Commodities & Forex Classical Chart Patterns Report

Transcription

1 TWO WAYS TO SHARE: Commodities & Forex Classical Chart Patterns Report Week of August 24, Patterns in Play (CANADIAN $, EURO, AUSTRALIAN $, EUR-JPY, COFFEE, SOYBEANS, BRAZIL EQUITY INDEX, JAPANESE SMALL CAPS) 2. Developing Patterns (Eurodollar, Gold, AUD-NZD) 2014 ProTradingFutures.com

2 Patterns in Play UNITED STATES DOLLAR/CANADIAN DOLLAR (USD-CAD) The long term chart of the USD-CAD suggests higher prices for this cross rate for the months to come - ergo a bearish outlook for the CA$. From a tactical perspective, July 4 and August 15 lows are two key support levels that must hold for the above scenario to play out. The measured target of the bottom formation - showed in the weekly chart below is Shorter term, looking at the daily plot we can see that there are two patterns. One is in play and one may be forming right now. The first is the sloping trendline that I have mentioned in the previous issues (here and here). The second is a potential (not confirmed) Inverse Head and Shoulder pattern. A decisive close above is needed to validate this latest formation. PORTFOLIO POSITIONING I m long USD-CAD since the last week of July. Ideally I will unload half of my longs near (H&S target) and half near (The measured move calculated from the multi-year bottom formation). If we move higher from there, I may use the smaller Head and Shoulder to scale-in and add another layer of capital to my position. In the worst case scenario, I ll close half of my current position at August 15 low and the other half at

3 Patterns In Play EURO FX (EUR-USD, 6E, M6E) Few considerations to support the possibility that we may be at a critical juncture for the Euro and that these levels may be the right spot to build short position for the months to come: 1) Any monetary policy by the European Central Bank would generate downward pressure on the Euro and - with the Euro zone s weak economic growth - the ECB may not remain on the sidelines for too long. 2) Fed s balance sheet expansion did not generate sufficient upward pressure to really push higher the EUR-USD. The lower highs set by the EUR-USD ins 2008, 2009, 2011 are testimony of that. From a fundamental point of view the chances of a stronger Euro going to 2015 are not the most probable scenario. The long monthly chart of the Euro shows a possible triangle formation that, if plays out, would project a retest of 2000 lows. Shorter term a smaller Head and Shoulder reversal formation was completed on July 22. This latest development is currently generating a downward movement of the pair toward This scenario remains a possibility if the pair doesn t trader above PORTFOLIO POSITIONING I m short the Euro via futures with a stop at My target is As for my considerations above I m planning to eventually hold my position (or part of it) for a long term play. Ultimately the price action will tell me what to do.

4 Patterns In Play AUSTRALIAN DOLLAR - UNITED STATES DOLLAR (AUD-USD, 6A, M6A) Long term, the Australian $ has formed a multi month Symmetrical Triangle that is suggesting that a move to level is underway. Short term the cross rate has completed a small Head and Shoulder that projects a move just below This latest small pattern provides a good opportunity to short this market looking both for a quick profit (at ) and possibly ride the whole leg down to Unfortunately the completion of the H&S has not been followed by a momentum burst, but a choppy action that increases the possibility that the H&S patterns may just morph into something else, eventually a 4-5 month H&S forming within the 0.92 and 0.95 boundaries (being the right shoulder in development. PORTFOLIO POSITIONING I m short the AU$ via September futures. My stop is at , but I m considering to lower it at if the markets closes up in the next two days.

5 Patterns In Play COFFEE (KC futures, JO ETF) Long term, Coffee could be forming an inverse Head and Shoulder, as shown in the weekly plot. In particular and a close above $47.5/JO would confirm that a bull trend toward 2011 highs is in place. Short term, the close above June s highs completed a small Head and Shoulder Failure pattern projecting a retest of this year s highs. A close below $34 would negate this latest interpretation. PORTFOLIO POSITIONING I m fl a t : t h i s market is not presenting any good risk-reward to anticipate the e v e n t u a l breakout above $ I keep this market in my Watchlist for long setups.

6 Patterns in Play NOVEMBER SOYBEANS (ZS, XS) During the last 5 trading days, September Soybeans contract surged on supply tightens ahead of bumper harvest, while November contract closed the week in negative territory just below the neckline of a multimonth H&S pattern. P O R T F O L I O POSITIONING I m short, as per last week report, but not really confident about this trade: ZSX is w o r k i n g o u t i t s overbought condition while forming a descending wedge. I m expecting volatility to kick in as early as next week. I m risking around 0.5% of my trading capital at a close above 1068/XSZ. Below, the long term target of this market is at $934.

7 Patterns in Play BRAZIL INDEX MSCI ISHARES (EWZ) A 46-month descending Wedge is in play with a measured objective move to $78. JAPAN SMALL CAP DIVIDEND WISDOM TREE (DFJ) Most macroeconomic indicator, starting from strength in retail sales, shows a broad improvement in Japan economy. I m expecting this tail wind to continue for Japan, hence I m bullish on Japanese stocks. If the chart setup showed below plays out, the ETF is headed to $60. A close below $52 would negate my bullish outlook.

8 Developing Patterns EURO - JAPANESE YEN (EUR-JPY) With the Euro that is more than 30% overvalued against the Yen (on PPP basis) and with the strengthening of the Japanese economy (that makes another round of QE unlikely) being short the EUR-JPY is a good risk-reward profile trade setup, at least for a macroeconomic point of view. Looking at charts, The pair shows that a decisive close below would complete a Double Top formation and project a minimum move to I set my trading alert at and I ll be looking for a clear breakdown below this level with a close near the low to get short. On this setup I m willing to risk a close above

9 Patterns In Play FTSE CHINA 25 INDEX FUND ISHARES (FXI) While there is a general consensus that Chinese real estate market is near to collapse and the financial system is going to go through major stress, the combination of poor market performance over the last 4 years an the excessive bearish sentiment toward China, make me believe that there is higher potential for the Chinese stock market to surge from here than to collapse. From a tactical point of view, last month breakout in FXI offered a decent setup to establish a low risk-reward long position. PORTFOLIO POSITIONING I m long FXI since last Monday risking 1/2 position on a close below $38 and the other half on a close below $36.5.

10 Developing Patterns DECEMBER 2016 EURODOLLAR (GEZ6) December 16 contract may be forming an Ascending Triangle, that usually act as continuation formation: the resolution of the current congestion experienced by the GEZ6 contract is expected to be on the upside. Nevertheless, until we have a clear breakout we have no pattern in play and no reason to partecipate in this market. A close above $98.20 in December 2016 contract indicates that a move toward may have have started.

11 Developing Patterns GOLD (GCZ, MGCZ, GLD) Gold is one market that respond mainly on public sentiment. Real interest rates, the dollar and investor risk aversion are the real drivers that move gold. Since there are no fundamentals moving the precious metal, there is no real reason why it can or cannot trade at $3000 or $500. Right now, while most people get overly bullish Gold because it is cheap, the precious metal may be just completing an Inverse Head and Shoulder Failure pattern on the daily chart. A close below last week lows would indicate that a retest of January s low may be in the cards. Longer term the precious metal may be forming a Symmetrical continuation Triangle that would come into play below $1180. If that is the case in 2015 we may see Gold below $1000.

12 Developing Patterns Australian Dollar, New Zealand Dollar (AUD-NZD) I know no trader that is bullish AUD-NZD (that could be seen as bearish indicator, from a contrarian perspective). But what charts shows for this pair is a potential bear flag that indicates that the AUD-NZD rate may be headed to historical lows over the next couple of months The two levels that I m going to watch going into next week are and

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