Something Interesting in Financial Video December 2014 - page 3

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Introduction to the Megaphone Pattern (Broadening Top)

  1. The megaphone pattern, also known as the broadening top pattern, involves price making higher highs AND higher lows.
  2. As such, it is indicative of greater volatility and instability in the market.
  3. Specifically, traders should look for five points: a high (point A), a low (point B), a high that is higher than point A (this is point C), a low that is lower than point B (this is point D), and a high that is higher than point C (this is point E).
  4. Typically, the pattern emerges at the end of an uptrend and is a sign that the market is headed down.


A Megaphone Top is a relatively rare formation and is also known as a Broadening Top. Its shape is opposite to that of a Symmetrical Triangle. The pattern develops after a strong advance in a stock price and can last several weeks or even a few months.

A Megaphone Top is formed because the stock makes a series of higher highs and lower lows. The Megaphone Top usually consists of three ascending peaks and two descending troughs. The signal that the pattern is complete occurs when prices fall below the lower low.

Volume in the Megaphone Top usually peaks along with prices. It is usual to see trading volumes increase or remain high during the formation of this pattern. The eventual breakout and reversal can be difficult to identify at the time of its occurrence because volume does not appear unusual.
The target price provides an important indication about the potential price move that this pattern indicates. Consider whether the target price for this pattern is sufficient to provide adequate returns after your costs (such as commissions) have been taken into account. A good rule of thumb is that the target price must indicate a potential return of greater than 5% before a pattern should be considered useful, however you must consider the current price and the volume of shares you intend to trade.


 

USD Rally Post-FOMC Bolstered by Surprise SNB Action: Thursday, December 18, 2014

  • USDCHF bursts to fresh yearly highs after SNB goes negative.
  • USDJPY back in uptrend, but yet to clear recent swing highs.


 

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newdigital, 2014.12.19 03:57

AUD/USD Exhaustion Trade- Shorts at Risk Above 8064 (based on dailyfx article)

  • AUDUSD coming into key support threshold / inflection range 8065-8118
  • Region defined by the 1.618% ext off the 2011 high & the 2010 low
  • Shorts at risk into this region- bullish invalidation



 

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newdigital, 2014.12.20 09:20

Euro Struggles Ahead of Greek Election- USD/CAD Carves Lower Highs (based on dailyfx article)

  • EUR/USD slips to a fresh monthly low & threatens bullish formation in the Relative Strength Index (RSI) as Greece prepares for the second-round of voting on December 23; next downside target comes in around 1.2190-1.2200 (50% expansion).
  • Will look for a bullish breakout in the Relative Strength Index (RSI) to favor a further advance in USD/CHF especially as the upward trending channel continues to take shape.



 

Oil Crash of 2014: Why It's Happening and How to Trade

1. Oil crash coincided with the introduction of economic sanctions against Russia
2. 80% of shale oil production in the US economically unviable at $60 per barrel
3. The impact of the crash in oil is impacting high yield credit markets and the financial markets of major oil exporting countries, like Russia and Nigeria
4. Is this part of a political war to weaken Iran and Russia and their allies?
5. In terms of trading strategies one could speculate that this is a cold war that will lead to hot war, that oil will rebound after bottoming (my personal favorite), or that deflation is happening and that the US dollar and US Treasury bonds will continue to benefit.


 

Global Deflation and Ways to Trade It

1. Deflation is largely about a decline in economic growth
2. Current talks of global deflation tend to focus on a rise in emerging market debt and a rejection on the part of investors to inexpensively finance more emerging market debt
3. This makes it hard for emerging market economies to grow
4. In turn, commodities have less demand and commodity prices fall
5. Moreover, capital flees emerging markets and seeks the US dollar and US government debt as safety
6. The US dollar and US Treasury bonds rally in deflation


 
Yen Crisis: What It is and How to Trade It

1. Japan has an incredible debt burden
2. The country is running a budget deficit, which means it is still addicted to debt
4. The country is running a trade deficit and has a demographics crisis, which suggest it lacks the ability to grow its way out of its crisis
5. This may result in a devalued yen resulting from the Bank of Japan printing yen to pay off debt as well as from foreign debt holders growing increasingly concerned about the situation and withdrawing capital from Japan.

 

Strategy Video: A Lesson for 2015 from Past Financial Crises (based on dailyfx article)

  • Before financial market crises unfolder there is a steady erosion of the system's structure
  • In 2008, an appetite for leverage and need for return led to implosion triggered by Bear Stearns
  • The 1998 failure of Long Term Capital Management offers a similar story to the conditions we face today

Financial crises often explode from periods of exceptional market performance and their appearance is usually catches the investing community off guard. Yet, as dramatic as the market reactions may be; these disruptive periods of rebalancing are not so obscure when the underlying structural circumstances of the financial system are accounted for. Back in 2008, the Great Financial Crisis was built upon an appetite for excessive return and leverage through high finance. It was, however, subprime and Bear Stearns' collapse that receives the blame. Further back, 1998 draws a strong corollary to today's market with an Asian financial crisis and Russian default leading to the dramatic failure of Long Term Capital Management. Heading into 2015, we have: excessive leverage; exposure to exceptionally risky assets; low returns; a dependency on low volatility; and growing investor doubt. We discuss the importance of appreciating a big-picture structural risk heading into 2015.


 

Strategy Video: A Systemic Change in Market Conditions for 2015 (based on dailyfx article)

  • Record highs for US equities and a slump in volatility developed under precarious circumstances
  • Important changes in the financial system were already starting to take place in 2H 2014
  • In the New Year, look for volatility to increase, risk aversion to take and trading approaches to change

Record highs in markets founded on record exposure to leverage and exceptionally low rates of return make for an ill-fated future. While benchmarks like the S&P 500 have chugged along consistently for nearly six years following the Great Financial Crisis, the foundation for this performance never fully set. The higher we reach, the more obvious the instability of the situation becomes. Market participants were already showing greater deference for these concerns in the second half of 2014, but the convergence of all the elements and damaging catalysts will more dramatically and permanently turn the current. This will result in more systemic volatility, greater correlations, rising volume, a focus on 'risk aversion' and a change in traders' approach to the market. We discuss the trading landscape of the New Year in today's Strategy Video.



 

Forex Video: The Equal Waves Pattern (based on dailyfx article)

Many traders ask how to begin labeling their chart using Elliott Wave Theory. Try starting with the Equal Waves pattern. The video above describes what the pattern is, how to measure it, and what you can anticipate once the pattern is identified.

The Equal Waves pattern is a three wave structure. Therefore, it can also indicate what the larger degree Elliott Wave pattern in development.

For example, depending on where it shapes, the pattern could be the A or B leg of a flat correction, one of the legs of a triangle, an entire zig zag correction, one leg of a complex correction, or one of legs of a diagonal motive wave.


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