Trade Week Analysis for 18/02/13

Another quiet week.
Last week: The week opened with Cloud divergence and this continued, creating choppy markets. There were a few TS signals but these trades were choppy and short lived for the most. I didn’t take these signals due to the divergence but the overall max pip haul result was a slight gain of 130: A/U = 40 E/J=-70 A/J =0 U/J =-100 E/A = -20 E/J =120 E/U = 50 A/U = 35 U/J = 40 and A/J=35

This week: There is still divergence across the Index Cloud charts so I will be wary with trading TS signals off 4 hr charts. The charts could quite easily flip towards full ‘risk off’ alignment this week so I will be on the lookout for that and, if this evolves, then looking for TS signals that align with ‘risk off’. The USDX daily Cloud chart shows the ‘Cloud’ to be quite flat/horizontal so that is some warning, as well as the divergence I am seeing:

The Euro has been the ‘risk on’ instrument over recent months and the parabolic move with this rally can easily be seen on the Euro index monthly chart below. I picked up on this ‘risk on’ move months ago when I ‘spotted’ the bullish inverse H&S pattern and have been trading it ever since. I’m not sure that such momentum is sustainable though and the monthly 200 EMA has given an opportunity for the EURX to pause and take a bit of a breather:

To me it seems that we might be at inflection point with this parabolic ‘risk on’ rally. The point where the momentum moves slows and and we see narrow trading ranges. This has been the case recently with both stocks and currencies:

This possible ‘inflection’, and any subsequent return to ‘risk off’, would not surprise me. As I said in my post yesterday, this would then allow the EURX to pullback and revert to the mean, or monthly support trend line, before any possible continued ‘risk on’ rally. This pullback would not be an unhealthy event as part of this overall ‘risk on’ rally.
Some other ‘flashing lights’ pointing to this possibility of a pause or even pullback are embedded in the charts below:
S&P500 Daily chart: A small pullback would fulfill Elliot Wave theory with this over all move:

S&P500 Weekly: I keep wondering whether this 2 month rally might pause and pullback as per recent history:

I’m not making predictions at all here. I’m simply interpreting current chart action and will continue to do so. I am not ‘married’ to any position, ‘short’ or ‘long’. I am keeping an open mind about whether ‘risk on’ will simply continue on from here after a bit of a pause or whether it might pull back. I will watch the charts and, whenever and whatever the next new momentum wave kicks in, I’ll trade it.

Events: Some key events to watch out for include:
  • ECB Mario Draghi speaks on Mon 18th.
  • USA Bank Holiday on Mon 18th: ‘President’s Day.
  • FOMC Wed 20th.
  • Italian Election Sun Feb 24th: The Euro could be quite choppy ahead of this event.

Pairs: 

  • I’ll continue to leave out the A/U and G/U from my ‘risk on’ focus pairs. The Euro and Kiwi seem to be holding better ‘risk on’ status at the moment.
  • Pairs I’m leaving for the time being: I am leaving out the USD/SGD as there has been a lot of noted and documented anomalies with this pair. I’m also leaving the USD/CHF too whilst there is pegging of the CHF to the Euro. I’m leaving the Loonie out too. I’m realising it is better to watch fewer pairs, the ones that are delivering trends, and to watch them well. 
Stocks: I will update my Stocks:Feb page on Monday. It is too good a beach day today to be sitting inside!

Currencies:
E/U: The monthly bullish inverse H&S pattern is still valid. So, too, is the bullish inverse H&S pattern on the weekly chart!  Price is trading within a symmetrical triangle on the monthly chart. It has struggled trying to hold above the weekly 200 EMA for the last few weeks but managed to close for the week just above this level. A bull support trend line is in place but I would not be surprised to see price pull back to re-test this level before any further up move. Price is still trading above the Cloud on the daily Ichimoku chart but is below on the 4 hr chart which is divergent. So, price action may be choppy whilst a new equilibrium is sought. The weekly candle closed as an indecision style ‘spinning top’ candle. The current monthly candle is still printing an inside candle which reflects consolidation and /or indecision. 
  • I will look to SHORT the E/U on the new TS signal, a close below the weekly and 4hr 200 EMAs and if ‘risk off’ returns.
  • I will look to LONG the E/U on a new TS signal and if ‘risk on’ remains.

E/J: Price has chopped around all week. As with the Euro index, price has traded downwards and under a bear trend line for the last two weeks. Price is still trading just above a bull support trend line on the daily chart and looks to be forming a possible ‘bull flag’ pattern. Price is still trading above the Cloud on the daily but is now just under the Cloud on the 4 hr chart which is divergent so means price action may continue to be choppy. The weekly candle closed as a bullish candle so the possible bearish ‘Dark Cloud Cover’ pattern from last week has been avoided. The current print of the new monthly candle is now more of an indecision style ‘spinning top’ pattern though. Yen weakness is expected to continue so I will be watching for any new TS signals along with trend line breaks.
  • I will look to LONG the E/J on any new TS signal, if ‘risk on’ returns and if price breaks up and out above the bear trend line of the bull flag pattern. 
  • I STILL WON’T SHORT the E/J this week given the ongoing stimulus.

A/U: Price trended down to start the week and gave a 40 pip TS signal. It then bounced back up from this low area which was just above the major monthly support trend line. This bounce was something I was wary of so I didn’t take the short signal.  Price then trended up and gave a new TS long signal which limped along sideways for a few days before reversing on Friday. Price is below the Cloud on the daily and 4 hr time frame which is bearish. The weekly candle closed as an indecision style ‘spinning top’ candle. A TS signal to short came through late on Friday.
  • I MIGHT look to SHORT the A/U on THE new TS signal.
  • I will look to LONG the A/U on any new TS signal and if ‘risk on’ returns. 

A/J: Price continued to chop around under the 97 level all week. As with the Euro index and the E/J, price has traded downwards and under a bear trend line for the last two weeks. A bull support trend line is in place on the daily chart and price tested this a couple of times during the week. The daily chart pattern also looks a bit ‘bull flag’ like, along with the E/J. Price is still trading above the Cloud on the daily but only just above on the 4 hr chart which is still bullish. The weekly candle closed as a bullish candle so, like the E/J, it also avoided the ‘Dark Cloud Cover’ pattern here. 
  • I WON’T SHORT the A/J this week given BoJ stimulus.
  • I will look to LONG the A/J on any new TS signal, if ‘risk on’ returns and if price closes back above the 97 level. 

G/U: Price has fallen on this pair all week; from the 1.58 level, down through the monthly support trend line and through the 1.56 level. It is trading below the Cloud on the daily and on the 4 hr chart so which is bearish. The weekly candle closed as a large bearish engulfing candle but is outside the Bollinger bands so it may pause or pullback a bit before any possible further down movement. The next major support level is 260 pips away and down at 1.525.
  • I MIGHT look to the LONG G/U on any new TS signal. 
  • I MIGHT look to the SHORT the G/U on any new TS signal. 

Kiwi: NZD/USD: Price tried to hold up and out from the broken trend line of the symmetrical triangle on the monthly chart again this week. It then aimed up further to a previous high and S/R level of 0.85 but could not hold manage to stay there though. It then traded down to re-test the broken trend line again and finished up for the week sitting right on top of this level. It is trading above the Cloud on the daily and 4 hr charts which is bullish.  The weekly candle closed as an inside candle reflecting the indecision given the extreme levels this pair is trading at. The current monthly candle is now printing a bullish candle.
  • I MIGHT look to LONG the Kiwi on any new TS signal, if ‘risk on’ returns and if price holds up above the 0.85 level.
  • I MIGHT look to the SHORT the Kiwi on any new TS signal and if ‘risk off’ returns.

EUR/AUD: Price is still back below the neckline, the 1.3 level, of the bullish ‘inverse Head and Shoulder’ pattern on the weekly chart.  I had it trading within a triangle for most of the week but it broke down from this on Thursday without yielding a TS signal to SHORT. I’ve adjusted this now to be within more of a trading channel. It is still trading above the Cloud on the daily chart but is now below the Cloud on the 4 hr chart which suggests further choppiness. The weekly candle closed as an indecision style ‘long legged Doji’ candle. 
  • I will look to LONG the EUR/AUD on any new TS signal and if price holds up and out of the trading channel.
  • I will look to SHORT the EUR/AUD on any new TS signal and a hold below the 1.3 level.

The Yen: U/J: Price has chopped sideways for 2 weeks now but is still supported by a weekly trend line. Price has been choppy as it trades under under the key S/R and psychological level of 95. As with the E/J and A/J, the daily chart here looks a bit ‘bull flag’ like. Price is still trading above the Cloud on the daily and on the 4 hr which is bullish.  The weekly candle closed as a bullish engulfing candle.
  • I MIGHT trade the USD/JPY LONG on any new TS signal and if the USDX keeps rallying.

EUR/GBP: I am back looking at this pair as it is trading at an interesting level. It is trading near the upper edge of a trading channel on the monthly chart that dates back to 2009 and is looking a bit bullish. Price is currently trading within a smaller triangle on the 4 hr chart but, in doing so, is chopping around just under the monthly channel upper trend line. The daily chart here also has a bit of a ‘bull flag’ look to it. Price is trading above the Cloud on the daily and just above on the 4 hr charts which is bullish. The weekly candle closed as an ‘inside candle’, albeit a bullish one. This reflects the indecision and choppiness with this pair given it is trading at such extreme levels though. Any break up and out from this channel might be a while off but I’m keeping an eye on it.
  • I MIGHT look to LONG the EUR/GBP on any new TS signal.
  • I MIGHT look to SHORT the EUR/GBP on any new TS signal.

Gold/Silver: These two seem to have struggled with the overall return to ‘risk on’ and traders preferring to invest in stocks and other risk assets.

Silver: The bullish ‘Cup and Handle’ patterns on the weekly chart is still valid for the time being. The ‘handle’ part seems to be forming a bullish broadening ascending wedge pattern though now. The theory is that the breakout target is equivalent to the depth of the cup. The handle pattern can be seen on the daily chart and this is the area where you can see the bullish breakout. Price is trading just above the bull support trend line though and looks quite bearish. A break of this support level would be very bearish indeed.

Gold: The bullish ‘Cup and Handle’ patterns on the weekly chart seems to have faded now on Gold. Price has fallen down through the major support trend line that dated back to early 2008. This is a major break down for the metal. The next major support level seems to be down at $1,525.