangle and prints into wave 5 completion. The underthrow of last week went lower than normal and last weekend's analysis suggested that if this occurred, an expected triangle retest could be an opportunity to get short.

The week closed with price testing the triangle's demand line from below, but support from the 200 day SMA and the top of intermediate wave i along with a current price pattern that looks to resolve higher, puts EURUSD in a long bias to start the week.

US Dollar Index, 100oz Gold, 10yr US T-Notes, and EURUSD top-down analysis available in the weekend basics.

all the best,
yellowlion

 

[market_bull]

Thanks for the analysis link, yellow!

 

[yellowlion]

Hi All,

Been a busy week so far.
Heads up for the Eurozone meeting. This is an important one.
Stay flexible.
Keep strict risk management in place

daily basics 07/21/2011

all the best,
yellowlion

 

[yellowlion]

Hi All,

Happy Friday.

Daily September US Dollar Index - Indicators support further weakness. Look to see who's around to support @ 73.93.

Daily August 100oz Gold - The 1600.00 area could offer enough resistance to correct GC to 1550.00.

4hr September 10yr US T-Notes - I'm looking to gauge strength at the little resistance zone @ 124.2188/2435. The Fib targets above remain intact although the Elliott pattern is losing proper symmetry.

4hr EURUSD - looking for a wind down day today. The 21 SMA supported for strength to 1.44+. Some residual buying may target 1.4456 / TL1. A further target is the minor wave d' high @ 1.4576.

All in the London Open basics.

all the best
yellowlion

 

[yellowlion]

Yellowlion's weekend basics 07/24/2011

Hi All,

a little late this weekend...hey, it's summer.

September US Dollar Index - Indicators support further weakness although RSI is coming into potential support. On strength, TL1 should support. Resistance in at the minor wave a' low \ TL2. Look for some pullback strength Monday.

August 100oz Gold - Sticking with last week's analysis - The 89 day EMA could provide enough support off this test to revisit TL1 above 1600.00. Daily indicators support a try but the 1600.00 area could offer enough resistance to correct GC to 1550.00.

September 10yr US T-Notes - Friday's close shows support by the zone on support from the 200 period SMA. If this holds, a try for the trendline seems likely. Failure of SMA support targets the minuette degree wave 1" high at 123.2344.

EURUSD - could be beginning its ascent toward intermediate degree wave v' completion above 1.54.

View the charts in the full weekend basics

all the best,

yellowlion

 

[wackypete2]

Essentially, a lot of the action the past 3 years has been driven from the schizophrenic fundamental side and has made technical trading a bit tricky at times.

I agree with that line from your site. It's why longer term trading has turned me off so much. I think the eurusd pair is ultimately headed upward but it's going to be a very bumpy road with the US debt ceiling and the Greece fiasco not over yet.

Happy Trading!

Peter

 

[yellowlion]

Hi All,

EURUSD could be beginning it's ascent toward intermediate degree wave v' completion above 1.54, but the impulse has a shallow wave 3' which could easily fail at the wave d' resistance zone.

London Open basics is available

all the best,
yellowlion

 

[yellowlion]

Hi All,

Just a quick 18:00gmt update on the US Dollar index. This move is all about the dollar and equities. 10yr notes is off marginally near a half 32nd. Commodities are currently holding firm off the highs.

Daily chart support held and is most likely the technical catalyst for dollar strength today

4hr DX shows support and resistance levels going forward.

all the best,
yellowlion

 

[yellowlion]

Hi All,

Instead of the London Open basics this gmt morning...I would like to present a short essay on how I employ Technical Analysis theory to earn money in certain financial markets. I would like to help folks understand the purpose and use of my daily posts so that they may be able to better use and benefit from my analysis.

After seeing my afternoon Dollar Index update, a friend wrote and asked me, "Do you forsee USD index firming up and going past resistance at 74.60 today?" Fair enough question but I believe the reader misses the point of my analysis.

Here's the broker default chart when I opened a new 8hr EURUSD at 03:38gmt today.

Ok so there's a graphical representation of fair value points up to 03:38gmt today. So how can I make money with that? First of all green and blue inhibit my ability to see accurately so I change the chart to my default setting. A clean black and white candlestick chart.

Well I can see better but it's still just a graphical set of fair value points. To build a strategy to make money, I have to create some kind of structure that gives these data points some kind of meaning from which I can take some kind of meaningful action.

There have been numerous folks who have gone before me and have worked very hard to define structures that help earn money from the markets. After much study, I chose Elliott Wave/ Fibonacci as my basic structure. I have a few components that I have designed myself that fit into this structure as the basic theory of the structure has necessarily evolved since the original concept was introduced.

So anyway, now I have a structure in place that helps me make sense of these fair value data points.

Here's a current 8hr chart at 04:07gmt.

Now I have something to work with. This is a simple (the simpler the better) analysis showing a completed Elliott minor degree horizontal triangle with a wave e' underthrow, then an asymmetrical minor degree impulse completing just shy of the triangle wave d' high. Also included on this chart are horizontal lines of minor degree swing highs and lows and one Fibonacci level up there at 1.4831, also the trendlines that defined the triangle, and the 200 period SMA.

All well and good you say, but how do I make money with all that? Good question...that's the purpose of this little essay.

Technical analysis creates a meaningful structure around price to enable the trader to devise strategies to take meaningful action within that structure. By "meaningful action" I mean buy or sell for a profitable outcome.

So back to my friend's question,"Do you foresee USD index firming up and going past resistance at 74.60 today?" The answer is "If price gets to 74.60 resistance, I will take action based on my strategy for the structure."

Technical analysis creates the structure required to make decisions, the way a trader uses the structure is based on the traders personality and objectives. There is no prediction in the structure. Just pre-defined spots where if price gets there, some defined strategy indicates an above average probability of a positive trade outcome. Just as the trader created the structure, the trader must now create consistently profitable trading strategies within the structure. Of course structure and strategy creation from scratch is reserved for a few, and even those that create new structures often borrow from exsisting ones.

Not all levels carry the same weight. Swing highs and lows work much better when convergent with Fibonacci levels and do very well when the price pattern also confirms. There are several different strategies for creating predefined levels and several different ways to find multiple convergences.

I look for countertrend entries at predefined levels, another trader may look at those levels as profit targets and enter by anticipating them, or one may see a chance to trade a breakout and pick up some stop trigger money.

Now you're trading. There are a ton of methods that work. A traders job is to become intimate with one type of structure and the strategies required to trade successfully within that structure - learn it until it becomes second nature. Then the trader can expand to incorporate another structure if needed.

all the best,

yellowlion

 

[yellowlion]

Hi All and TGIF,

I just wanted to run through an update regarding the technical analysis theory discussion of yesterday (seen below this post).

A couple examples of what I was saying about using the levels as countertrend entries.

First the US Dollar Index

From the 07/27/11 17:30gmt analysis:
4hr DX shows support and resistance levels going forward.

This morning 02:00gmt shows near support and resistance defining yesterday's range. Both served as good intraday countertrend entries.

Next is the 8hr EURUSD from the analysis discussion

Note the 200 SMA supporting and further support through the SMA at 1.4281 and TL2

Now this morning at 03:29 gmt. Note where the current low at 1.4254 supported, just shy of the old triangle demand line TL2. Then the next bar resists just at the 200 SMA. The current bar opens on the 200 SMA and sellers come in playing for more bearishness under the SMA. The bar supports at 1.4281 taking price above the 200 SMA in a bullish pattern.

all the best,

yellowlion

 

[yellowlion]

US Overnight EURUSD 07/29/2011 14:00gmt

Hi All,

Closed early a couple smalls entered at bedtime on renewed weakness at the support levels.

Good enough. Here comes the weekend.

all the best,
yellowlion

 

[yellowlion]

Linear Regression 07/31/2011

Hi All,

While perusing the recent forum posts I came across a comment that got me interested.

One trader finds Linear Regression analysis a preferred tool over standard moving averages. This is the type of thinking that produces successful traders. This trader is choosing his trading tools based on what works for him. Finding what fits his trading style and personality will greatly support his chances for long-term success. Let's check out this Linear Regression thing and see if we can find out something for ourselves.

Linear Regression​

Whenever a trader applies an indicator or drawing to a price chart, it serves the trader well to understand completely what the indicator or drawing is representing.

The three basic variables available for constructing indicators or drawings on a trading chart are price, time, and volume. There are many ways to synthesize variants of these variables but for our forex purposes here, let's stick with price at any given time, and volume as tick volume.

Linear means straight line.

Important -> In analytic geometry, the term "linear function" is sometimes used to mean a first-degree polynomial function of one variable.

Everyone has seen the slope-intercept form equation y = (m)x + b from elementary algebra.

In trader terms this equation would mean: price = (slope of price)*time + the price at time zero.

Regression analysis in our discussion estimates the conditional expectation of price at a given time - that is, the average value of price when time is fixed (a single chart period).

So the trader should be aware of the assumption that the relationship between price and time is linear when applying linear regression to forecast market prices.

This may seem like a no brainer - I mean when the markets are open, one tick in time generates one price point. However, as an example, in long term US Dollar Index analysis, a 3rd degree polynomial regression is a more appropriate gauge of price expectation.

Why is that? Well, think about this: In your estimation, does one EURUSD time tick during Asia's lunchtime carry the same price weight as one EURUSD time tick during the Europe + US period? If you think the two periods have unequal weight, then you are seeing a non-linear relationship between price and time.

So does Linear Regression have any value as a predictive forex tool? Look at this current EURUSD 1 hr chart with an MT4 default regression channel and begin to form your own opinion.

Let's read at a sentence or two on just how these linear regression lines are derived.

Very important -> The classical Linear Regression model focuses on “finite sample” estimation and inference, meaning that for our puroposes, the number of observations (time ticks) is fixed.

What the regression line basically represents is the smallest amount of distance between the line and all the individual price points. It's called a "best fit" line.

Example: Say we have sequential time points 1, 2, and 3.
And say we get at time 1 a price of 2, at time 2 a price of 5 , and at time 3 a price of 3.

We get the familiar (x,y) cartesian coordinates (1,2), (2,5), and (3,3).
Remember x=time ; y=price

So we want to find the line that best fits these 3 price points over our fixed time sample.

y = (m)x + b = regressionline = (slope of price)*time + price at time 0

2 = (β1)1 + β2
5 = (β1)2 + β2
3 = (β1)3 + β2

We try to make as small as possible the sum of squares of "errors" between the right and left hand sides of these equations, that is, to find the minimum of the function.

S(β1, β2) = [2 - ((β1)1 + β2 )]^2 + [5 - ((β1)2 + β2 )]^2 + [3 - ((β1)3 + β2 )]^2

expands to

S(β1, β2) = 14β1^2 + 12β1β2 + 3β2^2 - 42 β1 + 20β2 + 38

Calculating the partial derivitaves of S(β1, β2) with respect to β1 and β2 and setting them to zero, results in a system of two equations with two unknowns, called "normal equations".

with respect to β1 = 28β1 + 12β2 - 42 = 0
with respect to β2 = 12β1 + 6β2 + 20 = 0

Solving the two normal equations gives:

β1 = 0.5
β2 = 2.33

Thus our Linear Regression line for our 3 price points is drawn with the equation
(0.5)x + 2.33

So how do we use this analysis on a chart? I like regression analysis for choppy environments. Like those of Elliott triangles or sideways box patterns. The challenge is to pick your "finite sample" from which to draw the line from. I usually will pick a pair of significant highs or lows or a full consolidation. Below is weekly 10yr US T-Notes.

Classically, Linear Regression is an analysis tool used to forecast expected prices from a finite sample of exsisting prices. The previous two examples have attempted to demonstrate the classic application.

I also like, again in choppy environments, to run the analysis from the start of a pattern up to the current bar, as in the EURUSD 4hr horizontal triangle published in the daily basics over the past few weeks. What this application of the regression line shows me is a good approximation of median price for the consolidation. The line also can come in for support and resistance as is seen in it's current position. The chart has become a bit too busy and needs a housecleaning but here the regression line is TL3.

As a final idea, during sideways market periods, moving averages can set-up as a very good substitute for a Linear Regression line. The shorter period MA's can be a bit sensitive but I've recently used 21 and 200 SMA's as a surrogate regression line. I'll draw a regression and if an MA is doing a good job of approximating it I'll delete or hide the regression line and go with the MA.

all the best,
yellowlion