www.TheLFB-Forex.com A Forex Trader Portal
How Did We Get Here, And Where Do We Go: Market mechanics have a funny way of revealing their participant's intentions, and as such we would just like to draw your attention to a time honored view that tenured forex traders have when at economic swing points. It is taken from the way that market sentiment hits in waves, and how, over a five wave period, things change;
Wave one is rarely obvious at its inception. When the first wave of a new bull market begins, the fundamental news is almost universally negative. The previous trend is considered still strongly in force, and the move from channeling to trending is seen as impossible.
(Failing to break 89.00 as resistance on the dollar index set up Wave one at the beginning of the year; Smart Money sells dollars around 89.00)
The Federal Reserve put forth their dollar de-valuation plan in March, with the massive planned purchase of Treasury notes. By default the Fed signaled that they were set to flood the market with dollar liquidity.
(In March of 2009 the Federal reserve set in place Wave two; Smart Money sells more dollars down to 82.00)
The news is getting positive and fundamental analysts start to raise outlooks and forecasts as Wave three gets in place. Prices rise quickly, corrections are short-lived and shallow. Anyone looking to get in on a pull-back will likely miss the boat. As Wave three starts, most equity market players remain negative in their private stance that this can hold, but by Wave three's midpoint, the crowd will look to join the new bullish trend. By default, a higher equity market devalues the dollar as the move is made from bonds and Treasuries, into risk tolerant assets, like stocks and the major currency pairs. The crowd are blissfully unaware that they are following the smart money that started buying equities in Wave Two, but by now the fear of loss is dominant, and nothing is going to stop this train, so it seems.
(The ability of equity markets in March through May to refrain from volatile bearish moves that come out of nowhere, and their ability to hold in the green at the close of most sessions that they traded higher in, set up Wave three; Smart Money sells dollars down to 80.00)
Wave four is typically clearly corrective, for those who have traded the patterns before. Prices may meander sideways for an extended period. Volume is well below that of Wave three. This is a good place to buy the pull-back that seems to always come, if you understand the potential ahead for Wave five. The 'equity Crowd' has joined in, and got on the equity buying boat. The herd is on the move, just at a time that market makers are pulling back to test support areas. Confusion reigns as the near-term charts reverse the intermediate trend, and the daily charts start to look lost. The economics are in place to hold the moves, so it seems, but the charts go through a testing, or consolidation phase. Then suddenly there is a noticeable change in the tone of headline sound-bites; things start to smell a little.
(This is where the four hour time-frame dominates, and the recent consolidation to 4 hour price action areas, that have a buy resistance/sell support feel to them on the majors, sets up Wave four; Smart Money banks dollar profits)
Wave five is the final leg and the news is almost universally positive and everyone is bullish. Unfortunately, this is when many average investors finally buy in, right before the top of Wave five. Those that waited for the perfect signal now have it, just in time to buy the trades that those who trusted Wave one are selling into; and on the cycle goes.
Wave five looks to have already completed, or is close to doing so. We have seen those that waited until the herd got moving get floored by buying the top. They are now looking to liquidate what they see as a knee-jerk reactionary moves, that had a perfect looking technical and fundamental reason to it. By selling now, they play straight into the game that the smart money set; they are selling into those that are looking to buy on the cheap, and by default are setting up Wave one of the new move.
(Smart Money sells dollars on positive equity days)
But wait, no of course not, the news is still bearish, and the glass is still only half full.....
The global market review area of TheLFB site is showing a short global trend, that is completely oversold, that the Smart Money may have set to enable them to buy at discounted rates, that can average them in to where they are looking to push the crowd next. Do not get suckered in, buy and sell in small quantities, bank as you go, and leave maybe 20% open to catch the Wave runners.