FX Island

• Euro setbacks accelerate after hourly double top triggers
• Dollar/Yen pressing back to highs but expected to be well offered above 95.00
• Cable still attempting to carve right shoulder of major H&S top
• Dollar/Swiss basing structure starting to take form of potential double bottom

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Many of the dollar-denominated majors have developed congestive patterns over the past six to eight weeks. This is no doubt a product largely derived from the US dollar itself; but it is further a situation that is mirrored in most currency pairs that have a tangible link to risk appetite.

7-17-09Range-01-EURUSD

Why Would EURUSD Hold a Range?

• Levels to Watch:

-Range Top:       1.4165 (Trend, Fib, Range High)

-Range Bottom: 1.3750 (Pivot, Fibs)

• Underlying fundamental and scheduled event risk is significant for EURUSD. Like nearly every other currency pair in the market, this most liquid cross will no doubt take its cue from shifts in risk appetite through earnings or any financial implosions should it catalyze fear or greed among speculators. However, aside from this unforeseeable risk, there is still plenty of data on tap; but little of it guarantees volatility. The euro will mark hold the bulk of the risk.

• Similar to patterns seen with a few of the other majors (USDCHF, AUDUSD, NZDUSD), EURUSD has produced a clear and consistent range formation since the beginning of June. This sideways price action follows a medium-term bullish bias, but resistance has a larger trendline as well as a major 50% Fib and a series of daily highs.

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Long-time personal finance columnist Scott Burns writes that by working for four summers starting at age 16, putting the money in a Roth IRA, investing it wisely and waiting until age 67, it’s simple to become a millionaire. That’s the 51-year plan. But what if you’re not that patient – or that young? Lucky for you, there are many ways to hit the million-dollar mark, but the faster you try to get there, the harder it becomes.

$1 Million the Hard Way

Let’s say you want to become a millionaire in five years. If you’re starting from scratch, online millionaire calculators (which return a variety of results given the same inputs) estimate that you’ll need to save anywhere from $13,000 to $15,500 a month and invest it wisely enough to earn an average of 10% a year. That means taking calculated risks, diversifying and avoiding investment fees like loads and broker commissions. more…

In developing our options research methodology, we have taken many lessons from Warren Buffett, whose philosophies are also a touchstone of our equity research. One way the Oracle of Omaha shares his lessons is through  Berkshire Hathaway’s BRK.B annual letters to shareholders.

In his 2008 letter, Buffett discusses his derivatives positions and the mark-to-market losses on those positions last year. The background discussion of this topic is an excellent read for investors seeking a basic understanding of the involvement of derivatives in the financial crisis.

Most interesting for us as option investors is that, despite his public criticism of derivatives as “financial instruments of mass destruction,” Buffett wrote long-dated put options on many publicly traded indexes. In Berkshire’s 2008 letter, he discusses those positions and his thoughts about options and the Black-Scholes model (the most widely used mathematical model for valuing options). We thought it would be useful to summarize the insights from his letter for our option investors and those who are curious about options. more…

As the historic market collapse felled many investors, a handful set themselves apart by scoring big profits.

Now, several of these money managers expect more bad times ahead, including struggles for consumers, limp earnings and a possible surge of inflation.

They also see pockets of opportunity.

George Soros is bullish on China, India and Brazil. John Paulson is investing in distressed debt, residential mortgages, even companies in bankruptcy proceedings. Alan Fournier, a lesser-known investor with a strong track record, likes some health-care shares, while James Melcher, also successful lately, likes corporate bonds.

“We’re trying to make hay while the sun’s still shining,” says Mr. Fournier, who runs $2.8 billion Pennant Capital. “Maybe we can rally through the summer, perhaps for another year, but there are a lot of difficult issues that we’re going to have to deal with.”

Mr. Soros is just as wary. The renowned 78-year-old investor and philanthropist calls the current terrain a “trading market,” saying in a recent interview that investors should take profits when shares surge, even if they look promising long term.  more…

You don’t have to be a daily trader to take advantage of the forex market – every time you travel overseas and exchange your money into a foreign currency, you are participating in the foreign exchange (forex) market. According to the 2007 Triennial Central Bank Survey of Foreign Exchange and Derivative Market Activity conducted by the Bank for International Settlements, the forex market generated $3.2 trillion dollars worth of transactions each day. This makes the forex market the quiet giant of finance, dwarfing over all other capital markets in its world.

Despite this market’s overwhelming size, when it comes to trading currencies, the concepts are simple. Let’s take a look at some of the basic concepts that all forex investors need to understand.

Eight Majors
Unlike the stock market, where investors have thousands of stocks to choose from, in the currency market, you only need to follow eight major economies and then determine which will provide the best undervalued or overvalued opportunities. These following eight countries make up the majority of trade in the currency market:

1. United States
2. Eurozone (the ones to watch are Germany, France, Italy and Spain)
3. Japan
4. United Kingdom
5. Switzerland
6. Canada
7. Australia
8. New Zealand

These economies have the largest and most sophisticated financial markets in the world. By strictly focusing on these eight countries, we can take advantage of earning interest income on the most credit worthy and liquid instruments in the financial markets. more…

So, Bernard Madoff has been sentenced to life plus a century and a quarter in federal prison for destroying the lives of thousands — tens of thousands, hundreds of thousands — of innocent men and women. That’s a good thing, and I think we can assume that he won’t enjoy his prison time a great deal. Many friends of mine from the Nixon days went to prison, and I can tell you that none of them enjoyed it much (although former Nixon aide Chuck Colson did start a prison fellowship that has done great work). But now that Madoff is in prison for good, many questions remain: more…