Third Screen Strategy - Dr. Alexander Elder

FOMC Minutes Signal End of Bond Bubble
by Tom Essaye


Last week the market's celebration surrounding the partial Fiscal Cliff agreement was cut short by a surprise from the minutes of the Fed's December meeting. You see most had expected the minutes to be a relative non-event ...

But showing you can't ever take anything for granted in the markets, the minutes offered details of a surprise rift in the FOMC about when to end its current quantitative easing program. In particular, this paragraph shook markets:

"In considering the outlook for the labor market and the broader economy, a few members expressed the view that ongoing asset purchases would likely be warranted until about the end of 2013, while a few others emphasized the need for considerable policy accommodation but did not state a specific time frame or total for purchases. Several others thought that it would probably be appropriate to slow or to stop purchases well before the end of 2013, citing concerns about financial stability or the size of the balance sheet. One member viewed any additional purchases as unwarranted."

Previously it was thought that the Fed would keep their QE program through the end of the year. And while this isn't a declaration that QE is going to end imminently, the minutes were particularly surprising to markets because no one thought ending the current QE program was on the Fed's mind, much less being openly discussed and argued about.

The surprise news, combined with the positive sentiment emanating from the fiscal cliff deal, sent Treasury yields to seven-month highs. As you can see in the chart below, the 30-year Treasury yield jumped to 3 percent for the first time since late April.

http://images.moneyandmarkets.com/2626/chart2.gif

This is important not so much because of what the Fed minutes revealed (we all know at some point the Fed will remove accommodation) but instead how the market reacted.

The market reaction to this news was pretty violent. And the sharp selling that hit Treasurys (and spiked yields) is yet another sign that the top is "in" in the bond market. Now the question you should be asking isn't so much, "will bond yields rise" but instead "how fast and how far will they rise."

Four-plus years into unprecedented Fed easing, last week's price action in response to the Fed minutes tells me that markets are accepting the fact that we are closer to the end than we are to the beginning. And as such they are starting to anticipate rising interest rates.

Bond yields have already moved to multi-month highs based on the perception that the Fed may dial back QE sooner than expected. So we can only expect yields to accelerate once it becomes clear that the Fed is actually going to remove QE from the markets — something that by the Fed's own admission could start much sooner than is the general consensus.

Yields have been kept low by the Fed's mass bond-buying program, and by their safe-haven status as a series of crises threatened elsewhere. But once the QE punchbowl is removed, holders of long-term bonds could take a beating. I hope you're not one of them.

Member "PrimeStop" says:

Why did hundreds of billions of dollars (or possibly even trillions) flood the Bond market? The fact is that institutional investors and governments rushed to the 'safety' of bonds at the outset of the crisis in 2008 and withdrew trillions of dollars from stock markets in a state of crowd mentality. When broken down, the markets do not work logically - they are driven by human emotion; that is, the desire to avoid losses and to minimize risk. Despite their attempts to appear otherwise, Governments and major institutional investors are no different to John Doe and the vast majority of retail investors.

At the outset of the crisis, fund managers and governments did what was safe - they ran for cover. And they did it en masse; hence the dramatic and powerful downturn as funds were pulled out of stocks. Logic would have said they should have stayed in stocks as the long term historical returns for stocks are significantly better than bonds (stocks have returned almost 6 per cent per year over the past 7 decades, adjusted for inflation). Bonds, on the other hand, offer nothing approaching that, but they do offer 'certainty'. However, there are signs now that fund managers are starting to think the crisis may soon be ending. So the big boys are now emerging from cover and are searching for the higher yields that stocks typically offer.

Those trillions of dollars that have been withdrawn from stock markets which are currently in bonds must return at some time. And crowd mentality (the natural state of markets that are run by human emotion) says that those trillions will be moved in the same direction - back in to stocks.

We also know that a surge in demand for stocks suggests a higher demand for US dollars which is the currency used to pay for these assets.

GBP/USD Weekly - 10 Year Chart

4-Year Symmetrical Triangle

This pattern is getting so tightly squeezed, a breakout is imminent. This means that GBP/USD will breakout into a new multi-year trend after having been stuck in a four-year range. Which way will the she go, up or down?

My money is on a breakout to the downside but will wait to see what happens, currently flat on GBP/USD.

http://sovereignsociety.com/files/20...I-Graph-16.png

JPY Cross Pairs

If you have been following this thread you would have made a lot of money going long on ANY JPY cross pair due to the fundamental and technical reasons! I prefer AUD/JPY and NZD/JPY for various reasons.

AUD/JPY and NZD/JPY both broke out of their multi-year ranges into new up-trends in late December. Let’s take a look at what AUD/JPY’s weekly, 10-year chart looks like below.

Exciting Trends Are Back!
http://sovereignsociety.com/files/20...I-Graph-22.png

Right as the calendar was rolling over to 2013, this pairing immediately lauched higher from its long, boring trend.

These new trends indicate 2013 and even 2014 should be great years for these currency pairs, which is going to be good for trading volume as well.

**Trading Idea: Look to go long on any type of pullback using your own technical indicators / analysis.

EU’s Unemployment Hits Record High! How You Can Play It
by Tom Essaye


At his press conference last week, ECB President Mario Draghi threw cold water on the prospects for rate cuts in Europe any time soon. This followed the ECB decision to keep rates on hold. The rate decision was expected, but the relatively upbeat assessment of the European economy wasn’t ...

Draghi said he expects the European economy to experience a “gradual recovery” starting in late 2013, basically saying that rates and monetary policy is accommodative enough. The surprise assessment of the European economy caught euro shorts by surprise; one-third of economists surveyed prior to the meeting thought they might cut rates. And it ignited a short-covering rally as people didn’t expect something so hawkish.

Interestingly, this hawkish ECB decision comes after three weeks of consistently poor economic data emanating from Europe, highlighted last week by the fact that the unemployment rate across the EU reached a new high of 11.8 percent. More troubling, Spanish unemployment sits at an astonishingly high 26.6 percent, Greek unemployment at 26 percent, 16.3 percent in Portugal, and 14.6 percent in Ireland.

Societies Can’t Exist with 26 Percent Unemployment

These numbers simply aren’t sustainable! And they underscore how essential it is to get the European economy growing again if we are going to see continued improvement in the sovereign crisis.

What’s more, the number is much higher for the youth of those countries. In Spain for example, youth unemployment is a whopping 56 percent. Unless economic growth returns and the unemployment rate begins to drop, at some point the people will revolt against austerity, either through the polls or in the streets. And they’ll elect or install people who tell the rest of Europe to go to fly a kite — which will reignite the crisis.

http://cdn.moneyandmarkets.com/media...513-img-01.jpg
Unemployment in Europe hits new peak. And unless economic growth improves, the worse may be to come.

It won’t happen today or next month. But unless those unemployment numbers start to drop, and the only way that’s happening is through economic growth, then the crisis is far from over.

I point this out to you because the ECB knows this is true. So it’s very surprising that they are so firmly on hold and unwilling to help the European economy, even with very low inflation.

So for the time being, the ECB is on hold. And that is short-term bullish for the euro. But I will reiterate that the strong euro is going to be a drag on growth. And it would be a shame if the ECB, after basically quelling the crisis last year, ignited another one by being “penny wise and pound foolish” with regards to getting the European economy growing again.

One way you could play potential weakness in the euro is via the ProShares Ultra Short Euro (EUO). This ETF is meant to decline 2 percent for every 1 percent decline in the euro.

Best,

Tom

Turning points coming soon, market action set to heat up, lots of trading opportunities ahead
by Larry Edelson


Over the last couple of weeks there hasn't been a lot of action in the markets. We continue to see very tight trading ranges that are likely due to the low volume. But more importantly the markets are now dealing with the background noise of the second half of the fiscal cliff negotiations — the debt ceiling.

Lets go to the charts ...

Bonds Trending Lower

Bonds remain in a downtrend from their record high in price late last year and the record low in yields. And the cycles in the bond market are telling me that bond prices could plunge quite sharply in the weeks ahead.

http://images.moneyandmarkets.com/2634/chart1s.gif

Prices are rallying a tad, but overall the action is very weak. I expect this downtrend to continue because the bond bubble is imploding. The next stop for the 30-year Treasury bond will be at approximately the 135, 136 level. And I have almost no doubt whatsoever that we will see bonds fall and rates rise as we enter into the serious eleventh-hour negotiations on the debt ceiling.

There's even a chance based on some of the cycles I'm looking at that Washington may not reach an agreement. And the government may have to temporarily shut down!

Gold Still Has Room to Fall

There's not much happening there — just a little bounce higher. You can see that we remain below an important channel resistance and below an important cyclical trend channel. We may move a little higher to just back above $1,700 to test that resistance. But look at all the air down below here!

I maintain my view that the next great buying opportunity coming in gold will be at much lower prices, most likely during the first quarter of this year.

http://images.moneyandmarkets.com/2634/chart2s.gif

Same Story for Silver

Silver is really just sort of climbing along this lower support level. It's trying to rally, but the rally is very meager. Once we break the support level down around $31.25, which I fully expect, there is a steep plunge coming. So my view has not changed one bit at all.

http://images.moneyandmarkets.com/2634/chart3s.gif

U.S. Dollar Could Rally

The Dollar Index is acting just as I expected it to. The long-term weakness is still present in the dollar because of its inability to stage a significant rally. It's climbing along this uptrend line. And it's hugging it right here. We may see the dollar start to rally even as the fiscal cliff negotiations on the debt ceiling fall apart.

http://images.moneyandmarkets.com/2634/chart4s.gif

Now logically you might think that if we hit the debt ceiling, the government shuts down, the dollar should plunge. I don't think that's necessarily the case.

If you think it through, if the government shuts down, or if the budget negotiations get really nasty, a lot of investors will seek out the sidelines. They'll get out of the markets and go to cash to wait and see what happens, which would give the dollar some strength. So it's not a sure bet that the dollar would fall on bad news about the debt ceiling. That remains to be seen.

Short-term, the cycles still point higher for the dollar as well. Long-term, we all know the dollar is in trouble. There's no question about it. But I don't believe the next disastrous bear market move for the dollar will come until later this year.

Dow Industrials Holding Up Amazingly Well

Like the dollar, the strength you're seeing in the Dow is an indication of its long-term strength. We are, at some point in the not-too-distant future, going to enter a new bull market in equities that will see the Dow and the S&P 500 go to new record highs over the next few years.

In the short- and intermediate-term it's a coin toss. We could see the Dow move up to just over 14,000 or we could see that long-awaited pullback that I've been looking for.

http://images.moneyandmarkets.com/2634/chart5s.gif

Fundamentally, anything could crop up that could drive the market higher or take it lower. Cyclically, on the short-term models, I'm still expecting a pullback. So I am not willing to go all in on the stock market yet by any means. Nor am I willing on the other side to go aggressively short at this time.

So keep your eyes on these markets. They are indeed the most frustrating I've seen in a long time. But I also know that when you go through periods like this as long as you keep your ammo intact and stay defensive with your savings, when the markets start to move they are loaded with opportunities were you can make a ton of money.

EUR/CHF

The Great Swiss Opportunity
By Sean Hyman, Editor of Currency Cross Trader


When you think of Switzerland, you might think of their famed Alps – or you might even think of the Davos meeting, or their Swiss banks.

However, when I think of Switzerland, I recall the one thing that has plagued them for the past five years – the relationship of the Swiss franc to the euro.

Until 2008, the euro gained on the Swiss franc and the Swiss were happy, because they are huge exporters of things like watches and chocolates.

Switzerland’s biggest customer is in the rest of Europe, and all those customers use the euro.

When the euro was gaining against the franc, Swiss goods seemed inexpensive to buy. But then came the financial crisis of 2008, and the EUR/CHF exchange rate began to plummet.
How the Swiss Have Suffered

It has been on that downward trajectory for five years now. The euro got weaker and the franc grew stronger. Swiss exporters were crying the blues, because the rest of Europe could not afford their chocolates and watches as easily now.

So the central bank got to work. First, they tried to “talk their currency down” by making comments to the public that should have undermined the franc, but that didn’t work. Then they took the next step, which was to intervene in the currency market by selling francs and buying euros. Of course, almost all currency interventions only work in the near-term; they almost always fail long-term.

So when individual interventions did not work, they decided to establish what some people refer to as a “peg” – although it was more of a “floor” at CHF1.20 per euro, and they didn’t want the exchange rate to drop below that.

Whenever the exchange rate did attempt to dip below this floor, the Swiss central bank would simply intervene to support the currency.
And this went on for almost a year and a half. Tons of francs were sold and tons of euros were bought.

Well, not only is their central bank now about to get a breather and see things turn their way for the first time in five years, but their economy is also about to catch a break for the first time in half a decade.

So, let’s take a look at the EUR/CHF exchange rate over the last 10 years, so you can see what I’m looking at.

EUR/CHF Breaches the Crucial 1.24 Level

http://sovereignsociety.com/files/20...-Graph-110.png

And here’s the opportunity… for well over a year now, EUR/CHF hasn’t even been a tradable instrument (from a practical standpoint anyway), because the CHF1.20 floor kept the exchange rate trading in about a 5-10 pip range. But now…

EUR/CHF is in the Process of Turning Around

As of last September, EUR/CHF awoke from a Swiss central bank-induced coma and the exchange rate finally began to rise – a boon to both the central bank and exporters.

In just the last week, the EUR/CHF exchange rate rose more than 300 pips. That’s huge for a currency that has hardly moved. And not only is its swift rise important, but so is the level that it’s at right now.

EUR/CHF’s five-year decline is now sitting around a downtrend line that has been in effect for four of those years. And that downtrend line meets the exchange rate’s price at around the CHF1.24 level.

As I’m writing this, the pair has traded above that level. If it can hold above CHF1.24 over the next week or two, we’re going to see EUR/CHF head back up into the 1.30s – and that’s a profit opportunity.

Even if that move does fail, it will likely take out the downtrend line and begin its new uptrend upon its next approach – and that will be soon.

The Swiss Economy Gets a Boost

Either way, the change in the trend direction of EUR/CHF into a new uptrend is going to put the wind at the Swiss economy’s back for the first time in five years.

With this kind of knowledge, there are at least a couple of ways to profit.

The most pure play is to simply buy the EUR/CHF pair in the Forex market. So for those of you with a Forex account who are comfortable trading in the leveraged Forex market, this may be the best way to profit.

However, for those that have never ventured into the Forex market, there is another simple way to play this.

Since the Swiss economy has been held hostage for the past five years by the EUR/CHF exchange rate, it’s no surprise their stock market has gone nowhere during that time as well.

In fact, let’s take a look at an ETF below that tracks Swiss stocks on the weekly, 10-year chart.

Swiss Stocks Will Awaken As EUR/CHF Holds Above 1.24

http://sovereignsociety.com/files/20...I-Graph-24.png

So the other way that you can easily play the change of trend direction in EUR/CHF is to buy an ETF that tracks Swiss stocks, like EWL, as shown above.

Swiss stocks have been consolidating in a range for five years, but they’ve been waiting for the proper catalyst to trigger a break-out and I believe we have that catalyst as EUR/CHF begins to hold above the 1.24 level. Swiss stocks look as though they will finally get their much-needed lift.

Have a nice day!

Sean Hyman
Editor, Currency Cross Trader

Why Oil Will Continue to Head Higher
By Sean Hyman, Editor of Commodity Trend Alert

You would think it’s a simple case of basic supply and demand economics. More oil is being discovered and that should mean falling prices, right?

Well, the last time I checked, oil was heading higher. So if everyone believes that we’re overflowing in oil, why isn’t oil tanking?

In fact, it won’t be too long before American drivers are paying $200 a week to fill their tanks.

And the reason for rising oil prices has not so much to do with exploration and new discoveries, as most analysts would have you believe. This is a phenomenon driven by the price of food.
Most people don’t realize these two share a strong correlation.

Mid-East kingdoms, home to much of the world’s oil production, are run by dictators who have been in power for more than three decades. Most of their subjects are extremely poor.

You may think of Arab sheiks driving around in exotic cars, but in reality they make up a small percentage of their societies. I noticed recently that most Americans earn more than three times the average Saudi Arabian wage. As I said, most people in these Middle Eastern oil nations are very poor.

The Key to Social Stability

And when you’re as poor as that, the most important economic factor in your life is your ability to feed yourself and your family. The price of basic food staples are the key to social stability.

This is exactly why riots erupted in places like Egypt, Yemen and Bahrain, to name but a few.

Saudi Arabia got smart and spent a ton of money on their people to reduce the threat. This was a strategy that kept the sheik in power. But it also increased his cost of staying in power, because the Saudi government had to subsidize rising food costs.

And when you realize OPEC factors in the member countries’ budget requirements when they set the price of oil, it becomes clear why food costs correlate to oil costs. These Middle Eastern governments derive most of their income from oil. So after they figure out their budget requirements, they then decide what the price of oil needs to be.

But don’t just take my word for it. Check out the chart below of world food prices vs. oil. You’ll see that as food costs rise, the price of oil rises with it.

http://sovereign-investor.com/files/...1/chart-12.png

And what follows are the current food-oil breakeven points for a few countries.

http://sovereign-investor.com/files/2013/01/chart-2.gif

Saudi Arabia is key here. The Saudis need Brent crude to be just above $78 per barrel of oil. While the average price for all the countries comes in at $118 per barrel, Bahrain needs just above $127 per barrel to meet its breakeven point.

I find it interesting that the last time Brent fell below $128 per barrel, it found a floor at around $88.47. These countries made sure the price remained above Saudi Arabia’s breakeven point. And now Brent is heading back towards the price all the countries listed above need to breakeven.

In the last two months alone, Brent crude has climbed from around $105 a barrel to around $113, and it continues to rise. I have no doubt these countries, to ensure their budget requirements are met, will keep Brent on the rise.

Of course, as Brent crude rises, this influences West Texas Intermediate (WTI) crude, pushing it higher. That’s why it matters to us here in America. Some of the U.S. coastal states also use Brent crude.

Breakeven-Point Projections

A notable shift occurred in 2008 concerning oil and the breakeven prices Saudi Arabia needs to maintain its budget and keep the people from revolting.

In my view, these breakeven points will head steadily higher until they begin to go parabolic in the 2020s. By 2030, Saudi Arabia will need $325 per barrel of Brent crude to satisfy its budget. Check it out on the chart below.

http://sovereign-investor.com/files/2013/01/chart-3.png

When oil hits $325 a barrel, American drivers will need $200 just to fill their tank each week.

This brings me to two final conclusions. The savvy investor needs to begin to hedge his fuel costs now by owning oil stocks. These companies will benefit from higher oil and gasoline prices. So as your fuel costs go up, you’ll be reaping the benefits from the appreciation of your oil stocks.

Secondly, oil and oil stocks are no-brainer investments, in my opinion, because I have full confidence that these Middle Eastern dictators will do whatever it takes to keep oil at a price that allows them to remain in power.

In my Commodity Trend Alert newsletter service, you can be sure that I’ll be trading some oil stocks and buying some call options over time to take advantage of this rising tide in oil.

The writing is on the wall for oil prices… so prepare yourself for a steep climb ahead.

Have a nice day!


Sean Hyman
Editor, Commodity Trend Alert

I'm going to be more active with this particular thread in regards to live trades and charts again using a part of the Third Screen Strategy of Dr. Alexander Elder.

Here is how it will work...

I use a Trend Strategy which uses a part of the "Third Screen Strategy" of Dr. Alexander Elder. First, I find in a D1 chart the global trend using the MACD indicator. Once the overall trend is clear, I use the H1 time frame to act in the same trend using the Williams Percentage Indicator. When the positions are opened I manage economic news and fundamental analysis to close the position if I think the trend is about to reverse on the D1 chart. However, I will try and use a hard stop loss and take profit during the majority of the trades which you will find below.

The above mentioned Trend Strategy is used in confluence with Price Action Support Resistance (PASR). Major areas of Support and Resistance are found using the Weekly and Monthly charts. It is important to observe Price Action (candle formation) at these significant S&R levels before placing a trade.

I will be focusing on only two currency pairs from now on - EUR/AUD & AUD/JPY

EUR/AUD - 80k Lots
Max Positions: 8
Stop Loss: 260
Take Profit: 320

AUD/JPY - 80k Lots
Max Positions: 4
Stop Loss: 160
Take Profit: 280

I am going to link a demo account to mirror the exact same trades using the exact same lots that are in my live account. My goal will be to average at least 1,000 pips per month between the two pairs that I am focusing on.

AUD/JPY

D1 MACD just crossed over again to the upside = Bullish

Looking to enter long once Williams % shows "over sold" on the H1 time frame.

EUR/AUD

D1 MACD - Bullish

H1 Williams % - Waiting to scale in more buy positions once "over sold" on H1 time frame. However, due to the fact that I just opened up a few buy positions I will wait EUR/AUD to make new highs on the Daily chart and then retrace before scaling in more long positions.

is it at all not possible to summarise this ? too busy trading...not much time to read.

No offense but if you are too busy to read that particular post then you are probably scalping and this method wouldn't pertain to you anyways. This is a Swing Trading method where positions are held for weeks at a time.



In a nutshell:

D1 MACD
H1 Williams %

So far so good! Looking for a close above 1.320 on the Daily after which I will look to scale in a few more BUY positions once Williams % shows "over sold" on the H1 time frame.

EUR/AUD

Looks like 1.323 should be our next area of Resistance according to the Weekly charts. I'm anticipating (hoping) for some sort of pullback at that time which will provide another opportunity to scale in more positions.

Next area of resistance above 1.323 on a weekly chart is 1.366. Above that is my main target of 1.393

Areas of Resistance (Weekly)
1st Weekly Resistance - 1.323
2nd Weekly Resisstance - 1.366
3rd Weekly Resistance - 1.393

There is a lot of money to be made right now with EUR/AUD as a major trend and major resistance has been broken and confirmed. We have room for at least another 800 pips to the upside. Hope you all are able to ride this wave up with me!

AUD/JPY

Just put in a BUY order for AUD/JPY @ 97.01

D1 MACD - Uptrend

H1 Williams % - Over Sold

SL: 160
TP: 280

Adding one more BUY @ 96.89

Adding one more BUY @ 96.70


Current Open Positions:

97.01, 96.89, 96.70

Scaled in my last BUY position for the time being @ 96.51

Current Open Positions:

97.01, 96.89, 96.70, 96.51

Time to sit back and wait...

no, i swing trade also. along with intraday trading off 15m , 5m charts. i work also, hence not much time to go through huge threads.


i read a book by dr elder 3 years ago. pretty good. it was about trading the trend off the weekly charts by making entries on the daily. there was also discussion about multiple time frame analysis etc.

i never got to try his methods out, as i discovered my own way of trading that works for me.

i think now that iam doing well, i will give this a shot on a demo account.



can you attach the macd and williams % indis, with settings ?



i dont seem to have the williams on my mt4, and the macd i have is totally diffrent with just upper lines. iam not an indi person so dont have much knowledge of either. never used them for live trades.


i think your aud/jpy long trades were premature. iam waiting for a bounce off 10ema or 8ema on the daily, if not then looking for the 4hr stoch to be oversold, before considering long positions.

but iam sure you know you know what you are doing, i guess you are following your strategy.

EUR/AUD

According to my system we had a BUY signal in the last 15 minutes or so.

D1 MACD - Uptrend

H1 Williams % - Over Sold


*I didn't buy on my Live account but did on my demo linked to Trade Explorer which is used to track the success of my system. I'm still waiting for daily candle to make new highs and then will wait for a pullback.