EURUSD - Very long-term chart - some perspective.

The chart below is the monthly chart of the EURUSD going back may years. Looking at the longer-term charts allow one to step back and offer a long-term perspective....

It is quote possible, (and this is something I have alluded to in the past) that the price action of the past few years has created a huge 'Bull Flag' pattern, which suggests significant gains for the Euro in the years ahead. (I would add the caveat that this assumes the patterns remains valid, which will probably mean remaining above 1.4000 in the coming months). - In light of this, price action in the past couple of weeks can be seen as part of a re-test and consolidation of the break-out of this pattern. I would expect further consolidation in weeks and months ahead, which suggests that much of the price action may remain between 1.40 and 1.50. - A solid break over 1.5000. I believe would be the start of further significant gains (Though in the current environment I do not think this is likely, whilst back below 1.4000 may start to call into question this particular longer-term view.

One further point, totally unrelated to markets:
As a huge football fan (Soccer for those of you who think carrying a ball is football), this weekend has been the magnificent and the ugly for followers of the beautiful game:

• First the magnificent; what a treat Saturday night was, Barcelona were incredible, a true joy to watch, I have had the pleasure to have seen them in the flesh twice over the past couple of years and they are truly mesmerizing to watch (even though it was against my beloved Arsenal). Saturday night was one of those occasions when 90 minutes was just too short.  - 
• Now the ugly - FIFA - the sooner Blatter and his cronies dissappear into the sunset with a rocket up their arses (asses) won't be soon enough,,, get out of our game and stop killing it...

Have a good day, regards

Steve

AUSUSD - LOOKS LIKE NEW HIGHS STILL TO COME.

Yesterday I asked if the High in the AUD is in, or still ahead... Then I presented two possible scenarios. - Since then the move over the past 24 hours has gone a long way to help provide clarity. - It appears as though the 'Falling Wedge' pattern has clearly won out (barring a false breakout), which suggests to me that we are likely to make a new run to the highs over the coming weeks, and that my hunch we were moving lower was wrong. - In the bigger picture the 3 Peaks pattern I have alluded to is on the back burner, at least with regard to the bearish element of it, and now I feel we have a decent possibility of higher levels, in what I think will be the final hurrah for the bull move (though of course I do invoke the official technical analysis get out clause; the false break).

The chart below shows the Falling Wedge pattern on the 4 Hour chart. Key resistrance in the short-term is 107.20.
The implication of this will have repercussions for the Risk-on/Risk-off debate. - The AUDUSD has been the heartbeat of this over the past few years, so should we see a decent bull run in the AUDUSD, it is likely to be accompanied by bullish action in most risky assets.

AUDUSD Is the top in? or new highs to come??

Last week (16th May) I posted a blog that posited that a rare big picture pattern on the AUDUSD was possibly nearing completion. This was based on a highly speculative view based off a somewhat mysterious and rare pattern, called a '3 peaks and a Domed House'. The original blog can be seen on the following link, together with a spectacular example of this pattern at work on the Phili Bank Index .http://hometraderuk.blogspot.com/2011/05/aud-highly-speculative-view.html.

If I have correctly identified this pattern, and if it follows through and completes as per the ideal pattern, this would suggest that the ultimate consequences for AUDUSD (and by association all risk) would be dire, with a return quite possibly to the lows of 2008/9.

If on the other hand I am guilty of fitting the pattern onto the market (and it would not be the first time), then the above is nothing more than complete nonsense.

Returning to the pattern;  my original blog suggested that either the high was in and now lower levels lie ahead, or we still have one more high to come. Nothing has yet changed in that view, I think it remains in the balance, though my hunch slightly leans towards the high being in, however if not then possibly a high will occur at some point during June/July.

The shorter term picture on the AUDUSD shows two conflicting patterns on the chart, which highlight this dichotomy. These can be seen on the 2 charts below. The top chart is the bearish option, with a 'Head and Shoulder' type pattern. The lower chart is the bullish option, with a falling wedge pattern highlighted. I believe this time next week we will have a clearer picture.

One thing is for certain,,, over the next couple of months all will be revealed.




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EURUSD - Showing further potential bearishness risk.

Not quite so sure of where we head on all this Risk-on/Risk-off at the moment. Last week we seemed to bounce off a key support area, only then to finish appallingly on Friday.

One area of interest in particular is the EURUSD which may point the way ahead.  I've attached a chart which shows a strong similarity between recent price action and the behaviour of price action in late 2010. This suggests a risk of a move towards further lows to the mid 1.3000s. - One major difference however is that in late 2010, the EURUSD was languishing below the line connecting the 2008 and 2009 peaks, whereas recently it broke above this key resistance and despite a minor break, this may exert a supportive influence. - I guess we will see how this progresses in the next 24/48 hours of trading.

- Post Script.

The above comments were penned pre- Sunday night opening. Since then the EURUSD has fallen a further 100 ticks...- I can not help thinking that the bounce in risk assets, was nothing more then a mere bouncette, and I am switching back to the bearish camp. - This seems to suggest, as I said above that we are heading mid 1.30s in EURUSD (At least), and I fear SP500 can move towards mid 1200s (Barring a surprise recovery from here over the next 48 hours. AUDUSD and other risky assets would also appear to be highly vulnerable.

Follow up to earlier posting.

Decent performance today.. I believe if it can hold most of these gains tomorrow, then the case for the downside is starting to look flimsy. - I have covered my short S&P as I am on the sidelines now, with a balanced view for now, but a risk that the downside is over and if 1340 and above can start to hold then greater risk that we try the upside, with new highs ahead...

S&P Key Pivotal area.

Some of my recent postings have warned of downside on the S+P500 and risky assets, and I have played the market from the short side over the past couple of weeks. However, despite a move to lower levels, this generally has the feel of treading water a little whilst it still makes up its mind.

The chart below is more of an observation, rather than a clear pointer to direction at this stage.

It shows Daily S+P500: The pattern formed over the period through Feb-Apr was an continuation Head +Shoulders pattern. These can be very dynamic patterns when they break-out ( I have included a couple of examples below of this from Weekly Gold and Weekly T-note futures). The S+P breakout however has stalled and has been on an extended re-test of the breakout. In the past few days this has made a minor push below the neckline, a rapid rebound could still save it, however should it continue to sink, then this will be a clear failed pattern, and it is my experience often failed patterns can come back to fully re-test the extreme of the pattern, in this case around 1240/50. - Thus it seems that the next few days may be crucial for the S+P for both the bull and the bear case. - There is one other option, the boring option; whereby it just continues to meander sideways....

Examples of some successful Continuation Head & Shoulder patterns:
1) T- Note Future 2009/2010

2) Gold 2008/2010

AUD - HIGHLY SPECULATIVE VIEW.

GOVERNMENT HEALTH WARNING - This following 'Technical View' is highly highly speculative. - However, if it comes out right, there could be potentially a major move on AUD , but treat with caution at this stage,,, there would be plenty to be made on it if it does occur.

There is a very rare and highly speculative technical formation called a '3 Peaks and a domed house pattern'. I first heard about it some years ago, and I first applied it to the 'Banking Index' a few years back, which fortunately kept me on the right side of the 2008 bear market. - I am curious as to whether we are seeing a completed or near completed 3 peaks on the AUDUSD? - I shall not delve into the details of this pattern, if you want to know more this link here covers it.

The AUDUSD weekly chart is below together with the idealized 3 peaks pattern. - (I have only numbered the key points on the AUDUSD chart).

For comparison, I have attached below the Bank Index chart I identified a few years back together with its 3 peaks chart.

Some points
1: What the pattern is forecasting is a huge drop in the AUD, however, it is not clear whether the top is in, or whether there is still a high to come, before the top is in. - I would say this may be a 50/50 call at this stage. If the top is not in, then is probably a couple of months away at least.
2: I assume a deep correction of this nature for the AUD would surely be echoed in deep corrections in risky assets.
3: I am not saying that this is definitive, not at all, this is a highly elusive pattern, which even when it appears as though it may have formed, can just turnout to be something else entirely. However, as you can see from the Bank Index above, when it does occur, it portends something really nasty.

US Equities remain under pressure.

For some reason yesterday's post seems to have disappeared.So I apologise if you think you  have seen something similar before.

I am attaching a couple of charts from Excel, the first one is the daily close 2000 - 2011. The second chart is an indicator I follow for a system. It is the 14 day RSI of the 50 day SMA (Yep a derivative of a derivative).

I want to draw your attention to something occurring on these, which is reminiscent to three prior occurances over the past 10 years. These are highlighted by the round yellow circles, it is a divergence between the indicator and the price at extremes. In all three cases a decent correction ensued in the subsequent weeks.

I am of course aware that three occurrence do not mean a fourth will happen, however I think it is something to be aware of, particularly when considered together with some weekly signals on the SP500 (See chart below). This chart shows a strong bearish candle last week 'Dark Cloud Cover', a close relative of the engulfing candle, together with clear divergence on momentum.

What makes this interesting is that the charts for the prior occasions displayed strong similarities (See below), that is a strong reversal candle pattern on the weekly, and clear momentum divergence.

SP500 WEEKLY 2002

 

 

SP500 WEEKLY EARLY 2005

SP500 WEEKLY LATE 2005

As the week closes, it looks as though we are heading into a weak close, after a few attempts to regain some poise have failed. - The key support area on the chart is around 1328. If it can hold this area, then the chance of further highs remain, or at worst continued sideways action, however a sustained break of this area, could see several weeks of correction at least possibly back to or below March's levels.

US Equities under pressure. SP500 in more trouble

The following top charts show the SP500 daily 2000 - 2011, with the lower of the top 2 charts showing the 14 Day RSI of the 50 week daily Simple Moving Average (I know its a derivative of a derivative, but its one I have found incredibly powerful over the years).

Since 2000 this has worked quite well as non-confirmation signal on 3 occasions, highlighted by the yellow circles (twice at highs and once at a low). Statistically this is not of course significant, however, I can not help thinking that this is a potential big warning flag of at minimum a big correction and possibly a more significant market turn.

The significance of this is all the greater when seen in context of the weekly price action (Bottom Chart), which last week produced a strong bearish candle 'Dark Cloud Cover' very similar in many respectcs to its slightly bigger brother 'The Bearish Engulfing Candle'. In addition momentum is diverging in a strong bearish way on weekly RSI and MACD. I think a weak close tomorrow could be pretty damaging, though it would need a sustained move below 1325/1330 to avoid a scenario of further sideways with possibly new highs still on the cards eventually.

Risky assets likely to stay on back foot, perhaps after bouncette. Quick Bund Update

Although risk seems to gaining some traction again, I can not help thinking that the upside is limited. THE SP500 followed through nicely on last weeks call, and whilst a bounce is possible, I can not help thinking that further downside is to come. I will hopefully elaborate on this further at some point this week, when I have time.

Echoing this theme, of risk-off has been a the Bunds (German Government 10 Year Future), which has seen a  decent bounce and rally of late, echoed by a large drop in German 10 year yield, all helped by the latest concerns on Greece and the PIGGS. This looks like it it a serious bounce, and I can not help thinking we have more upside to come over the coming weeks, though probably after some consolidation.

I have attached a Daily chart which shows the Bund future continuation. It looks as though we may have an irregular double bottom on this chart, also of interest is the daily pattern over recent days, the 3 up days ending yesterday have produced a bullish '3 White Soldiers' pattern, the antithesis of the bearish '3 Black Crows' pattern.

For longer-term players, there is a possibility of a move in coming weeks towards 127 area, with support first in the mid 123s, and more meaningful support in low to mid 122s, which will have to hold to keep rally on track. If this is correct, we may see some further flight from risky assets at the same time in coming weeks, after a small pause/correction.

S&P500 Comment. - 'They don't ring bells at tops'.

'They don't ring bells at tops' is an old market adage. However, there are sometime pointers to tops or temporary tops. US equities may just have produced some pointers.

The first chart below is the weekly S+P500. Note how yesterday we hit the key Fibonacci 76.4% retracement. Also notice how momentum ( RSI and MACD) have failed thus far to confirm the recent high. This is at this stage a warning flag, rather than a clear sign of a correction, however warning flags are usually the best one ever gets, or as the saying goes - well I'm not going to repeat it, just see the headline.

The second chart is the Daily Candle chart, this too has some interesting developments - See below:

• Firstly the 3 trading days, prior to yesterday saw a rally with progressively smaller candles. This formed a pattern called an 'Advance Block'.
• Yesterday 'Bin Laden' day, may have been one of those euphoric 'blow-off' type days, and interestingly left a 'shooting-star' candle in its wake.

Neither of these signals alone are usually major reversal signal, however combined and occurring at a major Fib retracement, they may well provide a stronger signal than normal.

One final note: the pattern formed over the past 3 months, appeared to be a 'Cup and Handle' Pattern. Readers may have noted that I am very fond of this 'not-so-well-known' pattern. However, I have remained highly cautious of this particular pattern on the SP500, mainly because of the sharp 'V' shape of the cup. The literature on 'Cup and Handle' patterns warns one to be cautious of 'V' shape cups.

Also for the record, I have personally been thinking that the SP500 may start to struggle around 1370/80, thus it will be interesting to see how this unfolds from here. If a reversal does unfold from here, I am guessing it may initially move back towards 1330/40ish. In the bigger picture 1330/40 may prove to be a pivotal area. On the other hand a meaningful move beyond 1370 could mean significant further highs to come.