Week Ahead 12th – 16th May

 

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 Monday The start of the week is fairly light in the way of data with the U.S. Federal Budget Balance and the NAB Business Confidence Data from Australia the only data of any note.

Tuesday sees more in the way of important economic data from various regions with the release of core retail sales out of the U.S. and the German ZEW economic sentiment index. Last month retail sales rose by 0.7%, recovering from the winter weather experienced at the beginning of the year, retail sales are expected to show continued growth with a rise of 0.5% expected.

Wednesday sees producer price data from the U.S. Producer prices gained 0.5% in March the largest gain in four years. April prices are predicted to rise 0.2%. In the U.K the Bank of England will release its quarterly inflation report, this is unlikely to contain any major changes to the inflation and growth outlook.

Thursday U.S. Unemployment Claims. Last week’s figure dropped below forecast to 319,000. Although some slack still remains in the labour market, it however continues to gain traction so a further decrease in claims is to be expected in this week’s figures.

Friday U.S. Preliminary Consumer Sentiment rose to 82.6 in April, its highest in nine months as current conditions and expectations continue to strengthen. With more favorable economic news reaching consumers recently another improvement in consumer sentiment is expected.

 Monday

April U.S. Federal Budget Balance

April U.K. BRC Retail Sales Monitor

April Australian NAB Business Confidence

Tuesday

April China industrial production and retail sales

May German ZEW readings

April U.S. retail sales

Wednesday

April German CPI, final

April U.K. unemployment, BoE inflation report

April U.S. PPI

Thursday

Q1 Japan GDP preliminary

Q1 Euro-zone GDP preliminary

April U.S. CPI, weekly jobless claims

Friday

March Euro-zone trade balance

April U.S. housing starts and building permits, May University of Michigan consumer confidence index preliminary

Fibonacci and Elliott Waves

 

Elliot-wave

 

Fibonacci and Elliott Waves

Leonardo Fibonacci was a 13th century accountant who worked for the royal families of Italy. In 1242 he published a paper entitled “liber abaci.” The basis of the work came from a two-year study of the pyramids at Gizeh. Fibonacci discovered that the dimensions of the pyramid were almost exactly the same as the golden mean or (.618). Fibonacci is most noted for his Fibonacci Summation Series, this enabled the old world in the 13th century to switch from Arabic numbering (XXIV=24), to the arithmetic numbering (24), that we still use today. Fibonacci was awarded the equivalent of today’s Nobel Prize for his work in mathematics.

Fibonacci Summation Series

The Fibonacci Summation Series takes 0 and then adds 1. Succeeding numbers in the series adds the previous two numbers and so we get 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89 to infinity. At the eighth series, by dividing 55 by 89, you have the golden mean: .618. If you divide 89 by 55 you have 1.618.
It may be easier to understand the pattern if you look at it like this
1+1=2, 1+2=3, 2+3=5, 3+5=8, 5+8=13…..

These ratios, and several others which are derived from them, appear in nature everywhere, and in the financial markets they can often indicate levels at which strong resistance and support will be found. Why are they important to the financial markets? Because the markets tend to reverse right at levels that just happen to coincide with the Fibonacci ratios. For example, if the Nasdaq rallies 100 points and then corrects, it will often correct 61.8%, right at, or close to the 61.8%. Fibonacci support and resistance levels can and do fail. There are other Fibonacci levels which may turn the markets (78.6%, 127.2%, 161.8%, etc.). But the fact that it does happen is what is called a trader’s edge.

Elliott Wave was developed by R. N. Elliott as a way of analysing price movements of assets within financial markets. From the analytical perspective, there are two types of waves, the key is to determine the impulsive and corrective waves, first the impulsive waves need to be identified, then the five wave sequence needs to be identified to provide a starting point from which to commence the analysis. A typical wave pattern consists of five up waves in a bull markets, followed by three waves down. The five up waves consists of three impulsive waves, 1, 3 and 5 and two corrective waves, 2 and 4. The correction following the completion of the five waves unfolds in three corrective waves, a, b and c.
Finding a wave pattern that completes at a strong Fibonacci support or resistance level can be a very reliable indicator of a change in the current trend. When an Elliott Wave pattern complete right “at” a Fibonacci support or resistance level, you in essence have increased the probabilities of being correct.

Trading Patterns

Because the markets often move in 5 wave and 3 wave patterns, and the turning points that create these patterns are often at Fibonacci support and resistance levels (61.8, 161.8, etc.). There are several trading patterns which are used by traders, which take advantage of the combined strength of Elliott Waves and Fibonacci retracements. These patterns commonly repeat in stock and index charts and traders who use them are called “pattern traders.” Although pattern recognition is a potent tool in trading they require experience and a thorough understanding to be able to put into a trading plan that is beneficial.

For more detailed understanding the video below provided by binary.com goes into the basics of Fibonacci trading.

Week Ahead 5th – 9th May

 

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Last week was a busy week for economic data which saw U.S. GDP come in well below expectations with a rise of only 0.1%. Inflation in the euro-zone was also worse than had been expected prompting more speculation around the possibility of the ECB stepping in and providing financial stimulus.  In the U.K. the latest data showed that the UK economy grew by 0.8% in the first three months of the year. Chancellor George Osborne said that the figures showed that “Britain is coming back”. There has been strong manufacturing and services growth which has kept the UK on track of economic recovery. The week ended with release in the U.S. non-farm payrolls on Friday which came in way ahead of forecast with job gains of 288,000 and a drop in the unemployment rate to 6.3%

The main interest in the euro-zone region will be the European Central Bank’s Governing Council meeting on Thursday and the following press conference held by the  ECB chief Mario Draghi’s, no surprises are expected and no fresh action is expected but there may be hints contained within his press conference. With the economic recovery in the U.K. seemingly well under way there will be some important economic data released to re-affirm the growth, the most notable being the Halifax house price index and Markit Services and Composite PMI’s on Tuesday, while on Friday March trade data and industrial production. In the U.S. after the last week’s heavy data load the week ahead is somewhat lower with Non-manufacturing ISM due out on Monday and trade balance figures on Tuesday.

Main Economic data due in the coming week.

 

Monday –EU: Sentix Investor Confidence, PPI.
US: Final Services PMI, ISM Non-Manufacturing PMI.
China: HSBC Manufacturing PMI
Tuesday –UK: Services PMI.
EU: Spanish Unemployment Change, Spanish Services PMI, Italian Services PMI, Final Services PMI, Retail Sales.US: Trade Balance, IBD/TIPP Economic Optimism.
Wednesday –UK: BRC Shop Price Index.
EU: German Factory Orders, French Industrial Production, French Trade Balance, Retail PMI.
US: Prelim Nonfarm Productivity, Prelim Unit Labor Costs, Consumer Credit.
China: HSBC Services PMI
Thursday –UK: RICS House Price Balance, Asset Purchase Facility, Official Bank Rate.
EU: German Industrial Production, ECB Press Conference.US: Unemployment Claims.
Friday –UK: Manufacturing Production, Trade Balance, Industrial Production, NIESR GDP estimate
EU: German Trade Balance, French Gov Budget Balance, Italian Industrial Production.
US: JOLTS Job Openings, Wholesale Inventories.
China: CPI, PPI

Pivot points explained

 

Pivot-points

 

Pivot points are a common method utilised by traders to find the support and resistance price levels of an asset. These so called pivot points are found by a carrying out a simple calculation using the Open/High/Low and the Closing price of any particular asset from the previous days pricing. When a price hovers just below a calculated pivot point or pivot support/resistance and breaks up through the calculated pivot point it can be seen as a buy signal (or vice versa for a sell signal), or if the prices are above the calculated pivot point it is considered bullish and if they are below then bearish. Pivot points are commonly used in conjunction with other forms of technical analysis and are used as a reference point for an entry point for a trade.

How is the pivot point calculated?

There are many variations for calculating the pivot point and the associated support and resistance levels and many traders have tweaked an initial calculation to try and give them an edge.

The calculation is fairly simple but there are plenty of free pivot calculators available on the internet

Traditional calculation method

Pivot Point = (Previous High + Previous Low + Previous Close) / 3

The pivot point can then be used to determine the levels of estimated support and resistance levels for the day:

Resistance Level 1 = (2 * Pivot Point) – Previous Low

Support Level 1 = (2 * Pivot Point) – Previous High

Resistance Level 2 = (Pivot Point – Support Level 1) + Resistance Level 1

Support Level 2 = Pivot Point – (Resistance Level 1 – Support Level 1)

Resistance Level 3 = (Pivot Point – Support Level 2) + Resistance Level 2

Support Level 3 = Pivot Point – (Resistance Level 2 – Support Level 2)

 

You can view the below video from Erich Senft to learn how support and resistance levels can be used in your trading strategy.