Euro dead cat bouncing is likely starting

I'm on a working vacation now. I have 10 days of vacation still left for this year and I'm taking them now. But due to the nature of my job, I still have to deal with urgent issues when arising or review documents due now. So I'm staying home these 2 weeks, casually working while enjoying my less stressful time. Of course my most enjoyable stuff is reading financial news and watching the stock market. I can act quickly when opportunities present themselves, which gives me a lot of joys. I cashed in a lot of quick money last week, taking the advantage of the extreme market volatility. What a great working vacation for me!

Early this year on Apr 18, I said we should bet for an appreciation of US$ when the mood for US$ was extremely bearish. Last Friday I said I thought Euro could turn around but US$ should drop and I was actually exiting some of my short positions for Euro. Of course neither of these calls were based on fundamentals. On the contrary, both were simply technical calls and speculative. Fundamentally both currencies are toilet papers and are racing to the bottom. I'm not interested in holding either of them for long-term at all. However, from time to time you may find some good trading opportunities from them when extreme conditions arise, if you can spot them. Right now I think it is an extreme condition set up for a tradable opportunity.  See the chart below regarding Euro via its EFT, FXE. This chart displays a very technical indicator, the Bollinger Band (the two yellowish lines around the stock price curve). Bollinger Band (BB) defines the boundary of a stock price action, which tells the most probable price movement range of the shares. When it is at the upper boundary, the stock is likely overbought; similarly if it is at the low boundary, the stock is likely oversold. When the stock price is at these two limits, its next move would likely reverse. As you can see, FXE is at its low boundary around $130 (accordingly you will find the opposite pattern for US$ at its upper boundary). This means the trend for Euro is likely to change upwards. Or the US$ will likely decline in the next few weeks or months.

With this technical indicator flashing the turning point, I made a call to be short-term bullish for Euro. One way to bet for it is to buy its leverage ETF, ULE (2 x bullish for Euro vs US$). Given this is likely a short-term trend and for a better profit margin, I even took a more leverage action to buy ULE's call options yesterday. See below the calls I got in yesterday. Luckily a perfect timing for me. Today Euro appreciated around 1% vs US$ and my call options went up about 15% in one day.  I think this is just the beginning of the Euro bouncing upwards, although I will call it as a dead cat bounce. When FXE comes up towards its upper BB boundary, I will get out of this position and start to short more of Euro.

ULE Feb 18 '12 $26 Call	Trade	0.70	0.10	16.67%	$150.00	15	$0.60	$133.58	14.58%	$1,050.00
12/19/2011		0.70	0.10	16.67%	$150.00	15	$0.60	$133.58	14.58%	$1,050.00