Oil update

WTI has exceeded my entry levels...licking wounds is the phrase here.So, now the level to watch is $96.60/70 200MA on the 1h chart is at $96.68

On the 4h chart, 50MA is $96.65. This is another reverwsal area. Fib resistance is at $96.86 (not shown).

Conservative traders may also use $94.91 swing low on 1h chart to enter shorts. Hourly close below $94.91 will give first confirmation that it is coming back down.

P.S. If it is Santa Claus rally lifting oil, then a test of $97.5-$98 is likely. 

Trade of the week: Crude Oil WTI

In my earlier posts, I did a couple of entries on crude oil and so far oil is behaving as expected (probably it won't after this entry). So, I thought I update you all about possible trades in this commodity.

This is a monthly chart. I think Netdania uses continuous futures data. It is too early to say anything about the candle. The important bit is the MACD which is turning down.

On a weekly chart below, major uptrendline was broken in August indicating the change of the major trend from bullish to bearish. You can also see how crude came back to test the trendline, kissed it goodbye and now seems to be accelerating to the downside. One interesting observation is that it made a flag (2 weeks), made a new high from the flag only to reverse. I like such failed flag patterns. They work well. In general any failed pattern works well since a lot of people are caught on the opposite side.

MACD is turning back down from zero level which is bearish. On the other hand, weekly RSI is about to test its 50 level; make or break here. My bet is that will pause first (small bounce) but then break below 50 level. Test of the second swing at $76.30 or the trendline aproximately at $80 is my main scenario.

Daily charts gives us even more clues. We have confirmed double top (Adam & Eve) with a minimum target of $87; broken 50 and 200 day moving averages (not shown) and a broken uptrendline (green line). Crude tested the uptrendline and was successfully rejected.  MACD is accelerating down but Friday was a doji day which makes me think we might or even likely to test the bottom of the double top.

Trade 1: 
If we have a bounce, then watch $95 to $95.80 for a short entry. This is where it should reverse.  Also, pay attention at a daily RSI. It is turning up and it should get rejected at 50 level ($95 to $95.80 range) or just at the bottom of the circled zig-zag. First target is $90. Second target is $87 (double bottom minimum target). Third target is $80ish (weekly trendline on the 2nd chart) and the final target is $76.30 swing low. In general if crude closes below that weekly trendline at $80ish, then it is likely to fall way below $76.30.

This trade is off if it closes at or above $98 on a daily basis because we might be looking at a typical A-B-C consolidation formation before crude goes higher. Not my preferred scenario.

Trade 2:
If it is not going back up to test $95 area, then sell below the low of the last week.  Targets above apply.

Trade 3:
$90,is a major support. You can see how price tested this area 5 times before. Herein lies the rationale for a short term (1 or max 2 days) counter-trend long trade with a tight stop loss.To time it better, you may need to go to 15min charts. I believe it will be a very high reward to risk trade.

Below is the 4h chart. You can see MACD appears in the process of crossing up while RSI is showing small bullish divergence. The last candle is inside candle. Breakout to the either side (up?) from highs/lows of the previous red candle will give a clue as to the short term direction. All this supports the daily doji.

 Good luck.

P.S. One of earlier posts was on AUDCHF which closed above daily right angle triangle. The stop loss on this trade is at 0.9300 as per this post. But lately this trade is going nowhere and instead we have a a clear right angle falling triangle (bearish) on 4h chart. If it falls down out of it, a) then the daily breakout will turn out to be a fake,  b) also, minimum downside target is 225 pips from 0.9312 but most probably it will fall to 0.8900. Therefore, I would put a reverse sell order at 0.9299.

A chart that makes me go hmmmm?!

This is the longer term chart of VIX. The first spike is the October 2008 low in equity markets. The second spike is the August 2011 low. If someone showed me this chart and asked me to guess where S&P500 would be last August, my totally wrong answer would have been "gee,that looks like 666 bottom on S&P500."

Closer look reveals that VIX made a lower low and investors appear getting sanguine. Judging by it, S&P500 should have been or must close above 1,285, its October 26 swing high. But so far it has not! One of them is wrong. Soon we will find out if it is VIX again. But if so, is VIX losing its importance as a confirmation signal?

On the other hand, Merrill Lynch US High Yield index seems to be a good advance indicator on S&P500 these days. I posted this chart back in early November when I highlighted the divergence and argued for the downside breakout from the Pennant. 

Currently, both S&P500 and the credit index seem to confirm each other.

Equity indices update

I am not going to re-hash what other bloggers are saying but in terms of major equty indices, the pattern I am focusing yet again is, you guessed it right, triangles. FTSE100, DAX30, S&P500 and Nasdaq100 all appear to be within triangles. Triangles are continuation patterns in 3/4 of cases. Breakout (to the downside?) from this pattern is what I will be waiting for.

One of the congestion patterns one comes across a lot is when the price is squeezed between two moving averages. Breakout from the clutches of MAs gives a directional bias for the next few sessions at the very least. As you can see, both FTSE100 and S&P500 broke out of the 200MA and 50MA range. My bias is to the downside as long as both are below their respective 50MAs.

The further into the apex Nasdaq100 gets, the more should we discard the triangle pattern.If that will be the case, I will then focus on the rest of indices for the signal.

Good luck

Updates on trades

Gold is testing the major uptrendline ($1,600) as I write (check my post from previous Friday). It does look like more downside is to come but it pays to lighten up since gold short is already up $100 from where i recommended. Woahh, now $1.587!!!!!

Silver target is $25.5, the width of the symmetrical triangle. There is a major swing low from Oct 26th at $26. Even if silver does not reach 25.5, it should potentially reach the Oct 26 low.

Crude Oil (WTI) testing its Nov 22/23 valley & a close below $95 (which incidentally will also be below 200MA) will confirm a double top targeting $87.5 . There is a 50MA at $94.27, which is the last support on the way down.

USDJPY- if and when it closes above 78.5 on a daily basis, we will get a major long signal. Keep it on your radar.

GBPAUD is another long candidate from 1.5526 (this one i missed but happy to add on any retracement). First target 1.5740, second target 1.5890. Stop loss 1.5445

USDCHF nad GBPCHF (last Tuesday post) acting as planned but AUDCHF is weak and it is worrying.

Finally, GBPUSD and AUDUSD and accelerating downside (last Tuesday post) from sell entry points I mentioned. So, nothing to do here but to bring stops at least to breakeven. These two will be my medium term trades which I intend to hold for a couple of months. Therefore, I will build shorts into rallies with very wide stop losses. Same applies to USDCAD and in particular EURUSD.

2011 Outlook

You can read Michael's 2011 outlook here. If you already went through his 2012 outlook, you will notice that he updated some of the charts he posted in 2011. Anyways, the type of research I like is when you get a 3D overview of different macro assets where all the missing pieces of the puzzle are brought together.

In my post earlier today, I suggested a couple of trades, in particular GBPUSD and AUDUSD. As to EURUSD, I mentioned possible reversal points which turned out to be precise to 5pips which happens very rarely :). If you took those trades, congratulations. All i can add is this, while USDCAD and AUDUSD have not broken out from their respective symmetrical triangles, they eventually should succumb to the USD strength. It is all a matter of time. EURUSD is a toast and sell the rallies is the only game in town. Expect some resistance/profit taking at 1.2880/1.2895 area, Jan 2011 swing low and Aug 2010 swing high. As to GBPUSD, from current levels all the way to 1.5355 is a weekly major suport area (5th test since Sep 2010!!!) which I expect will duly be broken. With every test, this support level gets exhausted and the pair just broke out from the flag pattern one can see on a weekly chart. Weekly close below 1.5355 is very bearish. The ride down should then be very smooth (providing CBs do not destroy our plans) till 1.4885ish area.

Good luck

Charts I am watching

I know I promised to post UBS' team 2011 outlook but I am struggling to attach it on this site (if you know let me know how I can do it). So, I will save it on scribd and then post the link tonight. As i said, at the end of the year I like to go through some reports and see how authors' predictions fared, what i knew then and what i know now with hindsight, could i have expected it and so forth.


EURUSD  - Major downtrendline broken - we are now in the sell the rallies mode

BUT pay attention to the RSI divergence. It is likely we test the broken downtrendline before downside acceleration.

4H chart – The pair is likely to test the bottom of the downtrend channel at 1.3230 & if it manages to get back into the channel, then 1.3283 (red line) is the next resistance. And if, big if, the pair makes above 1.3283, then the upper part of this channel is likely to stop the bounce. In particular, 1.3321/25 area is where the upper part of this channel meets another resistance line (higher red line) at 1.3321.  Also, major broken downtrend is nearby at 1.3340.

GBPUSD - Green horizontal lines are Fib retracements. The pair was in the large range, broke down but now trying to get back into the range. More work needed. Clearly, fall below 1.5536 is likely to bring the pair back to the bottom at 1.5436.

USDCAD – the body of the range is between 1.0262 and 1.0074 and this range is one way to trade this pair. But when the price breaks out of this symmetrical triangle, expect some action and hopefully large profits.

AUDUSD – uptrendline break will ultimately accelerate downside move. Symmetrical triangle break should be the first sign of bad things to come for Australian Dollar.

4H chart - Watch out for the downside if that blue uptrendline is broken. On the upside, four hourly close above 1.0226 is likely to lead to 1.0300 at a minimum.

CHF - USDCHF and GBPCHF made new highs but if you extend charts bit more, you will realise oth are testing previous highs Hopefully, higher we go. Stop losses better be below uptrendlines. AUDCHF successfully tested the top of this Right Angle Triangle. I would keep my stops t 0.9300.

Good luck.

P.S. Tonight I will post the scribd link.

2012 outline from UBS

Michael Riesner is one of the best TA analysts out there. He is the global TA head for UBS. I have been following his weekly commentaries for over a year and I can gladly confirm that Michael's analysis has been spot on as many things as i can remember.

ZH posted their 2012 outlook, a treasure trove of charts and insights. Please enjoy it here. At the end of 2012, peruse their analysis once more to see how they fared. I will post their 2011 outlook next week and you can see it for yourself.

Current commodities watchlist

Silver ready to break down? Target is the width of the symmetrical triangle

Gold about to test smaller symmetrical triangle (4h chart). Break down leads us to the green line, the larger symmetrical triangle

Dow's Fan principle in development as can be seen on Crude Oil (WTI). We still need another downtrend though to complete it. In the mean time back to $95 is achievable. Any re-test is the broken trendline is a sell.

AUDCHF broke out of Ascending Triangle

I think I first mentioned it on Friday on Twitter. All i can say is that this is very bullish and has approximately 600pip profit target potential (the width of the triangle). More details to follow later.

Updates on gold and crosses

Markets are in wait and see mode and are meandering in the mean time testing support and resistance areas. I got whipsawed today

As highlighted in the gold blogpost, gold broke down thru the uptrendline and is now $16 away from the bottom of the symmetrical triangle. Obvious stop loss is $1,723. Conservative target is $1,700.6, Nov 30 swing low. Aggressive target is the bottom of the symmetrical triangle which is currently at $1,695.

While gold idea worked, cross currency idea is not working yet.

As you watch markets day in and day out, you develop intuition. It is difficult to explain but one has this nagging feeling that something is wrong or is not acting right. The phrase that comes to mind is from Market Wizards II when Druckenmiller said, "I smelled a rat," when D-mark did not react to news as expected. So, what happened?

I trade off of 4h charts for short to medium term trades and only drill down further to 1h charts when I want to get a clearer picture or improve entry/exit levels. Anyway, between 2pm-6pm AUDUSD tested 1.0300 but USDCAD was not anywhere near 1.0074 (no confirmation?!) and instead doji star was staring right at me (another no no). EURUSD also had a doji while GBPUSD registered a shooting star. Now, I expect EUR and GBP to underperform since they are weak currencies and that fact is reflected in cross-currency rates. However, such non-confirmation especially in USDCAD got my antenna flashing caution. Then, between 6pm-10pm, EURAUD finally made a new low but more importantly GBPAUD did not and USDCAD broke to the upside from its downtrendline while AUDUSD was rejected and came back down. When that happened, my bullish stance turned instantly to neutral and EURAUD/GBPAUD trades were not taken. From that moment I knew we are still in consolidation formation and markets are saying "not yet."

As i ponder more about this failed trade it makes sense to me markets are not moving because everyone is waiting for the results of the next EZ summit this week and those results most probably will act as a catalyst for any large moves. In the mean time we wait. As I keep telling, watch the horizontal range between 1.0150 and 1.0300 in AUDUSD for breakouts.

Above are updated charts for EURAUD and GBPAUD. As often is the case, patterns are clear in hindsight but trading them as they evolve in real-time is a different matter altogether. I am not yet sure whether I should see them as bullish pennants or bearish falling wedges. EURUSD looks like the latter. Time will tell. Your patiently waiting A.

Continuation Trades in EURAUD and GBPAUD

EURAUD and GBPAUD have been in quite a wide range for a while (since Jan and July respectively). This range essentially consists of risk on and risk off state of equity markets. Risk on - current state of equities - means AUD is the winner. For example, one way to confirm whether risk on is about to begin is to look at EURAUD and GBPAUD besides AUDUSD, USDCAD and DAX30.

Prior to this range both EUR and GBP have been depreciating vs AUD and these long ranges (Rectangles in Dow Theory language) are either Consolidation and Reversal patterns. The problem is we do not know for sure yet which but I will assume it is Consolidation till proven wrong. When EURAUD closes above 1.4212 and GBPAUD closes above 1.6275 on a weekly basis, then there is an evidence of a major trend reversal.  On the other hand, a weekly close below 1.2971 and 1.4899 respectively will confirm continuation of the previous downtrend.

The picture gets a bit clearer when we look at daily charts. I drew symmetrical triangle on EURAUD and the pair has opened below the triangle. Bearish trade for the pair?

I also drew an uptrendline (approx 1.51) on GBPAUD but the pair is not near it yet. If this uptrendline does not hold, then I will be looking at 1.50 and 1.48 as initial downside targets. Below 1.48, downside should accelerate.The width of the Rectangle is 1200pips. Possible target is 1.39.

4h charts below show what looks like bearish Descending Triangle but the correct interpretation would be a pennant, short term consolidation pattern of half-mast type. Minimum target is the width of the pennant but normally we should expect a move equivalent to pennant's mast starting from the break out of previous pattern.

EURAUD target is approximately 1.2470 (1.3680-1.3070=610pips). 1.3070 is just below the neckline of the H&S top that you cna clearly see.

Target for GBPAUD is approximately 1.45 (1.52 less 700 pips). This pair also broke down from ascending H&S.

Now, all what i wrote here regarding what looks like a Pennant may just turn out to be rubbish if the price action evolves into something else, possibly a small Rectangle or who knows what. It looks unlikely but I may even have to play on the long side if the pairs break to the upside instead of following the script.

But if the analysis is correct then the implication for equities is that we should see further upside. In terms of confirmation, AUDUSD is in a bullish flag (clear range on 4h chart) and a daily close above 1.0290 should give that confirmation. USDCAD is being nudged downwards by its downtrendline and as long as that is the case, bullish stance is warranted but on the way down it has to overcome 1.0074

 So, we will wait and see but the resolution for these 2 pairs and for AUDUSD for that matter seems very close.

Good luck.

Near term scenarios for gold

McClellan's Chart in Focus shows a large triangle on a daily chart. The gist of hsi articles is that he looking at a bearish surprise. The cahrt below is a smaller triangle on 4h chart with what i highlighted are near term scenarios.

I honestly have no clue about Elliott Wave counts here: should  Nov 8 top be labeled A (bearish count) or should Nov 20 bottom be labeled A (bullish count). For a good EW analysis check this blog. I like his analysis.

EW aside, I will simply be trading breakouts from or reversal within the triangle. Price break below the black uptrendline tells me gold is likely to test the bottom of the triangle.

P.S. Gold is starting to test that black line as I write. 6 dollars down within 10min. This metal moves fast.