Welcome Friends


Volume 8 Issue 11	www.TradingEducation.com	December 21, 2007

Good Morning Subscribers!

U.S. stocks are rallying this Friday morning supported by strong results in the tech sector. Investors were also encouraged by a report that showed U.S. personal spending jumped more than expected in November, suggesting consumers have not been discouraged by signs of a slowdown in the economy. The yen fell against the sixteen most active currencies after the Wall Street Journal reported that Merrill Lynch & Co. may receive a cash injection from Singapore, increasing investor attraction to higher yielding assets funded by loans in Japan. Checking the commodities markets this morning, we found Crude Oil rising as a result of a government report that concluded that consumer spending gained the most in more than two years in November, signaling that economic growth and energy demand may be stronger than ever.

Wishing you good reading, good trading, and a safe and happy holiday season.

Warm Regards,

Lane Mendelsohn
Website Publisher

In This Issue...

Getting What You Really Want
by Van K. Tharp, Ph.D.

Attention Traders: Making a Trader's Checklist
by Jim Wyckoff

Currency/Commodity Markets
by Kevin Klombies

U.S. Stock Market Update
by Robert W. Colby

Weekly Currency Wrap-up
by Darrell Jobman


Volume 8 Issue 11	www.TradingEducation.com	December 21, 2007

Trading Psychology

Getting What You Really Want

by Van K.Tharp, Ph.D.

I used to do an exercise in the Peak Performance 101 workshop entitled “Getting What You Want”. The exercise starts out with a question: If you could have anything in the universe, what would it be? Perhaps your answer might be $10 million dollars. However, the exercise doesn’t end there. It just triggers another question: What would that get you? So to carry our example forward, you’d now ask, “What would the $10 million dollars get you?” Perhaps you might answer, “Security… I’d feel secure in my retirement.”

It doesn’t end with that answer. The second answer merely triggers another question: What would that get you? And to continue the example, you now ask, “What would security get you?”

This process continues at least five times. Each time you get an answer, the new question becomes, “What would that (i.e., the answer to the last question) get you? At the end of five iterations, I then survey the class for what they have come up with at the end of their questions What do you think everyone comes up with? The answer is important because it really says a lot about you. But before I give you the results, do the exercise for yourself. Answer each of the following questions:

1) If you could have anything in the universe, what would it be?

2) What would that (answer 1) get you?

3) What would that (answer 2) get you?

4) What would that (answer 3) get you?

5) What would that (answer 4) get you?

6) What would that (answer 5) get you?

I’m actually curious to know what percentage of you started out with "trading success." Perhaps a lot of you, but I doubt if anyone ended up there.

There are some universals about this exercise. With five repetitions of the question about 90% of all people end up with a mental state. Examples of mental states include security, freedom, confidence, happiness, etc. But we can take it further. If you do enough repetitions of the question, everyone ends up with a universal mental state such as Oneness, Love, Ultimate Happiness, etc. What’s interesting about the exercise is that it flat out tells you what you really want! The final answer is always one of those universal mental states (and I’m not sure that they really are not all the same).

Yet what do we do with our lives? We spend it pursuing things such as money, power, career or perhaps trading success. But that’s not what we really want. And that’s true for everyone.

Now, what if there was a course that you could take that would give you as a result of doing the course, one of those ultimate states. Would you want to take that course?

Well, let me tell you a true story about a man named Lester Levinson. Lester had advanced degrees and was a very successful entrepreneur. In that sense, he was probably a lot like most of you. However, he was very unhealthy. One day his doctors basically said, “Lester, there is really nothing we can do for you. You are going to die in a few months.” So Lester retreated to his Manhattan apartment to die. But before he did so, he did an exercise similar to the one I just took you through and concluded that what he really wanted out of life was LOVE. He looked at his life and concluded that he was the happiest when he was LOVING, rather than when he felt people loved him.

As a result, Lester started a series of mental exercises designed to help him be more loving. And as he continued to do those exercises over the next few months, he didn’t die. Instead, some remarkable things happened:

First, all of the symptoms of his illness just disappeared. And whenever something happened to his body he could heal it instantly.

Second, he found that he could materialize whatever he wanted just by thinking about it. He played with this for a while, soon materializing millions of dollars worth of real estate. But knowing that he could get those material things any time he wanted them just by thinking about them, he soon lost interest in them and just gave them away. Besides, what he really wanted was LOVE and he was getting that by being LOVING.

Third, he basically started operating in the world at the level of a very advanced spiritual being.

In the spirit of being loving, Lester started to teach what he had learned. As a result we all have that core process that Lester went through to heal himself and become happy and loving available to us through a series of five books entitled “Happiness is Free.” Each book is a seven week course, so the series is basically a 35 week course on attaining happiness. And if you do the course, I believe that you can attain a level of happiness that is way beyond what you experience today or probably what you’ve ever experienced.

However, I didn’t write this article to sell these courses, but more to convey some very important points. Logically, if you decided, after doing the exercise, that what you ultimately wanted was love or happiness, then I would expect that we’d get at least 1,000 orders for the course. Of course, you’d have to believe that you’d actually get “ultimate happiness” out of doing the course to order it. And perhaps you don’t think you really want happiness or perhaps you don’t think the course will help you attain it. That’s a personal choice.

Anyway, I was so impressed with this course initially, that I ordered a few sets and gave them to some very special people associated with my company. Later on, I then ordered ten more copies of the course to sell. And interestingly enough, we still have most (if not all) of them in stock. Most people either don’t think that they want happiness or they don’t believe that they can get it simply by completing a course (i.e., doing all the exercises). It’s rather amazing. This is what people want but they are not likely to do anything about it.

I’m so fascinated by this process that I plan to interview each of the people I gave the course to just to see what they’ve done with it. I haven’t done the interviews yet, but I think I know the results. I’ll report the actual results to you later in another article for Tharp's Thought's. And I’ll also tell you about the exercise that I just completed that motivated me to write this series of articles.

Until next week, this is Van Tharp.

Volume 8 Issue 11

www.TradingEducation.com

December 21, 2007

Weekly Futures Market Commentary

Attention Traders: Making a Trader's Checklist

by Jim Wyckoff, Senior Editor

A lot of email has come in from readers asking me how to improve upon "pulling the trigger" to enter a trade. How many traders out there have ever pondered a potential trade for so long that once they actually got ready to execute it, they then got cold feet due to concern they had missed the move?

Some traders are reluctant to put on a position because they are torn between what they perceive as conflicting market factors. Here's a typical quote from such a trader: "The moving averages are positive, the market is trending higher, but the RSI shows the market as being way overbought. What should I do?"
A "Trading Checklist" of prioritized criteria not only will help you decide when to execute a trade, but will also help you identify potential winning trades. You'd be surprised how a visual checklist can resolve uncertainty in your mind.
What kind of stuff should a trader put on a Trading Checklist? That depends on the individual trader. Each trader should have his or her own set of criteria that helps determine a market to trade and the direction to trade it--including when to get in.

(As an aside, I like to compare my trading criteria to a bunch of tools in a toolbox. The more tools I have at my disposal, the better. Also, there are different tools for different tasks. However, there are some basic tools that I think are more important than the others and that are a must for the toolbox.

In trading terms, the more you know about chart patterns, technical indicators, fundamental factors, etc., the more tools you will have in your "trading toolbox" and at your disposal when trading the markets.)
Back to the checklist: You'll want to put your most important trading tools on the checklist, and in order of importance.

At the top of my Trading Checklist is: "Are daily, weekly and monthly bar charts in agreement?" A very important position- trading tenet for me is that shorter-term and longer-term charts must agree on the trend of the market. If the daily and weekly charts are bullish, but the monthly is bearish, there's a good chance I'll pass on the trading opportunity.
So if my very first (and most important) objective on my Trading Checklist is not met, then I really don't need to go any farther down the list. I'll look for another trading opportunity.
However, if the last item (least important) on your Trading Checklist does not meet your objective, but the big majority of the other objectives on your list are met, then you may make the trade anyway. It's entirely possible that all of your trading tools on the list may not give you the proper signal to trade the market, but it's still a good trading opportunity.
Every trader should have at least a few trading "tools" that help determine a trading opportunity. Listing those tools on paper, in order of importance, and then examining that list when deciding each trade should make easier the sometimes difficult task of "pulling the trigger."

That is it for this week. You can also visit my daily blog at www.traderblogs.com

Have a great week!

Volume 8 Issue 11

www.TradingEducation.com

December 21, 2007

Commodity Markets Review

by Kevin Klombies

Currency/Commodity Markets

Below we show a comparison between the Australian dollar (AUD) futures and the stock price of Wal Mart (WMT) from 1996 into 1998.

Wal Mart’s stock price has turned upwards on two occasions over the past two decades- the end of 1988 and the end of 1996.

In late 1996 the Aussie dollar began to weaken as it crossed down through its 200-day e.m.a. line. Shortly thereafter crude oil futures prices turned lower and continued to decline for roughly the next two years as money moved away from Asia and back towards the dollar.

The chart below right shows the Australian dollar futures and WMT from the current time period. We have mentioned in passing that the WMT trend change seems to have a tendency to take place around the end of a calendar year which is why we are focusing on this now.

The AUD futures remain above the 200-day e.m.a. line and crude oil futures continue to trade in the 90’s but... the recent rally by WMT along with the ‘crossing’ of the moving average lines suggests that a trend change is at least possible.

Below is a chart of the ratio between WMT and the AUD futures along with the stock price of U.S. airline AMR. The chart covers the time period between 1988 and 1998.

As mentioned there have been two prior trend changes for WMT and following both of these the airlines have done very well. For those who might recall there was a host of take over speculation with regard to the airlines in 1989 culminating the failure of the employee-led buy out of UAL in October of that year. Through 1997 and 1998 the airlines and U.S. autos were very strong as AMR’s stock price rose from around 40 up to almost 90. The point is that to get to a better auto and airline trend we have to get past the strong commodity and commodity currency trend which should result in the AUD futures breaking the moving average lines as WMT works upwards.

Short-Term Views

We are going to make a two-handed argument here. On the one hand we can’t recall ever seeing a strong and rising equity market in the face of falling prices for the major financials. We have seen markets make bottom on many occasions in the midst of a banking crisis but the return to broad strength always went with better bank stock prices. On the other hand the markets have been deluged with bad news and have actually done fairly well. A market that will not go down on bad news tends to rise very quickly when the news turns somewhat more positive.

We are generally quite positive on the U.S. equity markets and we actually believe that this makes sense. By way of explanation we show the S&P 500 Index from 1998 at top right and from the current time period at middle right.

In a rising trend the 50-day e.m.a. line rarely crosses down through the 200-day e.m.a. line but when it does it usually marks the lows. This is what happened in 1998 when the moving average lines crossed at the start of the fourth quarter.

In the present situation the SPX is below the 200-day e.m.a. line and bit by bit the 50-day is squeezing lower. IF this is still a strong and rising trend- a debatable point, of course- THEN continued weakness through the end of December or into early January that serves to ‘cross’ the moving average lines should also mark the bottom. This might not be a strong and rising trend, of course, but given the way the SPX has held in during the recent period we have to give it the benefit of the doubt.

We have argued in the past that the equity markets can rally on strong crude oil prices and on weak crude oil prices. This brings us to the charts below. The dollar’s recovery along with euro weakness is helping to slow the ascent of crude oil prices and chart-wise it very much appears as if a major decision point is fast approaching. Crude oil is either going to make new highs on the way to 115- 120 or break the recent lows and return at minimum into the mid-70’s. The entire Wal Mart, Aussie dollar, airlines and autos argument from page 2 today depends on the lower crude oil price outcome.

Best Wishes,

Volume 8 Issue 11

www.TradingEducation.com

December 21, 2007

U.S. Stock Market Update

by Robert W. Colby

Stocks showed some resilience.

Stocks rebounded from a morning sinking spell.

Some momentum oscillators started to firm up.

But key price indexes remain below their popular 50-day and 200-day simple moving averages, and the Advance-Decline Lines remain Bearish for both the NYSE and the NASDAQ.

The Energy Stock Sector Relative Strength Ratio (XLE/SPY) rose to a new all-time high.

The Consumer Discretionary Stock Sector Relative Strength Ratio (XLY/SPY) fell to its lowest level in 6 years.

The Financial Stock Sector Relative Strength Ratio (XLF/SPY) fell to its lowest level in 7 years.

The Small Cap/Large Cap Relative Strength Ratio has started to show its typical seasonal strength.

On Thursday, major stock price indexes opened higher but immediately declined to a low at 12:45 p.m. on news that bond insurer MBIA (MBI) holds $30.6 billion in collateralized debt obligations, which is much larger than analysts expected. The credit crisis seems to be full of endless surprises.

But stock prices recovered in the afternoon and made back nearly all of the lost ground from the open. Most of the major stock price indexes closed moderately higher, with the exception of Financials and Consumer Discretionary Stock Sectors. Materials, Technology, and Energy stocks were strong, rising more than 1%.

Volume on the NYSE rose by 2%, indicating a slight increase in trading activity.

Breadth ended 12% net Bullish, with a greater number of Advancing stocks than Declining stocks on the NYSE.

Up-Down Volume finished the day 8% net Bullish, with greater Up Volume than Down Volume on the NYSE.

But still, the New Highs-New Lows on the NYSE ended at 75% net Bearish.

Spotlight on event stocks: Here is a stock screen I designed to pick out potential “event” stocks, both Bullish and Bearish. Sometimes, stocks with large changes in price and volume are revealed to be deal stocks, sooner or later, or are the subject of some other extraordinary events, positive or negative.

Bullish Stocks: Rising Price and Rising Volume
% Price Change, Symbol, Name

1.46% , PMR , Retail, PMR
1.47% , DSG , Growth Small Cap DJ, DSG
6.11% , ETN , EATON
1.83% , PSJ , Software, PSJ
0.54% , PWY , Value SmallCap Dynamic PS, PWY
1.77% , JKJ , SmallCap Core iS M, JKJ
1.46% , PWO , OTC Dynamic PS, PWO
4.29% , ATVI , Activision Inc.
1.30% , BDH , Broadband H, BDH
4.76% , RIMM , RESEARCH IN MOTION LTD
1.22% , PTE , Telecommunications & Wireless, PTE
3.46% , NKE , NIKE STK B
1.00% , JKL , Value SmallCap iS M, JKL
1.80% , JKK , Growth SmallCap iS M, JKK
0.51% , KLD , LargeCap Blend Socially Responsible iS, KLD
3.09% , BF.B , BROWN FORMAN STK B
2.31% , HHH , Internet H, HHH
1.53% , ONEQ , Growth LargeCap NASDAQ Fidelity, ONEQ
1.52% , IJT , Growth BARRA Small Cap 600, IJT
3.10% , HMA , HEALTH MGMT STK A
1.57% , PWT , Growth SmallCap Dynamic PS, PWT
2.90% , RHT , Red Hat Inc.
0.82% , JKG , MidCap Blend Core iS M, JKG
5.34% , CTSH , Cognizant Technology Solutions
2.22% , WLP , WELLPOINT HEALTH
6.43% , RSH , RADIOSHACK
0.89% , IAH , Internet Architecture H, IAH
4.62% , ADM , ARCHER DANIELS
4.63% , CMI , CUMMINS
5.03% , NIHD , NII Holdings, Inc.
3.59% , DE , DEERE & CO
3.73% , ISIL , INTERSIL CORP
1.29% , HCR , MANOR CARE
5.28% , CTAS , CINTAS
1.70% , MTK , Technology MS sT, MTK
0.52% , FPX , IPOs, First Tr IPOX-100, FPX
0.32% , JKD , LargeCap Blend Core iS M, JKD
1.58% , IGV , Software, IGV
1.29% , IJK , Growth MidCap 400 B, IJK
1.80% , SWH , Software H, SWH
1.45% , JKH , MidCap Growth iS M, JKH
0.41% , VPU , Utilities VIPERs, VPU
1.75% , PXQ , Networking, PXQ
5.26% , MON , MONSANTO
2.82% , KR , KROGER
1.33% , SVU , SUPERVALU
2.33% , SIAL , SIGMA ALDRICH
0.54% , TTH , Telecom H, TTH
1.76% , NYT , NY TIMES STK A
1.58% , IWC , Microcap Russell, IWC

Bearish Stocks: Falling Price and Rising Volume
% Price Change, Symbol, Name

-26.17% , MBI , MBIA
-11.92% , AM , AMER GREETINGS STK A
-7.22% , WOR , WORTHINGTON INDS
-5.90% , LEG , LEGGETT & PLATT
-4.20% , CNP , CENTERPNT ENERGY
-0.44% , RPV , Value S&P 500, RPV
-2.86% , CAG , CONAGRA FOODS
-3.78% , STI , SUNTRUST BANKS
-5.87% , ETFC.O , E*TRADE FINANCIAL
-4.14% , EWI , Italy Index, EWI
-3.82% , PAYX , PAYCHEX
-4.28% , EWA , Australia Index, EWA
-2.65% , MYY , Short 100% MidCap 400, MYY
-1.89% , MCO , MOODYS CORP
-1.65% , CVS , CVS
-3.23% , CIT , CIT GROUP
-2.30% , XMSR , XM Satellite R
-6.67% , XL , XL CAPITAL STK A
-1.54% , PBG , PEPSI BOTTLING
-2.64% , TGT , TARGET
-2.26% , APOL , APOLLO GROUP
-2.84% , ATI , ALLEGHENY TECH
-2.66% , CFC , COUNTRYWIDE FNCL
-1.99% , CIEN.O , CIENA
-1.27% , PETM , PETsMART Inc
-3.05% , EWM , Malaysia Index, EWM
-1.41% , BEN , FRANKLIN RSC
-1.62% , VBR , Value SmallCap VIPERS, VBR
-3.22% , PLD , PROLOGIS TRUST
-1.47% , WWY , WM WRIGLEY JR
-1.21% , GPS , GAP
-1.23% , MHP , MCGRAW HILL
-1.44% , PPL , PPL
-0.69% , VTV , Value VIPERs, VTV
-2.03% , VNQ , REIT VIPERs, VNQ
-5.15% , MTG , MGIC INVESTMENT
-1.70% , AXP , AMERICAN EXPRESS
-1.35% , MRK , MERCK & CO
-3.49% , FRE , FREDDIE MAC
-0.99% , PRU , PRUDENTIAL FINL
-1.60% , TROW , T ROWE PRICE GP
-1.14% , APD , AIR PRODS & CHEM
-0.73% , MYL , MYLAN LABS
-2.64% , BBT , BB&T
-0.48% , RKH , Bank Regional H, RKH
-0.98% , OMC , OMNICOM
-1.75% , ODP , OFFICE DEPOT
-1.48% , JPM , J P MORGAN CHASE
-1.79% , KEY , KEYCORP
-1.06% , FDX , FEDEX

Sectors: among the 9 major U.S. sectors, 7 rose and 2 fell.

Major Sectors Ranked for the Day
% Price Change, Sector

1.84% Materials
1.44% Technology
1.27% Energy
0.83% Industrial
0.59% Health Care
0.49% Consumer Discretionary
0.44% Utilities
-0.45% Consumer Staples
-0.72% Financial

Looking beyond the daily fluctuation to the major trends (listed in order of long-term relative strength):

Energy (XLE) Bullish, Overweight. Relative Strength made a new all-time high on 12/20/07. XLE made an all-time closing price high on 10/16/07. XLE has been strong compared to the S&P since 3/12/03.

Utilities (XLU) Bullish, Overweight. This defensive sector’s Relative Strength made a new 6-year high on 12/5/07, and price made a new all-time high on 12/10/07.

Materials (XLB) Bullish, Overweight. The XLB/SPY Relative Strength Ratio made a new all-time high on 11/8/07. Price made new all-time high on 10/29/07. The long-term Relative Strength trend has strongly outperformed since 9/27/2000.

Technology (XLK) Neutral, Market Weight. Relative Strength turned up from a low on 11/30/07. And, long term, XLK has been relatively strong compared to the S&P since its low on 7/24/06.

Consumer Staples (XLP) Bullish, Overweight. This defensive sector’s price made a new all-time high on 12/10/07, and Relative Strength made a new 6-year high on 11/26/07.

Health Care (XLV) Neutral, Market Weight. XLV price moved up to a new 6-month high on 12/3/07. Relative Strength moved up to a new 13-month high on 11/27/07.

Industrial (XLI) Neutral, Market Weight. Price and Relative Strength have been chopping sideways since 8/3/07. Longer-term trends appear Bullish.

Consumer Discretionary (XLY) Bearish, Underweight. On 12/20/07, the XLY/SPY Relative Strength Ratio fell to its lowest level in 6 years. Relative Strength has been trending down since 1/5/05. XLY price made a new 14-month low on 11/27/07.

Financial (XLF) Bearish, Underweight. On 12/20/07, the XLF/SPY Relative Strength Ratio fell to its lowest level in 7 years. Relative Strength has been trending down since 2/20/07. XLF price hit a new 2.5-year low on 11/26/07.

Foreign stock indices have underperformed U.S. stock indices short term, since 11/27/07. The EFA (the EAFE, international developed country stock markets, ex the U.S. and Canada) made a new price high on 10/31/07 and a new relative strength high on 11/27/07. EFA has substantially outperformed long term, since the Bull market started in 2002, and the secular trend is still Bullish. My Top 10 ETF Relative Strength Ranks have been nearly all Foreign for many months.

NASDAQ Composite and NASDAQ 100 underperformed the S&P since 11/7/07. But trends in different time frames conflict. Longer term, NASDAQ outperformed from 8/8/06 to 11/7/07, including a new 6-year Relative Strength high on 11/7/07 and a new price high on 10/31/07.

Growth Stock/Value Stock Relative Strength Ratio has been in a neutral trend since 11/7/07. The long-term, the main trend for the Growth/Value ratio (IWF/IWD) has been rising since 8/8/06.

The Small Cap/Large Cap Relative Strength Ratio has started to show its typical seasonal strength. Year end and early January often has been good for small caps. But the main long-term trend is Relatively Bearish for Small Caps. The ratio fell to a new 2.5-year low on 12/17/07. Small Caps substantially underperformed Large Caps since 4/19/06.

Crude Oil Futures consolidated with a second consecutive “Inside Day”, where the high-low price range is contained entirely within the previous day’s range. An “Inside Day” indicates consolidation. Oil has been in a correction/consolidation phase for more than 3 weeks. Resistance is at the 12/13/07 high of 94.85 and at the 11/21/07 high of 99.29. Oil found support at the 12/6/07 low of 85.82. The U.S. OIL FUND ETF (AMEX: USO) is not a pure play on Crude Oil, although it generally moves in the same direction.

The Energy stock sector outperformed the USO since 11/26/07. Previously, over the 6 months from 5/30/07 to 11/26/07, XLE lagged oil the commodity. February Gold Futures fell below its previous 2-day lows, a sign of weakness for the very short term. In the bigger picture, Gold remains in a consolidation pattern, with the upper end of the trading range at 855.00 set on 11/7/07 and the lower end at 778.40 set on 11/20/07.

Silver’s main trend is Bearish compared to Gold. The iShares Silver Trust (AMEX: SLV) has been relatively weak since 12/7/06.

The Gold Miners ETF (GDX) has underperformed Gold Futures since 10/31/07. Price made a new 13-week low on 12/18/07.

Inflation expectations have recovered since 12/5/07. The short-term trend has been mostly rising, based on the behavior of the ratio of two ETFs, TIP/IEF.

U.S. Treasury Bond prices gave up early gains. Bonds may have hit resistance after rising this week. Bonds have been in short-term correction since their price top on 11/26/07. Bonds remain reactive to news about the credit crisis: the worse the credit crisis, the higher the Bond prices; the better the credit crisis, the lower the Bond prices.

The U.S. dollar rose to another new 2-month closing price high. The short-term price trend has been up since the oversold low at 74.65 on 11/23/07. Longer term, there could be plenty of overhead resistance and the main trend is still Bearish. The dollar fell 19% from its high of 92.53 on 11/16/05 to its low of 74.65 on 11/23/07, moving it into “oversold”.

Daily Rankings of Major Global Markets, Ranked from Strongest to Weakest of the Day:

2.40% Chemicals
2.08% Hardware
1.90% Nasdaq 100
1.90% DOT
1.84% Materials
1.63% Computer Tech
1.62% Internet
1.53% Nasdaq Composite
1.53% Hospitals
1.51% Russell 2000
1.44% Technology
1.35% Semiconductors
1.34% Commodity Related
1.33% S&P Small Caps
1.27% Energy
1.24% Natural Gas
1.23% Network
1.18% S&P Mid Caps
1.18% Oil Services
1.06% Biotechs
1.05% Brazil
0.98% AMEX Composite
0.98% Value Line
0.85% Paper
0.84% Disk Drives
0.84% Insurance
0.83% Industrial
0.69% Health Care Products
0.65% Hong Kong
0.63% Russell 3000
0.62% Wilshire 5000
0.59% Health Care
0.57% Broker Dealers
0.57% 30Y T-Bond
0.55% Russell 1000
0.54% United Kingdom
0.49% S&P 500
0.49% Consumer Discretionary
0.49% Germany
0.47% Canadian Dollar
0.46% Oil
0.44% Utilities
0.42% S&P 100
0.42% Gold Mining
0.42% Canada
0.41% Health Care
0.38% NYSE Composite
0.38% Japan
0.29% Dow Industrial
0.26% US Dollar Index
0.26% Japanese Yen
0.14% Dow Composite
0.01% REITs
-0.01% Dow Transports
-0.02% Dow Utilities
-0.03% Swiss Franc
-0.07% Australian Dollar
-0.22% Drugs
-0.26% Euro Index
-0.32% Retailers
-0.45% Consumer Staples
-0.51% France
-0.52% Banks
-0.70% British Pound
-0.72% Financial
-0.88% Mexico
-0.90% Switzerland
-1.17% Airlines
-1.23% South Korea
-1.29% Taiwan
-1.44% Austria
-1.82% Spain
-2.18% Belgium
-2.75% Netherlands
-3.05% Malaysia
-3.23% Singapore
-3.49% Sweden
-4.14% Italy
-4.28% Australia

Best Wishes,

Volume 8 Issue 11

www.TradingEducation.com

December 21, 2007

Weekly Currency News Trading

Weekly Currency Wrap-up
Week Ending December 21, 2007

by Darrell Jobman, Editor-in-Chief

There was evidence of significant position adjustment over the week as global credit fears were enhanced by year-end liquidity pressures. There was also some evidence of a repatriation of funds to the US dollar even though underlying US currency confidence remained weak.

The US housing data remained weak with housing starts falling to an annual rate of 1.19mn from 1.23mn previously while permits were weak and there was particular concern over a further decline in single-family housing starts.

The New York Empire index fell sharply in December to 10.3 from 27.4 the previous month. The Philadelphia Fed survey also weakened sharply to -5.7 for December from 8.2 previously which was the weakest figure since April 2003.

The current account deficit narrowed to US$179bn in the third quarter from US$189bn the previous quarter. This was equivalent to 5.1% of GDP with the deficit cut by a rising surplus on investment income. The latest capital account data recorded net long-term inflows of US$114bn from a revised US$15.4bn the previous month as the immediate sub-prime panic subsided.

There was a series of credit rating downgrades over the week with the downgrading of the outlook for bond insurers MBIA and Ambac Financial important in increasing underlying credit fears while Bear Sterns reported a first-ever quarterly loss.

The Federal Reserve auction to add additional liquidity did not have a major impact on the US currency, although there was some relief for Wall Street.

The German IFO index fell to 103.0 in December from 104.2 the previous month which reinforced expectations of a significant slowdown in the German economy, especially with the IFO warning that conditions had deteriorated.

ECB officials expressed concern over the Euro-zone growth outlook with Liebscher, for example, emphasising the downside risks, but there were further tough comments on inflation from the central bank.

The ECB moved to add in a huge amount of liquidity to support markets over the year-end period. Following the auction, there was speculation that funds were being switched out of Euros into other major currencies.

The US dollar has retained a stronger tone over the week and pushed to highs near 1.43 against the Euro before a correction with the trade-weighted index also strengthening for the third consecutive week.

The Bank of Japan left interest rates at 0.50% following the latest council meeting. The vote this month was unanimous with Mizuno not calling for a rate increase after several months of voting for an increase. The central bank also lowered its growth forecast for the current fiscal year.

The yen was, in general, able to rest heavy selling pressure against the dollar, trading close to the 113.0 level for much of the week before losing ground on Friday.

There were important trends in the UK economy and currency over the week. The UK consumer inflation data recorded that headline inflation was unchanged at 2.1% for November while the core rate fell further to 1.4% from 1.5%.

The third-quarter current account deficit rose strongly to a record GBP20bn from GBP13.7bn the previous quarter which was equivalent to 5.7% of GDP.

Government borrowing for November was also running at a record high which unsettled market confidence in the outlook, especially as slower revenue growth with reinforce fears over a sharp slowdown in growth. The latest CBI retail survey was the weakest of 2007 while retailers were more pessimistic over the short-term outlook. Retail sales rose 0.4% in November with annual growth static at 4.4%.

The Bank of England minutes from the December meeting recorded a 9-0 vote for a cut in interest rates as the Bank of England was significantly more concerned over the credit crunch and implications for the economy. These fears more than offset unease over potential inflationary pressure.

Sterling fell sharply for the week as a whole with four-month lows near 1.98 against the dollar. The UK currency also dropped back to November lows against the Euro at close to 0.7240 before a limited corrective recovery.

The Canadian dollar strengthened back through the parity level against the US dollar for the first time in three weeks and pushed to highs near 0.9930 after solid retail sales data.