james16 Chart Thread

but the FTA is very close. passing this...

USD CAD H4 winding up around the 1.0300

Just watching it unfold.

I like that one Lord,

I'm playing it, with strategy of moving to b/e at fta.

Nice to have you along!

I saw this one and passed. Bar size is good, but too much traffic for my taste personally. The 6100 area has old resistance turned support and the 150 ema is creeping up as well.

Maybe this is good for new people who like me were or are struggling with PPZ a little.

Oh My......I was just using a naked chart to practice finding PPZ.
I found one, and put a 365 EMA on it.

Look what this single PPZ line shows us across all these time frames.

Keep at them there PPZ folks.

Continued from above post.

Very interesting charts you have there Pinbar.

Just trying to get my head together with keeping it simple.

Thanks for the comments and welcome to the thread.

You have no idea how many people actually think like that here. Well, you probably do... and that's the scary part. Every day, there is another news article about how 'housing is different', 'Australia is different', 'China xyz', etc.

Hence: Friday's massively offtopic essay on The Trainwreck that is Australia.

Residential housing here is a HUGE issue politically, even moreso than in the US or UK.

The demographics of Australia come strongly into play. 49% of the population is over 40, and 25% is retired or about to (>55). And for both these groups, who had no compulsory superannuation for all or most of their lives, the large majority of their wealth is tied up in residential housing. And so there is a huge vested interest in supporting prices.

But even moreso, for a bunch of (mostly stupid) reasons, house prices are a national obsession. Australians have a massive complex when it comes to 'owning' your own home and not renting, which is derided as 'paying someone elses mortgage' and 'rent money is dead money'. 'Investing' in property is constantly touted as the best way to wealth, and I would actually bet money that if you took a survey, the majority of people would say that house prices always go up.

(the funny part about that being that you are paying 'rent' to the bank, rather than a landlord. And so while you arent paying someone's mortgage, you are paying my bar tab - but apparently, that kind of 'dead money' is different. which is fine with me )

One of the side effects of these dumbass beliefs, when combined with the full recourse nature of mortgage loans and the amount of time/money/effort (ie, transaction/search costs) that it takes to sell and move, is that house prices have an inherent stickiness. When you (poorly) decide to go long EURCHF, you can dump the position once it starts moving against you. Click, done, time for the pub. But if 'the market' for housing starts falling, it takes alot more time and effort to sell, and many people will hold on for as long as they can, hoping for a reversal.

Politicians know this, and they pander to mortgage holders at every turn - colloquially known here as 'working families' *gag* or 'battlers'. They have, and will continue, to do everything in their power to support real estate prices. Every Australian is all too familiar with the first home owners grant/boost which should really be renamed the home sellers grant/boost . Then we have favourable taxation treatments (both capital gains tax exemptions and non-quarantining of taxation which effectively encourages people to make a loss renting their property in the hope of future gains). Add in the huge increase in middleclass welfare and you basically have a government shovelling all the money it can at mortgage holders in an attempt to support 'the market'.

Despite what the spruikers claim, there is very little fundamental basis to expect continuing capital gains. The recent 'burst' was largely driven by two main things; the shift from single income to dual income households, and the shift in bank lending criteria and thus credit creation (largely driven by BASEL I & II). The first is pretty self explanatory, but the latter is a bit more subtle. And got way too long, so see *1 if you are bored.

Without the boring part, borrowing power effectively quadrupled over a short timespan. It wasnt all at once (the income shift was gradual, the power of bank lending was more rapid - hence the 'boom').. so to many, it looked like 'sustainable growth'. It wasnt.

The funny part is the way things played out was so familiar. People started ignoring the income : price ratio (ie, the amount of rent) because they were now investing solely for capital gains. People claiming the Australian market is different to every other because of various reasons (including 'NINJA loans' being a US only phenomenon, or a magic 'supply shortage' that no one has ever proven, etc). People arguing that real estate cant be valued with traditional valuation techniques.

ITS A NEW PARADIGM! THE OLD RULES DONT APPLY! INCOME DOESNT COUNT! BUY NOW BEFORE YOU GET LEFT BEHIND!

Sound familiar?

The shift to dual income families is largely played out, so you cant expect that to drive a change in prices (but it will act to support them, in some manner).

Like most western countries, we also have a declining birth rate, and so we import all the foreign citizens we can to prop up our economy and make it look like GDP is growing. Unfortunately, a large part of the Australian population are racist rednecks, and so to pander to those votes at the last election, the gub-ment decided to slash immigration wherever it could... which means less money flowing into the country (both capital and income from the foreign education sector, a very large part of Australian exports). Which is going to effecively mean less money flowing into housing.

On top of that, banks are now reducing LVRs (previously, 100% loans were around. These days, most banks wont lend over 90%, and many wont even lend over 85%... and even that is tightening), and the homebuyers grant has halved, which means people have alot less borrowing power now.

As we see played out on the charts every day, when there is suddenly less money chasing the same amount of stuff, prices cant magically keep increasing.

The point, which I swear i am getting to, is that a sharp correction seems pretty unlikely because it is so policially unpalatable. As we see in every market, when prices are bid up beyond sustainable levels, we can either get a correction through price or time (or, generally, a combination of both). I think the latter is what we will see - a small price correction, but a long sideways consolidation.

What does that mean for AUDUSD? Well, that's even trickier.

The government that lets house prices fall will get voted out. Simple as that. So how do you support them? You can give tax incentives (which they have done, but could expand). You can shove money at people to encourage investment (which they have done multiple times, and would probably try again). Or you can pressure the RBA to lower rates - how effective that pressuring might be isnt really clear, but you can manipulate things like government revenue/expenditure to encourage the kind of rate movements you want. Or, given enough political pressure, just start rewriting the rules, which has become increasingly more common of late.

If the last were to happen, and Australian cash rates fell, the impact on the carry trade would be huge. At one point, the Japan:Australia IR spread was like 8%. It's headed back in that direction, which the markets have been expecting. A reversal at this point would see alot of money flying out of AUD pretty damn quickly.

And, given the importance of our mineral export sector, imagine what that would do to national income.

On the other hand, should you just have a protracted consolidation through time, people wont 'feel' poorer, so there is less necessity for extreme measures. Eventually, inflation is going to necessitate higher interest rates. But, in my opinion, there is going to be a cap on them for some time. Which is going to serve to limit the upside to AUD, especially when you throw in the recent rumblings out of Japan for a new approach to monetary policy.


Summary: I'm stocking up now on foreign currency for my trip next year. Regardless of what actually happens (which we obviously dont know), the potential upside is limited, while the potential downside is much larger.

----
*1 - huge simplification follows

Without boring people to death, banks have capital adequecy requirements, which outline the value of capital reserves banks have to hold vs their risk-weighted exposure. You have two main parts: the capital requirement (was 8%), and the risk weighting of assets.

For assets like cash or government securities, the risk weighting is 0%. For higher risk stuff like corp loans, it could be up to 100%. Residential mortgages were 50% risk weighted (with mortgage insurance, which was required for loans over 80% of the value). The end result is that a bank which only held mortgage loans would need to hold 8% of the riskweighted value in capital. Which means 4% of the total value, since they are 50% risk weighted. So a billion dollar bank could write $25bn in mortgages.

Under BASEL II, a few things changed. Loans of up to 80% value were shifted to a 35% risk weighting. With mortgage insurance, loans up to 90% of the value also got the 35% weighting. Loans between 90 and 100% value, with insurance, got 50% weighting.

So that had two big effects. Firstly, the bank from above ($1bn in assets who could lend $25bn) could now lend $35.7bn against the same amount of capital, a 43% increase. Which means the banks suddenly had a huge amount of extra money to throw at people.

Secondly, with mortgage insurance (which the borrower pays), loans from 80.1% to 90% of value get the same treatment as those with under 80%... and so banks were now motivated to shift their deposit requirements to match. Which means, instead of needing a 20% deposit for a $300k loan, people now only needed 10%.

So the person who had saved $50k for a deposit used to only be able to borrow $200k, and so could pay $250k for a house. But with a 10% deposit requirement, they could now borrow $450k, which lets them pay $500k for a house. Ruh roh.
......

And, on top of that, the government gave a free $14k to people to buy a house. Awesome.

...
So, combining all these fun and games means that your average family had its income doubled (from one working person to two), had the amount it could borrow doubled, and then got another $14k to throw into the mix (which, at 10% deposit, adds another $126k people could borrow - so your $50k deposit which used to buy a $250k house now lets you pay $640k). Double the deposit, and you suddenly get a household going from being able to afford $250k to now getting their hands on $1.02m.

And that isnt even the extreme. 95% loans were not a rare thing a few years ago. With so much extra money to lend, and the new requirements making 90-100% (and even 105%) loans a realistic proposition, they started appearing, then got more and more commonplace as all the 'prime' borrowers dried up.

double ruh roh.

haha.... don't be afraid to make posts like this more often.... I enjoyed it so much....

awesome Joel, I don't read much stuff like that so that was nicely done. Thanks for taking the time


Mike

haha. You guys are hilarious.

That's a really well written summary about a complex problem. Devaluation is kind of like two petrol stations trying to undercut each other - it only really works if one of you does it... otherwise you get into a price war where the side effects damage you more than the actual benefit.

Someone raised an interesting point the other day in the thread about the Japanese economy. It's rare for a central bank to only use market operations to try and devalue a currency; they generally combine it with some 'jawboning'/'megaphoning' to get the most from their investment. Unless you back it up, you end up being the boy who cried wolf (or its contemporary equivalent, selling wolf tickets for all you youngins ).

What has happened of late, though, is that the market quickly discounts both the threats and the action. It's no longer a matter of not believing that there is a wolf out there... it's just that people arent scared of it anymore.

What do you scare people with when the wolf no longer works? Duh.



Someone raised the idea that instead of a central bank threating people and so on, you have the entire government feign weakness. Weak economic output means interest rate cuts, quantitative easing, increased potential of credit rerating, etc.

Markets are a discounting mechanism. They dont really care about today, they essentially discount future expectations. That's why a news release can be really bad (like a big drop in NFP), yet have very little effect on the markets... but if that big drop is a suprise, well - we've all seen that.

And so if money expects future weakness, today's price will shift to reflect that.

Much like Russian roulette or sleeping with Lindsay Lohan, it is a dangerous game to play - it might work out well, but there is a huge potential for the plan to go terribly, terribly wrong. Spooking your domestic sector into running on their banks, stashing cash under the mattress and not behaving like good little consumers can kill an entire economy stone dead.

I guess the other important takeaway, though, is what happens after your economy hits the point where growth is self sustaining. When you no longer need to stimulate it by hitting every lever in sight, do you get a single sided recovery? Or does your recovery support that of the other guy as well (as in the US:AU scenario), and so you end up in pretty much the same position? That's the area where you can see big moves in cross currencies while the majors only react weakly.

That's what happens when you are sitting at the back in the world's most boring presentation

Great post mate !!

Reading some of the points, I felt like I am reading my thoughts :-). You are so true. I keep debating with my friends why I do not want to get into property market ( especially as asset prices are already so high). They keep telling me about how I am paying for someone else's mortgage and I keep explaining how mortgage and rents are same ( one goes to the bank and another goes to the landlord ). How overhead cost of buying and maintaining a property is high and takes too long to buy/sell. I love Forex, you click the button and you are in/out of the market at the transactional cost of few pips :-).



We are seeing lot of discussion ( again !! ) in the newspaper about the bubble, lets see where it goes. You are so right, looks like there is more downside than upside. Fingers crossed !!

cheers

Hello Mike
Being a junior member my post was published late. Still waiting for your reply on the quoted text.

Hey Marc

Sorry about that didn't see it

The short answer is the quality of the setup and the 1.000 trumps just a minor rd number. If anything I use it to help with trade mgmt if that becomes the case. In this case 2 bars later we formed another BEOB so I moved my stop above that, the price came back an retested .9950 and my entry before moving down to my target. So that area doesn't get ignored we just use it in the mgmt part for myself in this case

Hope that helps
Mike

edit of course we put our sell under the .9950 area.

Thanks Joel . .I got most of that, but then again I only read once so far, I plan on reading a few more times. lol.

So I take it the "triple ruh roh" will come sooner rather then later. . .yikes.

Mike,
On GBPUSD, about watching price action at 1.6, which is a great resistance as well as forming double top pattern, I have following questions.

1) One way of trading is look for a bearinh PA (BEOB or PB) and play with our J16 conventional method. <== I am good with this.

2) But if you plan to take a touch trade with an expectation that price will react at this level, do you blindly put an order at this price level or you watch the price bars at this level to form a bias ?

Like - the bars around or approaching 1.6000 either in H1 or h4 or daily are not big bullish bars (may not be BUOB) . Does this kind of analysis helps you to form a bias that the price is going to change direction at 1.6000 or going to break 1.6000 ?

If you do such analysis would you mind share a chart with us to see it visiually ?

Hey C

I don't touch trade, it is not something I have worked with(but it is on my list to test hopefully sooner rather then later).

I would be not even bias at all. Scenarios I would look for.

Strong rejection (big beob/pin etc, manage according to what happened on the way up.

-Boxing/consolidation - watch for breakout both ways play accordingly(breakout + pullback most times).

- price stalls, then breaks through, look for pullback and 1.6 to turn to support

Best
Mike

Thank you Mike for a quick response. But in the above 2nd and 3rd scenarios,
how do you differrentiate between price stalling vs Boxing/consolidation ?

Is price stalling not equal to price consolidation ?