The Dow appears to be more ‘resisted’ than supported. A bullish situations hangs on the a few potential ‘ideas’ for support as well as the 200-day ema.

DJI faces many resistances; bearish reversal

GBPUSD prints likely continuation for short. This is despite it near to more resistance of March 2010 and mid-July 2010. This level might be a potential support.

GBPUSD display continuation for short

EURJPY prints a descending triangle or bearish pennant depending on how one looks at it. I see the shape of a shoe. Anyhow, the lower highs hint of a continuation move.

Descending triangle for EURJPY

So despite a bullish close in Week 32 for USDJPY, this week is just so negative. What’s worse, it just gets resisted lower and lower. 84.70 could be threatened.

Week 33 for USDJPY bearish despite good close in Week 32

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Caution dictates that a trader should stand aside when he encounters a symmetrical price pattern. The saying goes that price could emerge or breakout on either direction. In the case of USDJPY however, you might consider that the USDJPY is poised for a downward move considering that it has a host of resistance levels on top.

USDJPY zigzags in triangular chart pattern

USDJPY weekly chart shows resistance, pullback

In my post last week on Dollar Index revealed Weakness, I was anticipating a possible downturn of the Dollar Index. Yet last week’s Price Action has invalidated the Head and Shoulder chart Pattern on the 4 Hourly chart .

In fact, the chart pattern has now evolved to a possible Double Top formation on the daily chart, which again signals to a possible bearish reversal for the Dollar Index.

Dollar Index Daily Chart

What interests me is the second top formation seems to have a head and shoulder pattern too, with the right shoulder in the midst of forming. This again enhances the bearish view.

On a shorter term, looking at the 4 hourly chart below.

4 Hourly Chart of Dollar Index

AUDUSD is now poised at a critical junction. In fact a scenario exists where 3 elements of a good shorting signal out of 4 are available. We are awaiting the last one to confirm that the AUDUSD is truly going down.

A good signal has the following (read my previous posting on this topic) :

1. Resistance level provides a ‘hard’ place for price to reverse
2. A chart pattern hints at reversal
3. At the critical point, a candlestick pattern can be seen
4. All of the above come together in a confluence ultimately confirmed with trend line break

AUDUSD positioned for move

The first 3 signals are in place and early bears have already shorted. At this point, the risk is high for a short but on the other hand, the market is just a trendline break from a confirmation.

USD/CHF is moving within an equi-distant channel for the past few weeks.

Zooming to the 4 hourly chart,  there is an inverted Head and Shoulders formed at the bottom of the channel.

Incidentally, a double bottom was formed at the Head, which could increase the bullishness of the coming up swing move.

Inverted Head and Shoulders in USD/CHF 4 Hourly Chart

The low of Right Shoulder is also a retest of the neckline of the double bottom.

Therefore, it is important to note that the bullish view is only valid as long as the low of the Right Shoulder is not violated in the coming days ahead.

An inverted ‘Head and Shoulder’ has emerged. Confirmation is required now.

Breaking the neckline is now critical

Continuation or reversal for the AUDUSD

The answer usually lies in the chart although in this situation it is a bit hard to tell.

Channel?
Cup and Handle?
Continuation?
Reversal?

It is possible for traders to take a week-by-week view and do fairly good job at trading. The 4-hour chart is a good place to this and in the case of AUDUSD, 2 pieces of information jump out.

First a ‘Head and Shoulder’ pattern should be easy to see. This one is obvious so no need to check with your neighbor. Since the neckline is also broken, only a bear trap now can reverse the fortune of the Aussie. Secondly, we can see a series of lower highs and low lows.

Therefore there is only one way to go: sell resistance and take profit at support.

Few questions to ask now.

1. Quick look at February levels – Feb high has been violated so no support there.
2. Price is extended so its hard to short now (where to put the stop?). Let’s wait for a pull back.

Since that’s the case, any early week pullback will create the precedent for a mid- or late week re-test of level may see big move when everyone is convinced.

I hope every thing will fit perfectly.

By the way, some students told me my short bias was 2 weeks too early. I am glad I wasn’t 2 months too early or 2 months too late.

Mid-week roundup

After breaking below the Bear Flag last week and losing further grounds early this week, GBPJPY rallied but was rejected by the bottom of the previous equidistant channel/Bear Flag. Previously, it was mentioned that the bulls would be on the sidelines waiting for a reversal pattern to form.

On the hourly chart, as predicted, the careful bulls charged in full force upon the formation of a double bottom, and price surged through the neckline of the double bottom to form a new high for the week.

Outlook

The bulls and bears are currently caught in an indecision zone as portrayed by the shooting star and doji candles on the hourly chart. Bulls will be wary of the critical resistance zone provided by the intersection of the bottom of the previous equidistant channel and the downtrending line.

Scenario 1 (bullish) – price surges above that critical level (Bear Flag made invalid) and we could see further upside towards week 11′s high.

Scenario 2 (bearish) – we will see price forming lower highs and lower lows if price cannot break upwards from the indecision zone or if price respects the critical resistance zone.

Overall, it is safer to wait for the market to reveal itself, especially when the market is consolidating. The patient trader will reap his/her rewards.

Hourly chart double bottom

(Tiong Hum’s note: 4-hour will display the stronger trend; when set MT4 will show 4-hour chart with weekly separators. However if any big picture reversal is going to come, it will likely show up in the hourly charts first.)

Week’ 11 Review

Last week (week 11), we saw GBPJPY breaking above week 10 high. It rallied midweek to break above week 10 high and formed a higher high. But the rally could not be sustained and it turned out to be a bull trap.

Week 12 outlook

On the daily chart, there is a strong downtrend since August 2009. After a  recent rally, we see the formation of a Bear Flag, hinting to a continuation  of the downtrend.

GBPJPY daily chart paints bear flag

On the 4 Hourly chart, price broke below the bottom of the equi-distant channel, and after a throwback to the channel, continued its move downwards.

On the upside, GBPJPY will find possible resistance at the bottom of the euqi-distant channel. On the downside, bears will be likely to find support further down at the key support/resistance zone.

Bull trap in week 11 mark turning point

Finally, GBPJPY looks to continue its bearish momentum towards the key support/resistance zone and the bulls will have to wait at the sidelines for a clear reversal pattern on the daily chart for e safe entry.

In my earlier post, we discussed higher bases for Euro on a week to week basis. A look at the current daily and 4-hour chart suggests that risk for a downward move has appeared.

Bearish pennant likely in EURUSD daily

Daily momentum suggests that a bearish pennant is likely. Despite the higer bases, no credible bullish reversal pattern has appeared.

Bearish pennant capped by potential double top; confluence support

On the 4-hour chart, a rising wedge capped by a potential double top has now appeared. It is this wedge that resembles the body of the bearish pennant.

Bulls might want to buy if confluence support holds. Big trend bears should do well to wait for a pullback. Any pullback not surpassing this week’s high will make the setup even more bearish when it starts to resemble a head-and-shoulder.

Stay tuned.

USDJPY, EURJPY all rivers flowing south, EURUSD in headwater. Trend lines define a potential continuation pattern although boundaries will dictate final direction.

Trendlines define boundaries

This morning on H4 chart of EURUSD, it seems like there are 3 valleys (V or U letter shaped pattern), which is the classic triple bottom chart pattern. The triple bottoms, which spans over 3 weeks, could be a hint of a Bullish Reversal move underway.

How to trade the triple bottom?

As with double bottom formation, the bullish view is only  confirmed when Price Action breaks out of the neckline. The additional criteria for the validity is that Price Action should not make a new lows beyond the triple bottom.

If there is a new Low formed in the coming days, then the triple bottom is invalid. Instead, it can be a possible rectangle pattern, which is a consolidation of the Bearish Trend move.

Pennant in upward channel

Pattern requires break of short blue trendline to confirm.

The USDJPY is printing a potential wedge on the day chart as well as inverted head and shoulder in the 4-hour. It is critical to confirm with break of neckline or breakout of wedge.

Potential reversal patterns for USDJPY

Today, we shall excite ourselves by looking at one of the most volatile currency pairs, GBP/JPY, which has a daily average fluctuation of about 300 pips.

In addition, we shall see how 3 chart patterns that is very evident on GBP/JPY for trend reversal and trend continuation – namely, rising wedge pattern, pennant and  symmetrical triangle pattern.

GBPJPY Weekly Chart with Chart Patterns

As shown on the chart above, the Bearish Trend Reversal started with the rising wedge formation, which later evolves into the famous Head and Shoulder pattern hinting towards a big bearish reversal move underway.

Afterwhich, every subsequent retracement of the downtrend has either a rising wedge pattern or a bear pennant pattern.

Thus, it goes to show that there is a high reliability of trend continuation when either patterns had formed.

As we observed the recent months, that there is a big rising wedge formation which seems to be forming since 2009, and a symmetrical triangle forming shortly.

As price draws nearer to the apex of the symmetrical triangle, a breakout is inevitable. Yet, will it be a another trend continuation or a bullish reversal?

Should it break out of the pattern to the bullish side, then more bullish sentiment will be added to the equation as many traders will be eyeing for trading the breakout.

Likewise for the breakout to the bearish side, whereby more shorts will be added too.

Whichever the breakout is to be, it will likely to be a big move, so it is worth keeping tabs with this volatile pair in the coming future.

Chart patterns are commonly found for almost any price charts. It is more visual when view using a line chart than candlesticks or price bar chart.

As each price bar forms, it may give the chartist a perspective in relation to the formations showed by the historical bars.

Today, we shall dissect a 4 Hourly chart of CHFJPY to understand how patterns can form and perhaps to take advantage of the formations for trading.

As shown above,  it is evident that CHFJPY has finished a Head and Shoulders Pattern which is a Bearish Reversal of the previous Up trend. The Up trend happens to be at the ‘armpit’ of the Left Shoulder and Price break down the trendline, indicating the Head is formed. With the falling price, buyers wanted for an entry and attempted to push the price higher, thus forming a pullback.

But it goes to show that more are keen to sell than buy, and after several attempts to break above the up trend line, there is a sharp plunge which is forming the Right Shoulder.

On the same chart with the Head and Shoulders pattern, the keener eye might find more patterns within the Head and Shoulders!

1. Left Shoulder was a Double Top formation and Price found a support line to bounce off and overcome the top of the Left Shoulder to form a Higher High (Head).
2. After the attempt to make the Higher High, a bearish engulfing candlestick pattern formed resulting a possible price fall as seen on the chart.
3. A support / resistance line provide another bounce back with price forming a rising wedge pattern, it also an attempt to test the up trendline and to break it to the bullish side. Along with the evening star candlestick formation, the bearish reversal was like a quick runaway to sell down CHFJPY.
4. After a break below the support line, it seem to consolidate and wanted to move up above the support line, yet, the failed attempt results another dive for CHFJPY.

It is easy when we analysis charts in hindsight, when the formations were already there. It is a challenge for us to make sense of the charts as the days goes by. But after knowing a possible formation is underway, you can be sure many chartists who see it will want to ride it.

What we see for CHFJPY is on a 4 Hourly chart, which the above patterns were forming as the weeks goes by. It also shows that when the bullish sentiments of the Big Boys faded, the bearish reversal can last for a long time before another big move comes.

Yesterday, we saw big moves for all Majors Currencies. Looking at yesterday’s post on USDCHF throwback in day chart; hourly chart expansion gains, there seems to be a correlation of the Dollar Index, commonly known as USDX, with all cross-pairs of the USD.

Let’s have a look at the COT Report posted last Friday, 15 Jan, to see if there is any signs that the big players have left trails.

It can be seen that there was a support for USDX at 74.12, and a Big falling wedge pattern formed since Mar 09 till now.
The breakout from the wedge following with the breakout to above 50 day moving average,  suggest that a bullish trend reversal is intact, thus, USDX is likely to trend upwards.

From the COT Indicators, our interest is to look at the Net Position of the Commercial Traders and the Total Open Interest. Commercial Trader are the Big Boys and the Smart Money as discussed in my previous post and thus the Total Open Interest will also reflect largely on their open positions.  We see that the Net Position of the Commercials were on the extreme short position seen at the previous week, and they were unwinding their shorts position slowly as from last week. It is the similar pattern last seen in 3rd quarter of 2008, and causing a bull rally on the USDX.

The USDX is an index of Major Currencies and  therefore the chart pattern seen on USDX is similar with those pairs with USD as its base currency, eg. USD/CHF, USD/JPY and USD/CAD.

So which will move first? The USDX or the cross pairs in the spot market? I might find an  answer to this when somebody can tell me which come first: ‘The chicken or the egg’?

At the end of day, we should be traders first, investor second, and ride on the trend as long as possible.