Hi, these are just ideas not recommendations, sometimes I trade my ideas, sometimes I don’t.
Always remember, yours is the responsibility for your trades,
Good luck,
Erick



Sunday, January 8, 2012

A few traditional technical signals and some untraditional opinions

The golden cross by definition is a very bullish indicator that happens when the 50dma crosses above the 200dma. Well, the ma(50) is now above the ma(200) so according to the description we ought to expect the markets to keep strong.


Au contraire of the golden cross is the dark or black cross, a supposed bearish signal that comes in effect when the 50dma crossed below the 200 dma.
For the past 10 years we had some gold and dark crosses in the Dow, a total of 8 dark crosses registered in the index, the number of gold crosses were 9.

Dark signals are red, gold signals are blue:


Had we traded this signals the results would had been like this.


Of the 8 dark crosses only 2 produced profits although the January 08 cross gave a 36% profit, the 25% right times makes this signal a lousy trading strategy.

Of the 8 golden crosses in the last 10 years without the one in January 3, 2012, 4 signals resulted in positive results. The 50% of the time that this signal gives positive results makes it also an almost worthless trading signal.

The USD United States Dollar

The Federal Reserve Created and maintains three different Dollar Indexes

The Broad Index
“The broad index is a weighted average of the foreign exchange values of the U.S. dollar against the currencies of a large group of major U.S. trading partners. The index weights, which change over time, are derived from U.S. export shares and from U.S. and foreign import shares.” From Fed Website
The FED staff selected 26 currencies of countries whose bilateral U.S. imports or exports exceeded 0.50% of the total in 1997. Adjustments were made for taking the Euro into account.
The Major Currencies Index

“The major currencies index is a weighted average of the foreign exchange values of the U.S. dollar against a subset of currencies in the broad index that circulate widely outside the country of issue. The weights are derived from those in the broad index.”
For this index, seven of the twenty-six currencies in the broad index were selected. The Euro, Canadian Dollar, Japanese Yen, British Pound, Swiss Franc, Australian Dollar and Swedish Krona. These currencies trade widely in markets outside their areas and because of that the “Major Currencies Index” can be used to gauge financial market pressures on the dollar.

OITP (Other important trading partners) Index
“The OITP index is a weighted average of the foreign exchange values of the U.S. dollar against a subset of currencies in the broad index that do not circulate widely outside the country of issue. The weights are derived from those in the broad index.”
This Index in contrast to the evolution of the Major Currencies Index have trended upward since 1980 basically because the currencies in it have depreciated sharply as a result of high inflation in their respective countries.


I’m going to chart the Major Currencies Index trying to define a relationship between this Index and the Dow Jones. The data is from the FED website.

For the past 10 years The USD had made two lows almost at the same level, in march 2008 it closed at 70.35 in the beginning of the big 2009-2009 Dow Drop, The USD closed at 83.5 in February 2009, in a year the Index gained almost 19%, the Dow in that period dropped 45% from a close at 12262 in March 2008 to 7062 in February 2009.

The USD Index made a 10 year low in august 2011 at 69.07 the Dow closed at 11613 in that date, so we have a 2008 like situation now.

From 8/11 to this month the USD has gone from 69.07 to 72.83 for a 5% appreciation, the Dow closed last Friday at 12359 for a 6% gain since August 2011.
Someone must give; either the USD continues making new lows or the Dow is in the path of a correction.

No comments:

Post a Comment

BlogCatalog

Investing Blogs - BlogCatalog Blog Directory

Followers

About Me

I am a civil engineer who likes charts, to me, speculating in the markets is both a hobby and a second profession and in my view the stock market is the most honest environment, since it is only your knowledge and preparation that matters. I live, and work in the construction industry, in the Dominican Republic. I read and answer all my mail so please feel free to write sternloinaz@gmail.com Thanks, Erick