The Hanging man looks in and EURCHF possible big reversal.,

The SP500 'hanging man' post of a couple of days ago generated some interest amongst some of my contacts, with opinion fairly divided as to what this signifies... It looks to me that the pattern is a done deal, though well this is bullish or bearish will only be determined in coming months. My favoured option is short-term it is bullish, suggesting a re-test of the recent high (with a possible marginal new high), but longer-term I feel this will likely be a major topping area. -- but the jury is out for now.

EURCHF

The top chart is the EURCHF daily, note how it has recently broken a significant downtrend. In addition a potential pattern forming appears as though it may be a major double bottom (of the rare 'Eve and Adam' double bottom format; for further info, including why it is called this, click here). The lower diagram shows an example of this sort of pattern.  - Note confirmation would be a clear break over Feb's high at 1.3205, with a poential target near 1.3900.

Fx Update - S&P Long-term Candles.

EURUSD fx

The EURUSD failed miserably close to, but not at the 1.4285 level is was looking for as a key pivot. Since then it has sharply returned to test the prior breakout level in the low 1.4000s. 1.4000 - 1.4300 is broad pivotal range for the EURUSD moving forward. - A clear break below 1.4000 would now kill the upside view in my opinion, leaving open the possibility of a serious correction, at a probable minimum to the mid 1.3000s, and a move much below there opening the possibility of a much deeper move. - On the other hand 1.4000 holding, keeps the upside to the high 1.4000s very much in sight, though a break soon over 1.4300 will need to occur.

GBPUSD fx

Cable failed even more miserably than the EURUSD.  Price action has been messy between 1.6000 to 1.6400, with a minor break below 1.6000 thus far.  I am uncertain on GBPUSD direction in the wake of this price action, and will wait on the sidelines before expressing any thoughts on this.

SP500 - Long-term charts.

I have not really commented on the SP500 for some time. I am planning to focus on this a little more in the coming weeks. I have started by looking at the long-term picture. The first thing that jumps out at me is that this wild month may be about to produce a rare monthly 'Hanging Man' Candle pattern . These candles can be significant, suggesting strong selling pressure during the period concerned, but equally a strong recovery. They tend to be pivotal, though subsequent price action has to be considered to determine their effect, this means they raise warning flags, as opposed to giving a clear signal.  I have looked back over the S&P over the past 40 years to see the effects of previous candles. The top chart below shows the S&P500 since the last 1960s on  LOG-SCALE (Which allows earlier price action to retain a greater perspective). I have identified 8 prior Hanging Man candles, (The criteria was that they had to occur after or during a significant uptrend, and had to be sufficiently large relative to the price action around them.). The first chart
highlights this potential candle formation.

The next chart shows the S&P500 over the past 40 uears on a Log Scale, with the 'Hanigng-Man' Patterns highlighted.

Zooming in slightly to see the examples in more close-up detail. The chart below shows the period in the first half of the above chart. The 4 occurrences in this period saw 2 reversals, 1sideways range, and 1 very sharp rally.

The next chart shows the close-up look for the second period of the upper chart. The 4 occurrences here saw 2 significant advances, though 1 occurred after a misleading correction, and 2 very significant corrections, but on both these occations the high was re-tested first.

The point of what I am saying here is not to provide clues as to where we head, rather to say that a flag to a possible significant move higher or lower starting in the next couple of months may be being raised. - Note however that the hanging man has not yet been confirmed, it will depend on Thursday's close, however, it will need a large move from here in the 2/3 days to change this. - Saying that, and given how this month unfolded, one can not discount a large move in the next 2/3 days.......

Re GBPUSD and EURUSD

Two big questions this weeks. Have and are the GBPUSD and or EURUSD close to making/confirming breakouts.

Firstly on the EURUSD,  key resistance was 1.4285, it got close, but did not quite make, this is a real crucial level, and in all likely a first and quite possibly a second attempt would likely fail, although a subsequent attempt may be successful. - However, I can not help thinking that the weight of recent news, particularly if the focus shifts to Spain (which it is doing), is likely to continue to weigh on the EUR making any further advances less likely and a correction of recent gains far more likely, with a danger of a deeper setback for the EUR if it fails to hold 1.4040/50.

GBPUSD has struggled since my analysis two days ago viewed an advance to 1.7000 a decent probability. As I noted at the bottom, there was a recent why we called GBPUSD 'the Widowmaker' at my last bank. Where does that leave this it? - In no-mans land for now.  - Key support is around 1.6050, holding over this level keeps the 1.7000 call alive, however breaking back below and particularly through 1.5970 would be an unwelcome development.

Cable(GBPUSD) is this a major breakout ?

- Shorter-term GBPUSD possibly heading for move to 1.7000/1.7150 in next few weeks, if current break up holds.
- Longer-term GBPUSD hugely pivotal at 1.7000/1.7150. I currently believe this area will cap it, however a clear break above could see move to 1.9000s through 2011 and 2012.

 The long-term GBPUSD FX (Cable to us old timers) chart appears to have made a significant break up. Recent weeks have seen the pair swinging about wildly as it tried to confirm and test what appears to be a major reversal triangle break out. The push higher of the past 2 days appears to me to confirm that we may have a valid triangle breakout here. In addition to this, the internal pattern, formed over the past 2 years appears to be another good old 'Cup and Handle' pattern.  - There is even the possibility of a major 'Double-Bottom' pattern, which would be confirmed over 1.7000. - The most significant feature however of this for me, is the breaking of the sequence of falling 'Significant Peaks' since the high in Nov 2007. All these signs point towards this being a major breakout of a significant nature. - (See Upper chart)

The big level is going to be around 1.7000/1.7150. The second chart shows how pivotal this level has been over the past 20 years. There has been 8 major approaches at this level from both below and above. The first being the month after the UK's exit from the ERM in 1992 (I remember that well). On that occasion, GBPUSD spent a month dancing with the 1.7000 level, before spectacularly breaking lower through it.  Since then this level has on 5 occasions acted as key resistance/support leading to significant retraces,and on 2 occasions it has broken through spectacularly. (Though it is worth noting that both occasions of spectacular breakthroughs on the longer-term charts, saw the initial approaches on daily charts rejected for 4 and 2 weeks respectively). - Also worth noting is that the 200 weeks Simple Moving Average is currently at 1.7096. The 200 week sma has also often acted in a pivotal nature over the past 20 years (See third chart below). The confluence of this with the pivotal zone at 1.7000/1.7150 only increases the significance of this area: On the one hand I believe it may act as a magnet in coming weeks, on the other hand it will act as a major hurdle and possibly a barrier if it gets there.

 

Is this the major bottom that the patterns above possibly suggest?

If I am honest, and counter to what I have written above, I don't think it is, or rather I think the balance of probability is against it. -  I believe 1.7000/1.7150 is likely to check the advance (though can not exclude a stop induced spike). This area is such a key level, that I doubt GBPUSD will have the head of steam needed to clear it. - I also have one or two reservations about the patterns I have described above: I prefer major reversal patterns to be contextually small relative to the major moves preceding them. If one looks at the major 'Head and Shoulder' pattern at the top from 2006 - 2008, this was relatively small compared to the move before it. Whereas the bottoming patterns I have identified are huge in time and price relative to the prior move. Further, I am a touch dubious of the 'Cup and Handle' pattern due to its clear 'V' shaped pattern. - Nonetheless, the break of the 'Significant Peaks' is to me hugely important, though it does point to the downtrend being over (for now at least), it does not signify a definite change to a longer-term uptrend, rather it suggests either a move to an uptrend or a move to a large longer-term sideways range.

In truth, time will tell, the patterns suggest a real possibility of a major advance, my feeling is that 1.7000/1.7150 may be a hurdle too far. - However, if GBPUSD can make a clear break through that pivotal level, then there is a real possibility that GBPUSD is looking for a continued move into the 1.9000s.

Shorter-term, barring a major new shock, or a real surprise budget, I believe the odds of a continued move towards 1.7000 over the next few/several weeks is strong, caveat - staying above the 1.6000 area.

One final point: At my last bank we called 'GBPUSD' (and 'Short Sterling' for that matter) 'The Widowmaker'. There was a reason for that.... I'l leave you on that note.....

1.4285 SIGNIFICANT LEVEL ON EURUSD

The EURUSD appears to have made a significant technical break-up with regards to the recent patterns I have been highlighting. These patterns, if broken, suggested strong odds of a move to the high 1.4000s (around 1.48) in the subsequent weeks. However, first they face a major obstacle, which has the potential to not only stop the advance in its track, back to send the market into full reverse mode: This occurs around 1.4285/1.4300 which represents the confluence of the declining resistance line connecting the 2008 and 2009 tops, and the high of the Nov2010 spike high . (See chart below) ---Personally I still favour the move to the high 1.4000s scenario, but recognize that the potential for failure, or at least strong resistance at and around there is strong.....

EURUSD - Island of calm in the eye of a storm.....

It almost seems rude to even look at the EURUSD with so much madness elsewhere. Ironically enough my usual focus over the years have been Fixed Income and Equities, and yet whilst those have been trading with huge ranges, I find myself in the relatively (for once) calm world of EURUSD.  I'll keep it short and sweet, it seems the range is 1.3850 - 1.4050, a meaningful step outside that may provide the next major directional clue, and possibly a major directional move will ensue after that.  - My idea with the Cup & Handles fractals stays alive, although yesterday's afternoon price action has erased the 30 minute element.

Before I go, a quick look at USDJPY last night : - Something you don't see a lot.

EURUSD update

This is interesting. It appears to be some sort of fractal pattern with Cup & Handles all the way down from weekly (Which is not really a true C&H pattern) in reducing time levels to 30 minutes. ----  It suggests to me that Bulls and Bears are lined up strongly on either side. Bears are comfortably sitting with overhead resistance behind them in the low 1.4000s. Bulls on the other hand have been growing stronger on each pullback.

A break, and a strong one at that, may be close. Readers of my recent posts will have been aware that I favour the upside, however, failure to break up soon will probably lead to rapid liquidation by bulls, with a  move lower toward 1.3450/1.36 before any significant support occurs. .

EURUSD - UPDATED VIEW

The tragic events of recent days, have led to some incredible volatile markets (this always seem so trivial looking at this in terms of markets when so many have and are suffering, I only hope matters do not deteriorate and the suffering is lessened as much as possible). The EURUSD continues to gyrate wildly just below key resistance in the low 1.4000s.

With regard to my recent calls, any number of options remain open, I have highlighted these on the chart below. Currently I see four potential scenarios at present. I have listed these below in order of what I currently consider most likely.

1) A 'Cup and Handle' pattern has formed over the past months. This pattern has the potential to produce a swift move higher in the EURUSD towards the high 1.4000s. - This view I consider the most likely currently (Note : the little caveat on account of markets being mad right now).

2) A new addition to my recent views, is that we are still forming of have formed the 'Cup' of a possible larger 'Cup and Handle' pattern. - One argument in favour of this is how much lower the right lip of the cup is than the left on the above scenario. ( Note: It is not unusual for the the right-lip to be below, or sometimes even above, the left lip of the cup).   If the Cup is still forming or nearly formed, then it is quite possible we get a dip to around 1.34/1.36, over the next month or so. (The recent bearish divergence on momentum suggests this is possible.)

3) Neither of the above, however as the strong downward pressure from the resistance at 1.4050, and the possible resistance line at around 1.4250 combined with the prior high around 1.4280, battles against the recent strong upward trend, a wide range forms with no real direction. I do not favour this scenario, but can see it possibly unfolding, eventually most likely followed by a clear upward break once the overbought diverging momentum has unwound.

4)  None of the above, but strong downward pressure from the 2008 - present down-trend caps this Euro at either 1.4050 or 1.4250, and sends the market lower,eventually leading to much lower levels. I think this is the least favoured scenario, but not out of the question. (Note: It could occur after a break higher which fails to hold)

With regard to the past couple of day's price action. On the face of it, these support the bullish argument; two sharp moves lower but in both cases the moves lower rejected (at least as I write).

However, the diverging daily bearish momentum I mentioned in a recent posts still overhangs this, and the potential rising wedge pattern, now appearing to have formed, both warrant caution, particularly with the overhanging downtrend resistance.  

For what its worth, my own hunch is that this is very close to take-off. The bears failed to win-out last week, and over the past two days twice they failed to win out. If this can make a sustained break through 1.4050 then I fancy a strong run up to the high 1.4000s over the next 4 - 6 weeks. On the other hand a break back below 1.3850 (for more than a few hours) and particularly 1.3800 would once again throw this view into doubt.

EURUSD at Inflection point?

My trading , rather like my views, has been a touch erratic over the past few days, often when this occurs to me, I try and stand back an understand why this happens, and whether this is indicative of anything. What I thinkis occurring is that the market is at one pretty pivotal inflection point encompassed pretty much by last weeks 1.4050/13750 range. This leads me to sense three possible scenarios ahead.

1) Sustained break over 1.4050, leading to a relatively rapid move to the high 1.40s.
2) Sustained break below 1.3750/1.3800 leading to a continually lower trading range in the low to mid 1.3000s, and possibly lower in time.
3) An extended range trading approximately between 1.3750 - 1.4050, before a breakout or some sort in either direction, possibly along the above lines, but may need re-evaluating.

I still hold out the greatest likelihood being the first one, spurred on by the Cup + Handle pattern of I have alluded to in recent weeks. Although the breakout line was re-breached (as I alluded to last week) , in the big picture, it was almost a rounding error. I have also mentioned in the past how the breakouts of these can be torrid affairs, and this one seems no different. However, the longer it struggles with this breakout, the greater likelihood this has failed.

The likelihood of the move lower in my mind whilst the least likely option, is still a decent possibility and should not be excluded. The 1.4050 resistance, represents the upper boundary of a possible downtrend, and daily momentum has diverged bearishly. However, failure to follow through last week, and the Friday's subsequent rebound have not done this any favours.  

Finally the range trading option is also a strong possibility. Inflection points can become extended ranges, as the bulls and the bears slug it out. I personally hate trading ranges, but for some it will represent a great trading opportunity.

EURUSD - Possibly change in direction?.

The EURUSD bullish 'Cup and Handle' pattern, which has been very much in my focus the past few weeks, is looking rather troubled. The breakout last week stalled quickly at the weekly resistance line which connects weekly closing highs from summer 2008, late 2009, and the high in late 2010. (See upper chart below). This morning the market has broken below the 1.3850/60 breakout level, (so far this is only a minor breach), however the longer it is maintained, and the deeper it moves, the greater the likelihood that this is a significant failure. Further to that, there is rising trend-line support just below current levels around 1.3805, a breakthrough here combined with the Bearish Divergence on the daily RSI and MACD, could spell the death-knell for the 'Cup and Handle' pattern. (Though, just as a caveat, the breakout of this type of formation, is often a tortured affairs, and a dip like this, followed by a 'screw-you' rally, is not untypical). - If however, this does turn out to be a failed 'Cup and Handle' pattern, the failure could have serious consequences for a much deeper pullback to the low 1.3000s.

Bund Update - Re Cup and Handle pattern.

This morning has also seen a failure in the bearish Bund 'Cup and Handle' pattern, I highlighted a couple of days back. This could also be significant in the short-term, with a risk of a move back up to trend-line resistance around 122.85/90.

MID-DAY UPDATE. 
EURUSD languishing above 1.3805, and below 1.3850.   Not much conclusion yet...
Bund failed to hold the morning's gains, and is close to 121.80 again. The original bearish Cup and Handle scenario is still a possibility on the Bund, as is the failed C and H at this stage. Right now, the inability to hold over 122.00 so far is not encouraging, but lets see where subsequent price action heads.

Possible Inverted 'Cup & Handle' pattern on the Bund. (EURUSD UPDATE)

With my EURUSD Cup & Handle pattern, fighting to stay alive (so far so good), I have found what appears to be another Cup & Handle pattern (This time an inverted one on the Bund future). Whilst the risk risk of looking like a total mug (Apologies for that, too much Starbucks today) if this one don't work I have highlighted it on the chart below.

The breakdown level (On a sustained basis) should be around 121.20, with target if that holds at around 119.20.  As I say with these patterns can be flakey, I'd say around 50% success rate, but the risk reward in my opinion makes it worth a punt. i.e. Stop at 122.00 Short around here, currently 121.48, target 119.20 with a trailed stop. That is 50 points risk for 230 points reward on a 50/50 bet, well 50/50 if it breaks and hold 121.20, probably slightly less currently, but I'm sure you get my drift.

With regard to the EURUSD Cup and Handle of the past few weeks, it came back today and re-tested last week's breakout, if this is going to be a successful pattern, that level around 1.3850 (I'd allow an over extension slightly) needs to continue holding and then act a springboard for the potential gains well into the 1.4000s.  If it fails to hold 1.3800 I'd have to seriously doubt the pattern, and will consider the possibility of much lower levels ahead.

EURUSD 'CUP + HANDLE' PATTERN UPDATE.

The large Cup and Handle pattern (See chart below) which I have been watching form over recent months on the EURUSD appears to have completed with the sharp move up during the latter stages of last week. Now is the crucial stage for this, does it shoot straight up towards the measured target around the high 1.4000s, or at least some way towards that? Or does it come back and re-test the break at 1.3860 (Or even overshoot)? - I favour the likelihood of a re-test of the break at some point, this would actually be the more healthy option for continued strength.

One has to also consider the possibility of this being a false break prior to a sharp correction (No one ever said this was easy). Critical resistance is being approached on the longer-term patterns. 1.4040/50 is a daily closing resistance (See posting from Feb 28) and 1.4285 is the prior high in the downtrend since 2008, both these levels could be key.


Personally I favour the move to the high 1.48s in the next few months, but cannot help thinking we may still see some interesting price action, which has the potential to tease rather than please in the next couple of weeks.

SP500 - Is rally over - for now?

US stocks have been on a tear for 6 months now. However with the extreme uncertainty in the Middle East and energy prices soaring, the headwinds have been building for a while.

Yesterday's sharp correction lower, followed a reaction to the prior week's sell-off which saw a decent 76.4% rebound. - The big question now is whether the larger rally is over, and if so do we head much lower. - Looking at the clues, the signs are increasing that the rally may be close to terminating. The chart below shows how the market has continually made higher reactions lows over the past 6 months, this continues to be the case, however if the price of the SP500 breaks the last reaction low from last week at 1294.4, then this sequence will be over. - In addition, price action since late December appears to have formed a 'Rising Broadening Top / Megaphone' pattern. These type of formation are often seen at trend ends (although they can be notoriously tricky to navigate as trading signals). Saying that however, the fact that this pattern is rising, as opposed to the more usual sideways, suggests to me that the underlying upward trend is probably very strong. Hence, I would suggest that a deep reversal lower is probably the less likely scenario, with any breakdown of the pattern seeing some further correction possibly to somewhere in the region of 1260/80 before a sideways ranging or sideways/upward ranging market starts to take hold. - If on the other hand 1294.4 holds, then it is quite possible that the trend is still up, or at worst market enters a prolonged sideways range in the low 1300s. - One can of course not rule out a much deeper retrace, but I think this would be more likely to occur after more prolonged topping action.

For the record, I last discussed 'Broadening Patterns' in light of the market last summer (See link here). This shows how difficult trying to identify and neccessarily make conclusions from these type of patterns is. Hence, I would be careful not to use the signals from Broadening pattern without looking at all other underlying factors and considering other alternatives.