All posts by Michael Hodges

Trader, writer, blogger. I love the financial markets. I love trading and I love writing about it.

Binary Market Analysis For S&P 500

This week is a tricky one for binary options traders and the S&P 500. There is a lot of data and potentially market moving events this week. The index has also been trending up for four weeks, ever since the beginning of the year. It is up nearly 3% YTD, trading right around the 1500 level and has been making new 5 year highs.

I don’t think that 1500 will provide much technical resistance but it is a round number and no mere coincidence.The earnings season is still in full swing and the economic calendar is loaded. There are more than 3 dozen economic releases and over 300 corporate earnings releases due this week. And an FOMC meeting/interest rate announcement. I don’t expect a rate change this week but I am quite sure that the statement and what they say about QE will be very important. On the data front we get a full run of housing data, an in depth look at the jobs market and the first estimates of 4th quarter GDP.

Economic Calander

Jobs have been the focus of the FOMC and the market for quite some time. The unemployment rate is still high and until it comes down the Fed’s target of 6% we can expect continued asset purchases and QE. The labor markets have been showing some improvement lately and that is what I expect to see this week as well. It is the strength of improvement and projected timeline for more improvement that will influence traders. This week we get the regular weekly reports of unemployment claims, Challenger job cuts, ADP Employment figures, US Non Farm Payrolls and the January unemployment rate. Not to mention car sales, sentiment readings, ISM and consumer confidence.

S&P 500 Daily Analysis 1-28-2013

The primary trend and the short term trend are both up with no signs of reversal. Both trends are showing weakening technicals and the short term is overbought. At this level, and with the full week of data ahead, the three C’s come to mind; consolidation, continuation and correction. This is a great place for traders and investors to take some money off the table and a great place for the index to take a breather. This could come in the form of any of those three C’s. Since I am not expecting much upside this week, at least early on, I am switching to charts of hourly closings to look for put trades with end of day and end of week expirations. The best platform I use for this is

S&P 500 Analysis For January 28, 2013

The index is encountering near term resistance just over the 1500 level. I think this will be the cap until after the FOMC at the earliest. After the rate decision announcement(which comes Wednesday at 2:15) there could be some volatility going into the end of the week. The technicals on the hourly chart are also showing weakness and help support my idea of playing puts this week. I will look to the 1500 level for confirmations and project downside targets of 1490 and 1480 on an intra-week basis. I am still bullish long term and am looking for a retest of the all time S&P 500 highs.

Binary Market Analysis For The USD/CHF And EUR/CHF

Trade Analysis For Binary Options

The USD/CHF trade is on the way up. Technically speaking and for the purposes of this article of course. The charts below show the currency pair has recently made a nice consolidation bottom and reversed course. The stabilizing world economy, most especially the Eurozone, and fix to the “Fiscal Cliff” (ominous music plays in the back ground) have investors leaving the shelter Swiss Franc in favor of US dollars and Euros. The franc was a popular safe haven for investors fleeing the dollar and the euro during the world financial crisis. This inflow is what caused the franc to strengthen following the market crash in 2008. In fact, the franc was so strong at one point the Swiss central bank announced “unlimited” purchasing of foreign currencies in order to keep the franc from strengthening beyond Euro 1.20. Ever since then the franc has been fairly stable versus the euro and the dollar. The turning tide of the world economy is reversing that inflow. As the financial crisis wane and world GDP picks up so will the major world currencies. Further weakening the franc is the possibility of negative rates at Swiss banks.

The road ahead is not completely clear for the Swiss franc. There is still lingering fear in the Eurozone and IMF predictions for world GDP growth hinge on recovery in that region. Mario Draghi has said time and time again that the Eurozone will return to growth in late 2013, we’ll just have to wait and see. Until then I see the franc continuing it slide. Short term the USD/CHF and the EUR/CHF are both looking very bullish. Long term is still cloudy and faces resistance.

The short term outlook and the chart pattern are good news for binary options traders. Trading off the daily charts we can assume that both the EURO and the Dollar will strengthen against the Franc. Calls could be played off the long term supports and break outs above $0.93750 and Euro 1.2500 with weekly or monthly positions. There is also some opportunity for hourly and daily calls but both charts are in a consolidation area and volatile at this time. Any ultra short term trading should be taken with extreme caution.

My upside targets on the USD/CHF are $0.93750 and $0.9500 on a break above the first target.

The EUR/CHF is bouncing off a long term support line and making a consolidation. The MACD and Stochastic are both strong and indicating a continuation of the new up trend. My upside targets for this pair are Euro 1.2600 and Euro 1.2800 on a breakout above the first target.

Trend Analysis For Binary Traders

Binary Technical Analysis Begins With The Long Term Trend

Understanding the long term trend is the first step in preparing a binary options trade. Now, depending on which charts you are trading the long term trend can range from hourly closing bars to weekly or monthly closing bars. For my style of trading I prefer to utilize the charts of weekly closings. On this chart you can see where the markets are coming from and where they are going. Once you determine the long term trend the next step is to determine the intermediate term trend. I do this with charts of daily closing bars. This is also the chart that I actively trade, capturing movements that take a few days or weeks to unfold. In order to find my entry points I use charts of hourly closing bars.

The Long Term Trend As Of January 20, 2013

The long term trend as of this posting is up and bullish. The US markets, and especially the SPX, have been in rebound mode ever since hitting bottom in 2008. Now, this chart is not appropriate for determining an actual trade but it is still important. So long as the long term trend is up I will maintain a bullish stance and only be looking to trade calls. Another useful insight I get from the long term trend is possible points of significant resistance, areas where the trend may be stopped or halted. Looking at the charts of SPX weekly closings I can see that the index is above a long term support and approaching a long term resistance level.

The Intermediate Term Trend As Of January 20,2013

Once you have established the long term trend it is time to dial it down to the intermediate term trend. For this I use the charts of daily closing bars. Since the long term trend is up I will be looking for a bull signal in the intermediate term for potential trades. I can see on this chart that price is well above the short term moving average, long term support and is looking extended. Since I want to trade a call an entry at this level would not be appropriate. There is too much chance for short term downside at this time. I would be looking for an entry closer to the long term support. I also use MACD and Stochastic to judge trend strength and possible areas of weakness. Since MACD is diverging from price and stochastic shows a market that is heavily overbought I think there is significant chance for some market weakness, especially early in the week. Because of this I will be targeting an entry closer to support, approximately 10 points lower than where the SPX is at this time.

Now that I have established my long term trend on the weekly charts and possible trade on the daily chart it is time to look for an entry point. I will do this using charts of hourly closings. Since I am anticipating a small pullback before the markets continue their uptrend I will be watching for any signs of strength or weakness this chart may give. Now, I have already established that support exists about 10 points below last Friday’s closing level that is where I believe that the best signal will come from. MACD is divergent on this chart as well, adding to my conviction of a small pullback. One thing to keep in mind though is that the pullback could move into the support range and it may even break down below. Unfortunately there is just no way to know for sure. I will be using candle stick signals and technical indicators to choose my entry on this chart. I will be trading a call with an end of the month expiration in order to give the trade about two weeks to unfold.