Articles

Some may think I am obsessed with retracements. But I must persist as it is primary to understanding price movement. Just as markets retrace down when a market rises they also retrace up when the market is falling – this is part of the confusion and uncertainty as the tide changes.

Back in Trading Tutors Newsletter, Issue # 32, I wrote about a Head and Shoulders Pattern that has formed on Westpac (WBC). The diagnosis at the stage was that the stock was most likely going to bounce in the short term after retesting the support of the ‘neckline’. Two weeks have passed and with the market action of today it’s timely to review the prevailing market movements.

Those who have kept a keen eye on the fate of the Euro dollar since its inception in 1999 would have seen an all time high against the US dollar recently. This has caused a stir within currency markets and economies as a whole, with discussions about what the likely long term effects are of a strong Euro and a weak US dollar may be. This is a debate I will leave to others in the market as I will look purely at the technical aspects to make my decisions. In this case some very basic but powerful chart patterns jump straight out.

With the recent war in Iraq, the price action of crude oil and the products derived from it have been widely effected. Even though the spotlight has been lifted on the Iraqi conflict somewhat, continuing outbreaks in the region are providing the uncertainty that presents strong trades to those who are experienced.

The stock market has shown much volatility in the past three months, with the major market indices reaching new highs and then falling back down. The reason for this bullishness has been an improvement in economic data and much stronger earnings in the third quarter. However, expectations have become so high that it has been difficult for stocks to reach new highs despite the positive news. In fact, there is a wide range of forecasts for the stock market, with analysts expecting everything from the Dow ($INDU) to reach 11,000 - to a severe drop for the indices. However, another possibility is that the major market indices will consolidate some after such a huge run up in price this year. Thus, we have decided to look at a neutral trading strategy called a butterfly.