RSSTrading the Correlation Between the S&P 500 & USD
By Ray Barros | January 28, 2010 | 1:06 PM | 0 Comments
The instruments I trade have been keying off the inverse correlation of the S&P and US $ (I use the DX as a proxy for the US$ crosses).
Yesterday the S&P provided a variety of buy signals and on my Barros Swings is still in an 18-day (monthly trend) uptrend. The DX setup as a potential 18-day change in trend pattern (up to down). Because the Market Profile ‘Neutral Day Closing in the Top Quadrant' is such a reliable signal, I would normally execute in the evening session.
However, the severity of the recent down move, and the prior stodgy 3-month range and volume of the up moves, made me decide to wait for today's day session before looking to enter.
Speaking of entry....
Whenever I am trading on an intra-day basis, the question I ask is whether we'll be seeing a rotational or 1-timeframe. The answer is important because if the market is rotational, I employ a contrarian strategy - buy new or old lows, sell new or old highs.
Figure 1 shows the Profiles at 10:35 EST. I am looking for a rotational day. Figure 2 shows an auction bottom which suggets the low for the day is in. Both charts show the ES low may be in. (A normal day's range (12 - 15 points) and we have seen 15 points).
Figure 3 is a 60-minute chart. I use 60-minutes because the data includes the evening sessions. I will wait for 3 bars to confirm the low is in and then will look to by at or below value. Currently the day's value area is 1082 to 1095 but as the market develops without making new lows, we can expect the Value Area to shift up. A guess would place the Value Area at 1088 to 1094 by day's end. So, I'll probably be looking to buy at 1087 to 1085.
What if I am wrong and the market moves to new lows? There is a current 3-point tolerance built into the range assessment. The market can go to 1079 and I would be still looking to go long or hold my longs. Below 1079, if I am long and not stopped out, I would need to reassess the situation and determine if I still thought the I still had a valid buy signal.
FIGURE 1 ES Market Profile
FIGURE 2 ES Market Delta
FIGURE 3 ES 60-Minutes
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