FX update and the SP500 1970s redux revisited.

FX UPDATE

First a quick update on yesterday's FX comments: The inverted 'Head and Shoulders' pattern on the short-term chart of the EURUSD failed to follow through on the upside. It is possible, that the EURUSD is building the right shoulder of more substantial inverted Head and Shoulders pattern on the short-term charts, however, I would caution that trading rooms the world over are littered with the ghosts of traders who tried to anticipate uncompleted Head and Shoulder patterns.  ----  Looking at the USDJPY this posted a small rebound yesterday, however it needs to make something more concrete and larger if my weekly 'Piercing pattern' idea is going to have any chance of being successful. ----- Finally looking at the EURJPY:  I suggested yesterday that this may have some short-term bullish potential. However, I have posted a chart which warns what could happen if the EURJPY rebound fails to materialise, or even makes a small rebound but then fails to follow through.  The chart below shows the 8-hourly EURJPY through 2010.  The two periods of circled price action are from earlier this year and from the past week,  both display very similar set-ups. - Just to add a caveat; this time around the EURJPY has been within a long sideways consolidation phase, with the most recent down-move possibly being a correction from the top towards the base of the consolidation, whereas in the earlier period, the EURJPY was clearly trending lower.

(Click on chart to enlarge)

SP500 1970s REDUX REVISITED


A few weeks ago I posted a blog titled  '1970s redux', the original post can be seen by clicking here.  Today I am posting charts which show a more in-depth look at the two periods being compared.  - The insert below compares the weekly charts of 1967 - 1976 versus 1997 - 2010. Whilst the time frames differ, the overall behaviour of price direction and action has unfolded with a strong similarity. In fact the only period when price direction notably diverged was the period just after the 1973 peak and just before the 2007 peak, when the direction became virtual mirror images. The Blue near-vertical lines are meant to highlight similarities in key turning points, whilst the Blue meandering line (drawn rather badly) is meant to highlight the co-ordinated direction of both charts.

(Click on chart to enlarge)

The next chart takes a closer look at the price action over the past few years, with the comparable period from 1973 - 1976. Once again, the price action is taking a similar course. Further to this, in the past few months the consolidation has unfolded not unlike the consolidation in 1975. Note some other similarities: The rallies of 1975 and 2009-2010 both retraced around 60% of the preceding very sharp declines. The corrections of the late 1975 rally and the recent correction of the 2009-2010 rally, both stopped at around a Fibonacci 38.2% .- I do not tend to use this sort of analysis as my method of predicting future price moves, however I do not dismiss it either, preferring to keep it lurking in the background as a form of reference.- What it does suggest, is that if this similarity in performance were to continue, then a move to the upside would seem more likely in the coming months. Before further consolidation or corrective activity unfolds.

Before I finish, I would just like to re-iterate what I said in my original post: - I am not laying out a case for the current period being a similar economic and political climate to the 70s, particularly when it comes to inflation or interest rates. However what is similar is that the 1970s were a time of extreme economic uncertainty, and the 1974 recession was associated with a very deep bear market, not unlike the 2008 bear market.