As China’s largest trading partner and the world’s second largest producer of gold – I often look to the Australian Dollar (AUD) movement, as an excellent indication of “risk behavior” in general. As well (and more broadly speaking) many consider the “aussie” and excellent proxy for gold.
I don’t see the two assets correlation in an absolute “minute to minute” or even “day-to-day” way (as each comes with its own volatility and characteristics) but when looking at the bigger picture – similarities cannot be denied.
A 5 year weekly chart of AUD/USD – an almost mirror image of a similar long term chart of the gold ETF – “GLD”.
Now taking a closer look at the current price in AUD/USD and keeping in mind our fundamentals (currently suggesting a possible “blow off top” in risk, with continued devaluation of USD) things look very much in line for some additional upswing in AUD/USD.
This is another excellent example of how trades develop when one has the combination of “fundamental analysis” as well “technical analysis” firing on all cylinders. The opportunities for considerable profit present themselves only when BOTH ARE ALIGNED.
I see an extremely low risk / high reward set up developing here – if indeed we do get an explosive move upward in risk, as retail investors flock into stocks here near the top. One could certainly keep a relatively tight stop here, as well “buy around the horn” as I’ve suggested earlier – spreading out your risk on entry. There is lots of room to run here – with even 1.08 on a relatively near term horizon.
Monday’s arent the best day for entry as there is alot of jockeying going on. I generally will look to observe price action and see where things end up mid day.
Thanks for the post. I got in the AUD on Friday, so, a little bit on the early side.
One thing I’d like to draw your attention to, if you haven’t seen my overnight comments on Gary’s blog. I took a long, hard look at both the one year charts for Gold and Silver, and also the one month charts for their associated ETFs, GLD and SLV.
When looking at the big picture on the year chart, the current downturn is clear. On the monthly charts, however, especially in the case of SLV, it is exhibiting classic characteristics of a right translated cycle that peaked on day 13. I characterize the cycle as “classic” because even a newbie like me can recognize it without too much expertise. In other words, from 4 Jan to last Wednesday, Silver and SLV have been going straight up all month, with only the slightest interruption (GLD has been a bit more erratic, but still up most of the month).
Thus, while many are freaking out about the large drop in the second half of last week, from a cycles point of view, it should come as no surprise. And since the top is in for metals, it would appear as though the metals are going to be down and form a bottom in the coming 5-8 trading days. It will be interesting to see where that bottom forms: Higher or lower than the previous low. Will it represent the start of a new upturn, or continued down trend? My gut is telling me that the week will close down on Friday, and then gap up Monday, February 4. I will watch and see how it plays out in real life.
Meanwhile, since folks like you and I are looking at the AUD… how does the cycles scenario for the metals figure in?
Also, last Friday I was thinking of something I wanted to know your thoughts on: Does the Aussie lead the metals? Specifically, can you effectively look at the Aussie behavior in the London market and make decisions in the metals for opening bell in NY?
Hope you are doing great!
Unfortunately these things don’t all align (and certainly don’t “cycle”)in a neat and tidy row…and it is too bad that SMT has essentially thrown in the towel on attempting to trade it.
I read a bit there …and still post – but certainly don’t trade/follow the analysis.
There is no easy answer Zkotpen – no magic…no holy grail – only years and years of hard study and application. You’ve seen my views/real time calls etc – generally days n days ahead of most – and the profits made therein.
What’s missing in most short term traders is the ability to properly assess the fundamentals. Just looking at charts and levels is great – but in the end, any short term technical trader will likely be cleaned out – without a clear vision of the fundamentals driving the trade.
Silver going up yes…..Gold going up yes……AUD going up yes….the minute to minute zigs n zags are exactly that.
You are looking for short term trade signals – in patterns / charts that read on a much longer term.
No…you cannot look at a given day’s price action in AUD/USD and expect to time a purchase or sale of gold or silver – NOT AT ALL.
Again….the breakdown where short term traders (looking for a quick buck / gambling in my view) continue to neglect the need for longer term “fundamental analysis.”
Let’s put it this way…….if I started a postion long AUD/USD and tomorrow it dipped a “massive” 200 pips – on some news scare/u.s bullshit….I wouldn’t even bat an eye. Likely just buy more…and consider it an opportunity – based in what?
The fundamentals guide my trade plans – not the minute to minute technicals.Trading without the fundamentals firmly tucked away in your pocket is trading blind.
Thanks for the reply. Actually, I think my complication or difficulty is the other way round. I get the fundamentals, I think. The big picture comes easily to me, as I’m an Economist, not a trader, and my hobby is landscape photography — think wide angle for big perspective. So for the metals and other assets, I believe the fundamental environment is currency debasement, albeit keeping in mind the lackluster economy. For the Aussie, simply put, “commodities up — Australian dollar up.” And I know what a massive growth engine China and the emerging markets in Asia is for Australia.
Where I get tripped up is in the timing… those market triggers for buy and especially sell. For example, I recall recently selling out of QQQ, SPY, XLB and IBB, all of which were sound ideas going in, but I sold too early, missing out on a huge profit making opportunity. Two weeks ago, I bought GDX March 42 puts… sold them last week, cursing myself for even bothering as GDX topped $45. Now look where that is. I also recall selling out of silver and moving to the sidelines… just before silver’s best week, January 14-18.
When I purchased all of the above, the positions made perfect sense from a fundamental standpoint. XLB, since construction leads economic recovery, stock market, which I thought would best 1500, and biotech, which looked strong. I also had a hunch that a small position in AGQ would pay off. Finally, looking at James R’s posting of the 60 year miners chart from Barrons, it made perfect sense to me that miners would drop sharply before they rose.
When things were going the wrong way on these positions, I sold to “stop loss” — I ended up selling to kill profit!
A lot of people opine that miners lead the metals, but as an Economist, I find that makes no sense, fundamentally. First buyers increase demand of our favorite product, widgets. Increased demand is based on income and preferences. Then the price of the widget goes up as supply is fixed in the short term, in the face of rising demand. Widget sellers increase orders to their producers, causing them to increase output, and only then will the value of the widget producers — in this case, miners — go up.
I also agree with you that there’s no magic chart, but we do have seasons. Everything in nature has its cycles. Hand in glove with that is regression to the mean. And from years of calculus and diff eq studies at an early age, I do realize that the mean is not fixed, but moving — hence, moving average. I understand the second derivative of any time rate of change function, such as price vs. time.
So what I’m trying to say here is, though your comments are generally applicable to most people looking for a quick trading signal without understanding fundamentals, I believe my weakness is the opposite — and that appears to be one of your strong points, based on your posted trades on twitter, which continue to impress and amaze me.
Where I struggle is on when to pull the trigger — in real time, on moving subjects. When to buy, and when to sell, for maximum positive profit, with minimum risk.
Funny how at times its difficult to discern characteristics of a person through these little chat windows – Zkotpen! – Your experience and general field of knowledge should provide as an excellent asset here at Pot Stock Watch…I strongly encourage you to not only stick around – but to post your thoughts and opinions openly.
I promise that I can help you with your short term trading – no question, as yes I am very confident in this area. The short term “squiggles” can be a real hassle – I’m positive I can move you along.
Let me ask you – how much actual time per day are able to be on / near your trades/computer?
Thanks for your reply. I appreciate your comments and guidance.
As for computer time, specifically when markets are open, I’m most available in the morning America-time, which appears to be most active in the markets. I work on my laptop, though I am currently planning on buying a tablet with SIM card support, for added mobility… to break free from my desk! That’s my next priority in office equipment.
Funny thing, I was considering heading to Palenque, over in your neck of the woods, before crossing the Pacific. I must admit, though, Thailand is the lowest stress country I’ve lived in so far. People here have a live and let live attitude toward life. So while I’m quite happy to be here in winter, the time difference can be challenging, as I’ve had a few all nighters (til 4:00 a.m. local time, when the NYSE closes).
Let me know what you think.
Cheers ~ zkot
Palenque….and all the ruin sites here are truly incredible – I am in Chitzen Itza often.
Thailand sure looks great to me….as a diver I’ve looked into Phuket many times – but still havent gone.
As for computer time – I am available , and usually working – for a larger amount of time per day which often helps in my trading. I am regularily at the computer and often will “pop in” or “pop out” so…..this is a definate advantage.
We can get into this im much greater detail – as its bed time for me now!
Do you think there is a chance of Yen crashing (relative to Euro or to USD)?? Not too long ago, we were all thinking that Yen can turn around anytime and does a strong bear-market rally!
No Fear – hasn’t it more or less crashed already!?
Long term you bet…..Yen has miles to go – but we should expect a reasonable bounce here soon enough – as nothing moves in a straight line.
I like the look of the Aussie here too, Kong, but actually am even more interested in the Euro for the next couple of months (it’s been a long time since I said that!). There are still a lot of Euro bears out there who underestimate the willpower of the EU elite to keep the project going and who think the promises made by the ECB and EU leaders are hot air. While there is a lot of smoke and mirrors going on there, I think the fact that the crisis did not get as bad it could have, the fact that the ECB is not printing in the conventional inflationary / devaluationary sense, and with plenty of Euro bears asking to get creamed, we could see a nice rally here. Anyway, just a thought!
PS. Australia is not China’s largest trading partner, it’s the other way around – you made this typo once before, just thought I’d point it out.
I completely agree Kreks – as EUR gets the full benefit of USD weakness on many levels as well.
And thanks for the correction – you got it. Twice gees….we’ll seei f I get it right the next time!
Hi Forexkong, I am glad to found your site:). Hope to learn from you as much as possible:).
Whats your current views on EURAUD? Whats your target level if it goes up? Whats your retrace level?
EUR/AUD is an extremely volatile pair – and will (seriously) rip your face off in a single day with moves well and above 150 pips easy.
I trade it…but with very small position, and rarely – as it is a bit of a conflict for me. When “risk is on” EUR should take action…but AUD ALSO!…so its not nearly as cut and dry – as trading a safe haven against a commod. CAUTION WHEN TRADING THIS ONE.
Thank you very much for your input. I will be careful with this pair.
Thank you for messaging via twitter whenever you post on your blog. It is a great way to keep informed.
Awesome feedback thanks Fugu.
I have been hoping to here from readers as to how /when they read at the site. I hope Im not “tweeting” people to death with a quick lil note of a current update.