Riding it down

To quote it from the "A-Team" movie, I like it when the plan comes together. It is great to be bearish at the right time. All the signs of weakness in FX and equity markets were there. We took our cue from it and are benefitting immensely. Shorts are still on.

GBPUSD: 4h H&S width is approximately 175 pip. From 1.58, minimum target is 1.5625. Short intraday bounce to 1.5734. Initial profit target is 1.5655/62 area. This swing low presents a strong support.

EURUSD: uptrendline is broken. Short any bounce to 1.3157 and 1.3167 in particular. The most obvious initial target is 1.3023/30

USDCAD: may fall to 0.9995 to test the broken downtrendline where longs can be established

AUDUSD: this gal is real weak. China signalling low growth (7.5%, low that is) means Ozzie and commodities will have a hard time. The pair is below the bull flag and the uptrendline. Short any bounce to 1.0595. Next target is 1.0450

Monday update

The EURUSD trade i suggested worked well but short from 1.3230 stalled at 1.32. If this pair breaks out of 1.3240, then possible reversal area is 1.3275/90. Keep in mind that we may be looking at a possible "three day method" candlestick formation or my 2 in 1 candlestick formation because Friday was a long down day and today is a small bodied up day. Who knows, tomorrow may be another small up day? If that is the case, then expect a downmove to 1.32 and an upmove to 1.3240 or above. Altrenatively, 1.3225 holds and the Euro sells off tomorrow. Ultimately, EURUSD is a short candidate for me and I will play for the break of the uptrendline I mentioned in my yesterday's blog post.

GBPUSD: for now 1.58 held and this pair looks to be forming mini H&S in my 4h charts. There is an uptrendline at 1.5763 moving 3 pips up a day. I do not expect it to hold. 1.5886/1.59 is a great range to put out the shorts qith stops at 1.5910/15. Additional shorts can be put at 1.5833.

AUDUSD. Break out of the bullish flag was a fake and the pair is now back inside. I think we are looking at a possible pattern failure and I enjoy trading them as the move to the opposite direction is fast and furious. There is a strong support at 1.0650 and an uptrendline comes at 1.0625 (currently). Short levels are 1.07 and 1.0725. Sell the bounces is the policy here.

USDCAD: in my previous posts I mentioned the 0.9906 and 1.0055 range in this pair. It is back in the range with a vengeance....the sort of re-break one would like to see following a headfake. 4h close above 0.9970 is a harbinger of more upside to come including the break of the downtrendline based on Jan 12 and Feb 26 swing highs. currently at 1.0011 and is moving down 8 pips a day.

Major equity indices are testing their uptrendlines. FTSE100 and DAX30 daily futures charts downtrendlines are actually broken. I am watching to short DAX on a daily close below 6800. There appears a symmetrical triangle with an ascending tendency on 4h chart. I would have called it a bullish pennant (must be no more than 3 weeks) but I think it has now or just about to extend past 3 weeks. Same triangle in FTSE100. Triangle bottom breaks at 5860 and a daily close below 5850 will add fire to the oil.

Good luck

Week of March 5: EURUSD

EURUSD

You must have heard of the "Falling Three Method" candlestick formation. See also Bulkowski's page. Now, think of the 2 candles within one long candle. It is exactly the same as above, but two candles only. Since I could not find "Falling Two Method" anywhere, I guess I can claim to be the first one to bring this formation to trading public's attention :) I simply call it 2 in 1 candlestick formation.

Thus, December was a long red (down) candle followed by 2 (Jan & Feb) small bodied candles within Dec candle. Probable month end targets are a) 1.30, b) 1.29 and possibly c) 1.2623 (Jan low). This trade idea will be invalidated if monthly candles close above Dec open.

The trading plan:  marginal lower low, bounce and then renewed selling pressure

Last Fib support of 61.8% comes in at 1.3169 and 200MA (not shown) on this 4h chart comes in right below 1.3169 as well. This is also the area of 19 Feb gap which will finally be closed. Just below at 1.3140 & moving 3 pips a day is the uptrendline connecting Jan/Feb 16 swing lows. I expect 1.3169 level to hold for a bounce to 1.3225/40 area where Fib 50% and a daily resistance reside. I do not expect the pair to go higher than 1.3260. Finally, the pair should then breach the Fib 61.8% and the uptrendline.

To summarise, with EURUSD reversing at Fib50% resistance, it very much appears that the top with a big V (see the chart) is in place. All we need is a break of the trendline to confirm it. On fundamental side, the ECB is doing all it can to debase the Euro, a clear invitation to sell.

Good luck

P.S. Cycle watchers and a couple of newsletters I am subscribed to are calling for a top in March. A couple bloggers say the top was on Feb 28 but it appears it may stretch into mid March, important Bradley turn date. Uptrendlines on major indices are nearby and a break of them will give us the "short" signal. Note that Russell2000 (considered to be a leading indicator) is lagging already, not a good sign.

The week ahead

USD Index is in a large congestion area which is morphing into a multi month symmetrical triangle. We need a break either way to establish the trend. Given the risk on rally we are in, I would have expected USD Index below 97 support area.

The EURUSD closed above 50% Fib retracement having broken out from a small Cup & Handle (clearer view on 4h chart) formation with a width of approximately 300 pips. Possible targets are:

1. Cup & handle width: counting conservatively from 1.3275, we get 1.3575 as a target. 

2. If Fib 50% is overcome, the next target usually is 61.2% retracement at 1.3627

3. Another way of looking at it is of two equal legs. The first leg is almost 700 pips (low to high), so we can assume the second leg to extend to approximately 1.3675 from 1.2975.

In short, anywhere between 1.3575 to 1.3675 we should expect a top, of major significance probably.

But there are 2 obstacles that make a move beyond 1.36 very difficult. One is the strong resistance at approximately 1.3530. Another is the downtrend line from August 28 2011 top. This line is currently at 1.3625 and comes down by 7 pips a day. The uptrend is a bit extended judging by RSI, so I will be waiting to short at those 2 levels described above with a min target of 100 pips. 

If GBPUSD can close above 1.5907, I will be looking to buy dips. The bad news is that RSI is diverging and that throws some doubts as to whether 1.59 handle can be overcome.

Commodities block is underperforming lately while equities continue to inch up. Anything suspect?!

USDCAD: underperformer of late. Need to clear that range

AUDUSD: currently it is in a continuation Flag formation. If price breaks down from the Flag and the second uptrendline, Ozzie will be heading to 1.0375 and failing to hold there to the upper boundary of the large symmetrical triangle pattern

 I will post trades on Twitter/StockTwits as usual.

Good luck 

P.S. If you are short Japanese Yen via JPY crosses, then it is time to take some money off the table. While I doubt we have seen the top in GBP/EUR/AUD vs JPY, vertical moves that we saw of late make me very nervous.

USDJPY and Yen Cross Rates look bullish

Before I start on rambling, I need to make a confession with regards to USDJPY: i get long term forecasts mostly wrong on this pair. This pair frustrates me and my P&L often. So, I mostly avoid it and trade JPY cross-currencies based on 4 charts instead.

I went through my previous bold bullish statements and they were based on the breakout from a multi-month base and/or a break of a major trendline. Bullish spurt followed after a breakout but then the pair lost steam and my bullish prognosis went down the trash bin. Since then, I try to avoid major trend reversal type forecasts on this pair. In short, trying to identify bottoms did not work because the trend was still down and still is actually.

This is my another prognosis attempt, not long term but near term, maximum a month. After that, we will see what the price action tells us. Hopefully, it will not blow into my face after a few days.

I have to admit that an FX Concepts hedge fund letter (Feb 9) on Yen prompted me to evaluate daily charts more closely. Having studied charts, I think I agree with them. The purpose of this blog entry is to give actual entry and exit levels for traders unlike FX Concepts letter.

This is the snapshot of USDJPY and cross rates daily charts.

1. USDJPY has been building a base since the end of last July. It is about to test the daily downtrend drawn from Apr 06 2010 and Jan 24 2012. The 2nd upper green line is the weekly major down trendline. Finally, the horizontal blue line at 78.28 is the daily resistance line. All those down trendlines and the daily resistance need to be broken to confirm the bullish reversal. The problem for this pair is this, the next major resistance is at 80.00 (not shown). So, even after a daily breakout through 78.28, the bullish move is likely to sputter just after 172 pips. FX Concepts thinks it will break through. As to me, I do not know or even I do not think it will be able to.

Anyway, the best way to express JPY bearish stance is via EURJPY, GBPJPY and AUDJPY as we are likely to get more bang (pips) for our efforts. These cross currency charts look very bullish and the strategy is to buy the dips.

2. EURJPY (bottom left) broke above ascending triangle and another strong resistance at 102.76. Any re-test of this now support should be bought. The next resistance is 105.20/45 not shown but this area is the minimum target.

3. GBPJPY (bottom right): similar to 2. Close above 122.50 today will give us the breakout from ascending triangle. It can test 122.50 tomorrow where our buys should be. The next resistance is 123.97/124.00. This pair is emerging from a multi-month double bottom (higher 2nd bottom). So, if my reading is right, it should go at least to 125.60

4. AUDJPY (top right) is the strongest looking of all. It broke out of the multi-month symmetrical triangle and 82.50 resistance which is a buy area should it fall back to test. It is now heading to the next resistance at 84.00/05 which I think is going to reject the first test and send it back closer to 83.00, the buy spot. It is then that we have to be watching to buy! DAily close above 84.00 leads us to the next target at 85.90/86.00.

Finally, at what levels do we bail out? In other words, where will the stop losses be?
EURJPY: 101.60   GBPJPY: 121.60  AUDJPY: 82.00

I know stops are pretty wide versus the current price, therefore I will only buy the dips based on 4h. This is when RSI is likely to fall back to 60 level or below. No need to enter into a trade in a hurry with a crap reward to risk.


Below is the latest FX Concepts newsletter on Japanese Yen written by Jonathan Clark. It is the largest FX hedge fund out there. FX Concepts and UBS TA team are calling for a a top in risk assets mid to end March or even early April. Time will show.

Japan’s Ministry of Finance recently released the details of its intervention to sell yen and buy dollars at the end of October and early November. On October 31 the Bank of Japan bought $107 billion and during the subsequent four trading days it bought a total of $13 billion. By way of contrast, the intervention on August 4 was $58 billion. The scale of intervention was enough to scare the market so significantly that there has been no need to

further intervene since that time.

Intervening multiple times in a month is a tactic the Japanese have used in the past. One of the most aggressive times was in the months following the Great Hanshin (Kobe) earthquake on January 17, 1995, which was the most devastating in 72 years as 6,400 people lost their lives. The yen strengthened 24% in the three months following this tragic event and the Japanese intervened more than 20 times in the month of March alone. Following the yen’s peak on April 19 of that year, it fell 46% during the subsequent 40 months. Japanese monetary authorities have the ability to hold down the value of their currency when global markets are optimistic, as buying dollars increases reserves and if unsterilized it is a form of monetary easing, which further undermines the yen. Recently, some of the major yen crosses such as EUR/JPY, GBP/JPY and AUD/JPY have begun uptrends that argue the yen will be weak against at least the other major currencies, and the dollar will too. However, a peak is likely in late March, when we expect the risk rally to end. Once again, the yen will strengthen, forcing the MoF and BoJ to intervene despite the disapproval of other G7 members.

The cycles were calling for dollar/yen to form a medium-term low next week, but it now appears it has already been seen. This projects an initial peak during the week of

February 27 and it should challenge the resistance at 77.80. If this level breaks on a closing basis, we will become more excited about the upmove and our initial target is the

79.00 area. USD/JPY should then pull back for a week, but provided it lacks much weakness, the uptrend will resume into the end of March and our further objective will become the 81.75 area. Although we can see a scenario under which the uptrend becomes stretched and lasts into May, this is less likely. By the end of March, dollar/yen will probably turn lower and decline into the third quarter of the year and once again the Japanese monetary authorities will be forced to fight the move, with 75.50 a likely place.

Back on line

I have been tweeting every now and then but it has been a few weeks since i last blogged. The times are changing and we need to change as well. The result of changes in my life is that I am about to be a free spirit and focus more on trading, blogging and tweeting. This coming week, blogging will probably be infriquent but afterwards, I plan to be more active. Overall, I plan to tweet more as and when i see tradable opportunities.

So, lets get to the Euro and Sterling charts. If you do not want to read any further, just watch the breakouts (either direction) from Pennants on 4H charts :)

EURUSD

Overall, EURUSD is in downtrend as 200MA (not shown) is heading down. The distance between the price and 200MA got as large as 1300pips at the Jan 16 low, so the pair is working on reducing that distance. So, we have to be on the lookout for the downside trend resumption at some stage

However the pair is within short-term countertrend and currently, the Euro appears to be consolidating above Dec swing high and 50MA (not shown) before a possible upside breakout. The pair hit a major resistance (1.3217/30 range) and is just below Fib resistance or at Fib resistance if one draws it a la DeMark (here it would be highest close to lowest low). The expectation is for the Euro to test Fib 50% resistance at 1.3440 and this is where the high probability downside trend resumption is likely. This is my broad scenario.

Shorter term chart reveals the pennant this pair is confined to. I am expecting upward continuation but if it breaks to the downside, then shorts are in order. It will also mean that I might have to review my broad scenario described above.

GBPUSD

Same story here too. Countertrend within a larger downtrend. I will deem the larger downtrend over only when the pair closes above 200MA (1.5950) while a weekly close above 1.6150 in particular will confirm the new uptrend. In the mean time, I will stick to the downtrend. I am not quite sure about this one but I am inclined to think that this pair is also consolidating and the next move should be up. Major daily resistance at 1.5905/20 range and then 1.5950 (200MA) is likely to act like a magnet. At 1.5882, the pair has already tested the very edges of the major resistance. More should be forthcoming. However, current uptrend appears exhausted, at least temporarily, as Stochastics are diverging. Does it mean consolidation will take longer and be wider? We will see.

As you can, this pair is in exact situation like EURUSD. Last Friday, short term uptrend was broken & has been tested on the same day. Upside breakout from this pennant invites longs but with diverging daily Stochastics, one has to be prepared for shorts should the pennant be broken to the downside.

Next, I will post on Ozzie and Loonie which so far look very bullish (USD bearish)

Good Luck

Crude Oil (WTI) and Silver

If you perused yesterday's FT, you would have across an interesting report on Oil titled "Oil demand falls for first time since 2009". In short, demand fell in the USA and EU but rose in Asia. However, rise in Asian consumption that was not enough to offset the slowdown in developed world. More importantly, Asian consumption was not that strong either with Chinese oil imports slowing. Base case is a small rise in demand in 2012. Worst case flat growth if global GDP stalls. Overall, International Energy Agency is worried about downside risks to the global economy and to oil demand. However, while demand for oil is sluggish/falling there are geopolitical risk (Iran/Hormuz Strait) that are keeping oil strong. So, oil market seems finely balanced on fundamental side.

On the other hand, charts are telling me that we are about to have a big move which has a great potential to boost P&L when traded sensibly. Daily chart is showing an Ascending Triangle with ascending trendline and 50MA coming right below current price. So, bias is bullish unless proven otherwise. A daily close above 103.35 will confirm the bullish trade.

But when you zoom in to 4H chart, it however looks ready to rollover. Oil broke through a small trendline, tested and fell further and now looks ready to accelerate down. So, get ready to short in case it breaks down through this green line (blue on daily chart). Stops should be at $101.00

Yesterday Silver broke through the downtrendline (daily chart not shown but you can see a green line on 4h chart) but finished the day with a Doji. It is testing the trendline as I write. On this chart you can also see a Bearish Wedge. So, be prepared for a short as well. If short tirggered ona break below the rising trendline, stops should be at $30.60

 Good luck out there

P.S. Short EURUSD at 1.2983, then cover at least on 50 pips profit, then reverse/long plan so far is working. If you bought at/around 1.2910 as suggested, put the stop to breakeven or if adventurous at 1.2887.

More trade ideas

Euro took out .12910 resistance and looks likely to close above this level today. Next target is the next resistance at 1.2983. Overnight, buy the dips is my plan. Fundamental news-wise, if Greece can not agree with its creditors, expect broad risk-off and the fall in EUR. If this happens, than I say markets are giving you a chance to buy euros from lower levels.

In my earlier post, I mentioned that to play long GBPUSD, I need to see a daily close above 1.5422 which it duly did. There is a daily swing high at 1.5500 and a daily downtrend at 1.5518ish. So, expect this pair to stall around 1.5518 area.

Advance in Euro and Cable is coming at the expense of Loonie and Ozzie.

Loonie broke to the downside form its symmetrical triangle. The width is 700 pips which gives a minimum target of approximately 0.9500. Support at 1.0074 held today but I am not sure it will hold out for long. If it rallies back above broken trendline, then you get a chance to re-short at better levels. Daily close below 1.0074 is needed to see downside acceleration Expect support/upside bounces at 0.9900, 0.9790 & 0.9755.

Ozzie has yet to break out from its symmetrical triangle now at 1.0460. So far it is struggling at a very significant resistance at 1.0425/40

By the way, today Nasdaq100 closed at 2441 with July 2011 high now left behind and which is almost 11 year high (Feb 2001). Dow Jones Industrials also closed above its downtrend