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Posts Tagged ‘support’

euraud3.jpg Despite my reservations about going short the euro, the EUR/AUD breakout we looked at had legs. A few hundred pips worth of legs. It’s a good reminder of a technical analysis principle some of you may not know. When price is in a channel (support and resistance running parallel) and breaks out – either way – the price will typically go at least as far from the breakout as the channel was wide.
Look at the chart to the left to help illustrate that. I almost said something about this in the original post but didn’t, not wanting it to be too long. You may also notice I changed my original resistance line. I did that a few days ago upon looking at it closer. Always be willing to change those lines!
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gbpjpy6.jpg Remember 213.50, how we talked about how a breach lower than this point would resume the bearishness? The pair has been flopping around above that for a week but in the wee hours it broke lower. Finally, dang it.

If you missed it or are not in yet, fear not. It is doing a typical retest of that level from beneath, trying it out as resistance now. It should hold. Remember, our whole premise is that the pair has broken a head and shoulders on the daily chart and it’s looking nasty.

I was going to clean my lines up last night but notice how I have lines all over from last week. They are irrelevant now because they were short term and we’ve moved beyond them. Illl erase them now, all but the thick horizontal line which is not resistance.

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   Just following up something we talked about last week. The pair is looking bullishly frisky, trying to pop to the topside. It’d be nice to see more follow through though, considering the pair is at some resistance.

   For comparison, consider trades like we saw in it several months ago – I highlighted some possible entry points in green ovals. Why not look for the obvious trade? A definite resistance break, a definite bounce off support in a great trend, etc.? After all, we can only manage a handful of trades at a time, so let them be the best.

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    Remember how we looked at this pair’s double top? (which portends a downward movement)  I chickened out on the thing and never liked the set-up. Well, it completed it’s double top target yesterday (!@#$%& it anyway, it’s made a few hundred pips since we’ve been talking about it). It goes to show that despite bullish divergences, being oversold, and 200 day moving averages, price will do what it wants and true blue trend-followers often get their way. That doesn’t mean I dump how I see things though and change my own trade methods …

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    Now that I’ve completely slammed another good man’s analysis of the EUR/USD (is this guilt?) I feel compelled to provide my own…

    For starters, there is the completely obvious trend line that the pair has been using as support since August, which it just broke thru in my eyes, or is breaking thru if you draw it tighter. The pair is switching from uptrending to downtrending according to the 30 day moving average (it’s now below it). These two things show a shift in the short-term to: (drum roll…) DOWN baby!

    However! Nobody thinks the euro is going down the tube and the dollar is about to skyrocket. Technically this picture is painted by the long term trend – the pair has been going up for a very long time, despite the short term swing down. Use your same trend-judging on the 5-year weekly chart to discern the long term trend.

    This seems to be more of what we’ve been talking about: a correction, profit taking, whatever you want to call it. See the MACD and stochastics? Oversold. So … the pair may be about done correcting. It’s also at a (minor) fibonacci level. Despite breaking thru support, then, we could be at an end to the downturn for the time being. We’ll keep watching this.

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Last seen this pair was busting down from a double top. I think it makes a fine example of how price patterns aren’t magical and, like everything else, should be taken with a grain of salt.

    Granted, when you see one it is a little exciting, in a sense.  But price patterns work out maybe 60% of the time. That means we need to be careful and scrutinize them, doesn’t it? I don’t want to be in the 40% camp.

    The tough thing with this one was the 200 day moving average (MA) was right below the area where you’d feel like it broke out. So when you think of getting in, you’ve suddenly got possible support staring at you. The pair got beyond the MA now, but my beef with the set-up is the fact that the oscillators haven’t reset. Ideally, when the pair was hesitating at the 200 MA it would have coiled there a while, allowing the oscillators to not be so darned oversold. They also are forming a bullish divergence.

    For me, this is too much, on a trade that would already be half thru it’s move so you’d be getting in on late anyway.

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As currencies continue to take their queue from stocks – albeit a bit less lately –  it’s interesting to see how stocks have popped in the last several days.

I like to watch the S$P500 ($SPX), and it keeps it simple for me to just watch this index. The price indeed popped up last week, but did not make a higher high (to my eyes it came a bit short), so the downtrend for stocks seems to have held on. What is interesting is that stocks popped thru resistance, but there is a parallel one above it catching them. I highlighted this area in a red oval below. You would expect them to keep falling lower now, but this may be a flag shaped consolidation and I’m watching to see if the S&P can pop out of this resistance area. The implication would be positive for most currencies.

This is a good illustration, by the way, of how an extreme jab thru support/resistance (in this case, resistance back around the start of November) can end up being a second trench of resistance, which runs parallel to the first.

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