Bullish play

Majority of the short trades did not achieve their downside targets and instead we have initial signs that suggest we may need to change to the bullish camp.

Two "risk on" currencies, AUD and CAD have broken their trendlines while GBP opened just above its downtrendline on 4h chart. The EURO is lagging ( no surprise there!) but appears poised to test the downtrendline as well. Strong wave lifts even the creaky boats. If currencies are indeed mirroring the bullish (short term?) outlook, then obvious initial targets are CAD-1.0261; AUD-1.0075; GBP-1.5610 & 1.5715; and EUR-1.3435 which is the bottom of the descending triangle where it is more likely to be rejected at least temporarily.

While we had huge runs in major equity indices yesterday, so far only DAX30 is looking comparatively bullish. It is back inside the pennant and the last place bears can make a stand is at the downtrendline currently at 5,822. It is also testing daily 50MA (blue line).  S&P500 is testing its 50MA and Fib resitance while FTSE100 is about to. Nasdaq100 is still below 50MA.

Of all the charts, the most important to me would be AUD, CAD (risk and growth sentiment) and DAX30 (risk sentiment). The first two have already given long signals while DAX30 is about to confirm the long side as well.

Tradingwise, conservative players should wait for currencies to come back to test their trendline while adventurous traders must already be long AUD and GBP on the breakout and short CAD.

P.S. By the time i posted this entry EUR,GBP and AUD reached the targets i described. That was REAL fast! Already time to lighten up a bit.

P.S.2 My guess equities are doing their typical month end rally and this time on low volumes. So, with regards to the suggested trades, lighten up when initial targets are met and trail your stops. Currently it is a day trader or short term trader's market. Trade with that in mind!

Update on trades and targets

The target on my short EURUSD has been reached (167 pips). Now only holding 1/3 targeting 1.3180.

Gold target also reached with $1,600 potential downside extension

Silver target at $30.4 has not yet been met.

Next most likely target for crude oil (WTI) is Fib 38.2% retracement level at $92.50.

I mentioned target of 4,900 to 5,000 for shorting UK's FTSE100. Currently it is at 5,107. Precise target from descending triangle would be 4,978 (5,376-398).  The last resistance on our way to the target is Fib retracement of 78.6% at 5,065.2. Shorts can consider taking some money off the table at 5,065.2 and if seen the rest at 4,978.

German DAX30 is still some distance away from 5,062 target. Halving the position at 5,260, swing low from early October is a good idea.
S&P500 triangle target is approximately at 1,146 and futures are just shy 8ppts from this target as i write. The good news for bears is That S&P is currently below Fib 61.8% resistance at 1,157.94. If today we have a close below this level, bears may be getting a chance to have a shot at 1,120, the last Fib resistance area.

In my previous post I posted a chart highlighting bearish divergence in HY spreads versus S&P500 which foretold the downside breakout from the triangle for S&P.  I am updating this chart again: both confirm each other.

Good luck

Euro broke down from its recent range

The pair broke thru descending triangle and the minimum implied target is 1.3260, just above the low of Oct 6 (blue horizontal line = 1.3250). IMHO, it is more likely to go to 1.3180, October 3^rd low on a daily chart below.

While RSI on this 4H chart is diverging, it is confirming on a daily chart and that is more important.  At most, this short term RSI divergence may result in a pullback to the resistance area of 1.3425/30. If it happens, then all those who missed the boat will have another shot at shorting the pair.

The last Fib resistance area of 78.6% at 1.3376 should act as a temporary support and at best can bring the pair back to 1.3425/30 level mentioned above. The blue descending line is likely to act as support in EURUSD’s descent.

My stop is at 1.35 maybe bit too close but it gives me good risk to reward and if my analysis is correct it should not retrace that far in the first place

Good luck

Targets for Trades

Most of the assets have broken on the downside from their respective patterns so far.

Gold broke down from the triangle and the target is $1,687 which is $7 shy of Oct 31st bottom. The sell entry is at $1,767 and the stop can be moved down to $1,767.5

Silver also broke down from the triangle and the target is $30.4, just above Oct 20th low. The sell entry is at $33.72 and the stop now is at $33.97

Crude oil (WTI) exceeded $100 but was rejected at the upper wedge line that also coincided with May 30th high of $103.35. But the game is not over for crude until it breaks below the bottom line of the wedge.

FTSE100 broke below its rising uptrendline but we still need to see a fall below 5,334 to confirm the downside. This level is actually the neckline of a complex head & shoulders pattern.

S&P500 so far had a fake breakdown but is now within the triangle. Daily close below 1,220 will confirm the downside

The only non-player is the DAX30. It still has not broken down from a Descending triangle and is not confirming the bearishness we are seeing in other assets. Something is wrong here!!!

We are at an important juncture for risk assets

S&P500 is in the triangle. As a “picture of doubt” triangles can go either way. Currently many analysts think it is a consolidation pattern and if it proves to be such, then a min upside target would be 88ppts (width of the triangle) following the triangle breakout and the max target would be the pole of the triangle which is approximately 198 points. Also, cycles are in favour of the upside move: Q4s are mostly bullish.

However, other markets do not appear as bullish as S&P500. Therefore, we have to be prepared to the downside risk in case bullish S&P plans do not pan out.

German DAX30 is in a bearish descending triangle. The width of this triangle is approximately 675pts and a downside breakout gives a min target of 5062. Oil WTI is in a bearish rising wedge and is approaching a major resistance at $100 (Jul 25^th high). UK’s FTSE100 is being supported by an uptrend line and it looks rather precarious.  A daily close 5350 will confirm that we are heading back to 4900/5000 area.  If these divergences are a harbinger of things to come, then S&P500 is likely to break the triangle on the downside and 88pts down is a reasonable target level. Daily close below 1220 will confirm the downside.  So beware.

Finally, HY credit is not looking as bullish as S&P500 does. Two charts below compare HY Spread (HY credit yield minus US 10Yr yield) to S&P500. HY credit spread made a higher high (bearish) at the end of last May, two months before S&P confirmed H&S pattern. This is as good advance warning as one can wish for.

Now, HY spreads are going up again while S&P is holding steady. Credit may be panicking too much but i think it is panicking for a reason. So, beware of the downside risk.

Gold and particularly silver are also at important junctures. So, we will just wait for the breakouts

Possible trade

Above the horizontal line is a Buy with a Stop below the current candle. RSI is supportive,
Targets: 1) 1.3385, 2) 1.3455

Update

Overnight USDCAD did a head fake pop above my buy level at 1.0214 only to fall back to 1.0172. While current retrace from 1.0214 looks corrective I do prefer breakout trades to show profit straight away instead of lingering. I would therefore reduce the original position to 1/4 and move my stop loss to 1.0095. I would also reenter long if USDCAD reaches 1.0226.

Watching to long USD

We are possibly going to test the broken uptrendlines on majors. I am not sure EURUSD or AUDUSD can go that high to test trendlines. Instead they may reverse from congestion areas while GBPUSD could reach the uptrendline since it is very close.

I would be watching 1.3815/20 level on EURUSD. GBPUSD may come to 1.6035 (currently where the broken uptrendline is) where it will be a great short candidate. AUDUSD may stall around 1.0460 area where 50MA currently is. USDCAD may  form the handle of a possible cup & handle pattern.

Should USD continue to rally instead without cosolidation, it is worth keeping sell stop orders at 1.3600 for EURUSD, 1.5883 for GBPUSD, 1.0264 for AUDUSD and a Buy Stop at 1.0214 for USDCAD.