Sive Morten
Special Consultant to the FPA
- Messages
- 18,748
Monthly
Market has continued move down within the past week, and now it looks like perfect bearish engulfing pattern, although February has not closed yet. To pure technical moments now some fundamentals are added. Probably all of you know about recent Fed meeting and significant changes that have happened there. Thus, opinion of members has divided. Some of them have voted for closing of QE program; while others still stand for continue. The reason for that is signs of improvement in US economy and decreasing of unemployment. When Fed has started QE’s they have hinted on some beacons on major economy data, particularly unemployment and investors thought that Fed will not take any tighten before these numbers will be achieved. For instance, by this thought unemployment should contracted to 6.5%. But now it is obviously that Fed has become more hawkish and it is look like it does not intend to wait when data will reach predefined levels and could start to act in advantage. Besides of closing QE program also was suggested to keep bought back bonds on Fed balance for some time. In fact, Fed is acting not due inflation but due improvement in economy. If this is really so and if US economy moves out of recession into first growth stage – it could lead to significant dollar appreciation, because first growth stage in economy cycle after recession is a stage of growth at zero inflation. In fact, this growth does lead to inflation in future – that’s the reason why central bank starts to rise rates. But until that happen, economy grows without inflation. And that is a stage where US economy might be entering, if data will be stable.
Thus, as you can see behind current EUR failure around 1.35 area stands not only technical resistance, but fundamentals as well. If US economy indeed will start to climb up from recession pit – our long term analysis of Dollar index (November 2011) that suggests EUR move to 1.16 could finally get a fill. Still, this is too far perspective.
From the technical perspective market will hardly proceed to 1.3830 area at the same single breath. Market was not able to reach significant resistance with current swing, so we should be ready for deeper move down. Despite all fundamental issues and that this indeed could be reversal down, currently it’s better count only on retracement, because trend here sill holds bullish and price action as well – not bad at all. This move up could become an AB leg of greater AB=CD pattern, why not? But how deep BC leg could be? Anyway direction is the same – down.
Well, as first destination, I probably could point Yearly Pivot Point that has not been touched yet. Second thought – take a look, this could be reverse H&S pattern. The left shoulder and the head are based on perfect 1.618 Butterfly “Buy” on weekly chart. So, to reach the same ratio in relation to head low, market should show retracement to 1.2750-1.29 area. These levels are a bit extended and we do not trade on monthly time frame, but we have to keep in mind major destination, because sooner or later it will become very significant. If market will fail there as well – that could become continuation of long-term bear trend. Still, major conclusion for us here – market probably will move lower, and we have direction of trading for some weeks ahead.
Weekly
Trend on weekly time frame has turned bearish and market has achieved our first target – low of harmonic swing right at MPS1. Although currently it is difficult to prove it, but it seems that market will continue move down. There are some reasons for that. Recall that market, in fact, has reversed at minor resistance and didn’t continue move up to 100 % extension of AB=CD. This reversal has happened between 0.618 and 1.0 extensions and that happens relatively rare and could tell about serious changes in sentiment. Second is – we have engulfing pattern here, and its minimum target is the length of the bars, as it shown on the chart. Hence, probably we still can count on move to 1.30 area. This is rather strong support – natural support, K-support and target of engulfing pattern as well.
Daily
Trend here is strongly bearish. Sorry, guys for a bit overloaded chart. In general, we’ve made its analysis on Friday. Despite how bearish market is, daily time frame tells that currently it is not a great moment to enter short. We’re at AB=CD target point, daily oversold at MPS1. If instead of MPS1 we have Fib support, we can call it as DiNapoli bullish “Stretch” directional pattern, but whatever support we have – the idea and the core of situation is the same. Market will hardly move down right now, since it feels double pressure – from support and from oversold condition. This is rather uncomfortable for it, and we should count on a bounce up. Actually DiNapoli has another stretch-kind pattern, that he calls “Kibby trade”. This is a combination of AB=CD or any extension target with overbought or oversold. This setup assumes scalp trade on lower time frames against major trend (that is bearish here). We probably will try to do the same. Precisely speaking – those of you who trade on daily time frame or higher – just wait, when market will leave this uncomfortable oversold condition. You do not need to make any trades right now, since overall context is bearish. While others, who mostly trade on lower time frames can try to do that. But I have to warning you – stretch is a tricky pattern by two reasons. First is because it is countertrend with all consequences that could follow and second – it has corrective nature, but not impulse. That’s why it is rather difficult to predict the destination. By DiNapoli, if stretch works perfect and trigger some thrusting move on intraday charts, then minimum target is a zero point on DOSC – equilibrium between overbought and oversold lines (I’ve marked it on the chart by blue circle). But since OB and OS are dynamic, market could reach equilibrium if even it will go nowhere, but OB/OS lines will move by themselves. You can see example of that a bit earlier – in January, when market has hit OB, but then turns to flat action, while OB/OS lines have moved higher, thus equilibrium point has been achieved.
Currently the target of stretch pattern stands around daily K-resistance 1.3360-1.3370. After it will work out, next downward target on daily chart is the same 1.30 area. First is because of AB=CD, second – if we treat current pattern as likeness of H&S, then it’s target stands around 1.30 as well.
Finally, as I’ve said on Friday, when you’re dealing with stretch-kind patterns, it is better to have as much insurance as you can. I mean patterns or something that can confirm your assumption and get you confidence with long entry. Here we still have no definite yet – only high wave candle right at bottom, but it might be morning star, right?
4-hour
On intraday charts market fortunately gives us a lot of patterns to watch. Let’s start from 4-hour time frame. First of all, I would like to attract your attention to some nuances. Take a look, market has created a new low, and this is rather significant. First is because now it has become our invalidation point. Market has achieved all targets prior to this low – daily AB=CD, 4-hour 1.618 AB-CD and 1.27 most recent AB-CD (recall Friday analysis), so in fact it had no reasons to go lower. One thing why it wanted to do this – stops. And that was a W&R. When all targets are hit and all stops were grabbed – no reason to go lower. Hence, it will happen, then, probably market just will try continue move down.
Another reason, why this is important – possitions of breakout traders. Trend was bearish there and those who have entered short right at this W&R now trapped with wrong position. Where they place their stops – probably right above previous top, and what this top is? This is a top of high wave pattern on daily. High wave shows indecision condition and neither bullish nor bearish by itself. But market usually follows the direction of breakout out of the range of high wave. So, they place their stops at most wrong place – on a way of bullish breakout of indecision pattern. These stops will probably add fuel to possible move up.
Simulteniously we have possibility for DRPO “Buy”. This is the first pattern that you can trade on long side. That’s why I like when DRPO shows lower second bottom. It is not neccesary to wait, when market will move above high wave’s top – just use it as checkpoint. Trend here has turned bullish already.
30-min
If you don’t mind, today I again will use 30-min chart, instead of hourly, since it’s more suitable right now. Here another two patterns for you that compounded. First is – this could be Double Bottom. Second bottom shows W&R of first one that is very typical. Moment of market’s exhaustion is confirmed by bullish divergence right at strong daily support. At the same time second bottom takes the shape or reverse H&S. Target of DB is a height till the neckline, counted in direction of breakout – it leads us precisely to daily K-resistance around 1.3350, while H&S pattern in turn, leads market to the neckline.
Conclusion:
On long-term perspective the probability of down move is increasing. Currently is not clear yet – will it become reversal and continuation of monthly trend down, or just a kind of BC leg of greater AB=CD upward pattern. But taking into consideration fundamental component, the probability of just BC leg is becoming suspicious.
Weekly price action confirms possible deeper move down. Until market will not erase weekly bearish engulfing pattern, it’s difficult to find any reason to take long position.
In shorter-term perspective market technically oversold at support. Despite how bearish the market is – it is not reasonable to take short right now. It is better to either wait a pull back staying flat or try to take scalp long on intraday charts.
The technical portion of Sive's analysis owes a great deal to Joe DiNapoli's methods, and uses a number of Joe's proprietary indicators. Please note that Sive's analysis is his own view of the market and is not endorsed by Joe DiNapoli or any related companies.
Market has continued move down within the past week, and now it looks like perfect bearish engulfing pattern, although February has not closed yet. To pure technical moments now some fundamentals are added. Probably all of you know about recent Fed meeting and significant changes that have happened there. Thus, opinion of members has divided. Some of them have voted for closing of QE program; while others still stand for continue. The reason for that is signs of improvement in US economy and decreasing of unemployment. When Fed has started QE’s they have hinted on some beacons on major economy data, particularly unemployment and investors thought that Fed will not take any tighten before these numbers will be achieved. For instance, by this thought unemployment should contracted to 6.5%. But now it is obviously that Fed has become more hawkish and it is look like it does not intend to wait when data will reach predefined levels and could start to act in advantage. Besides of closing QE program also was suggested to keep bought back bonds on Fed balance for some time. In fact, Fed is acting not due inflation but due improvement in economy. If this is really so and if US economy moves out of recession into first growth stage – it could lead to significant dollar appreciation, because first growth stage in economy cycle after recession is a stage of growth at zero inflation. In fact, this growth does lead to inflation in future – that’s the reason why central bank starts to rise rates. But until that happen, economy grows without inflation. And that is a stage where US economy might be entering, if data will be stable.
Thus, as you can see behind current EUR failure around 1.35 area stands not only technical resistance, but fundamentals as well. If US economy indeed will start to climb up from recession pit – our long term analysis of Dollar index (November 2011) that suggests EUR move to 1.16 could finally get a fill. Still, this is too far perspective.
From the technical perspective market will hardly proceed to 1.3830 area at the same single breath. Market was not able to reach significant resistance with current swing, so we should be ready for deeper move down. Despite all fundamental issues and that this indeed could be reversal down, currently it’s better count only on retracement, because trend here sill holds bullish and price action as well – not bad at all. This move up could become an AB leg of greater AB=CD pattern, why not? But how deep BC leg could be? Anyway direction is the same – down.
Well, as first destination, I probably could point Yearly Pivot Point that has not been touched yet. Second thought – take a look, this could be reverse H&S pattern. The left shoulder and the head are based on perfect 1.618 Butterfly “Buy” on weekly chart. So, to reach the same ratio in relation to head low, market should show retracement to 1.2750-1.29 area. These levels are a bit extended and we do not trade on monthly time frame, but we have to keep in mind major destination, because sooner or later it will become very significant. If market will fail there as well – that could become continuation of long-term bear trend. Still, major conclusion for us here – market probably will move lower, and we have direction of trading for some weeks ahead.
Weekly
Trend on weekly time frame has turned bearish and market has achieved our first target – low of harmonic swing right at MPS1. Although currently it is difficult to prove it, but it seems that market will continue move down. There are some reasons for that. Recall that market, in fact, has reversed at minor resistance and didn’t continue move up to 100 % extension of AB=CD. This reversal has happened between 0.618 and 1.0 extensions and that happens relatively rare and could tell about serious changes in sentiment. Second is – we have engulfing pattern here, and its minimum target is the length of the bars, as it shown on the chart. Hence, probably we still can count on move to 1.30 area. This is rather strong support – natural support, K-support and target of engulfing pattern as well.
Daily
Trend here is strongly bearish. Sorry, guys for a bit overloaded chart. In general, we’ve made its analysis on Friday. Despite how bearish market is, daily time frame tells that currently it is not a great moment to enter short. We’re at AB=CD target point, daily oversold at MPS1. If instead of MPS1 we have Fib support, we can call it as DiNapoli bullish “Stretch” directional pattern, but whatever support we have – the idea and the core of situation is the same. Market will hardly move down right now, since it feels double pressure – from support and from oversold condition. This is rather uncomfortable for it, and we should count on a bounce up. Actually DiNapoli has another stretch-kind pattern, that he calls “Kibby trade”. This is a combination of AB=CD or any extension target with overbought or oversold. This setup assumes scalp trade on lower time frames against major trend (that is bearish here). We probably will try to do the same. Precisely speaking – those of you who trade on daily time frame or higher – just wait, when market will leave this uncomfortable oversold condition. You do not need to make any trades right now, since overall context is bearish. While others, who mostly trade on lower time frames can try to do that. But I have to warning you – stretch is a tricky pattern by two reasons. First is because it is countertrend with all consequences that could follow and second – it has corrective nature, but not impulse. That’s why it is rather difficult to predict the destination. By DiNapoli, if stretch works perfect and trigger some thrusting move on intraday charts, then minimum target is a zero point on DOSC – equilibrium between overbought and oversold lines (I’ve marked it on the chart by blue circle). But since OB and OS are dynamic, market could reach equilibrium if even it will go nowhere, but OB/OS lines will move by themselves. You can see example of that a bit earlier – in January, when market has hit OB, but then turns to flat action, while OB/OS lines have moved higher, thus equilibrium point has been achieved.
Currently the target of stretch pattern stands around daily K-resistance 1.3360-1.3370. After it will work out, next downward target on daily chart is the same 1.30 area. First is because of AB=CD, second – if we treat current pattern as likeness of H&S, then it’s target stands around 1.30 as well.
Finally, as I’ve said on Friday, when you’re dealing with stretch-kind patterns, it is better to have as much insurance as you can. I mean patterns or something that can confirm your assumption and get you confidence with long entry. Here we still have no definite yet – only high wave candle right at bottom, but it might be morning star, right?
4-hour
On intraday charts market fortunately gives us a lot of patterns to watch. Let’s start from 4-hour time frame. First of all, I would like to attract your attention to some nuances. Take a look, market has created a new low, and this is rather significant. First is because now it has become our invalidation point. Market has achieved all targets prior to this low – daily AB=CD, 4-hour 1.618 AB-CD and 1.27 most recent AB-CD (recall Friday analysis), so in fact it had no reasons to go lower. One thing why it wanted to do this – stops. And that was a W&R. When all targets are hit and all stops were grabbed – no reason to go lower. Hence, it will happen, then, probably market just will try continue move down.
Another reason, why this is important – possitions of breakout traders. Trend was bearish there and those who have entered short right at this W&R now trapped with wrong position. Where they place their stops – probably right above previous top, and what this top is? This is a top of high wave pattern on daily. High wave shows indecision condition and neither bullish nor bearish by itself. But market usually follows the direction of breakout out of the range of high wave. So, they place their stops at most wrong place – on a way of bullish breakout of indecision pattern. These stops will probably add fuel to possible move up.
Simulteniously we have possibility for DRPO “Buy”. This is the first pattern that you can trade on long side. That’s why I like when DRPO shows lower second bottom. It is not neccesary to wait, when market will move above high wave’s top – just use it as checkpoint. Trend here has turned bullish already.
30-min
If you don’t mind, today I again will use 30-min chart, instead of hourly, since it’s more suitable right now. Here another two patterns for you that compounded. First is – this could be Double Bottom. Second bottom shows W&R of first one that is very typical. Moment of market’s exhaustion is confirmed by bullish divergence right at strong daily support. At the same time second bottom takes the shape or reverse H&S. Target of DB is a height till the neckline, counted in direction of breakout – it leads us precisely to daily K-resistance around 1.3350, while H&S pattern in turn, leads market to the neckline.
Conclusion:
On long-term perspective the probability of down move is increasing. Currently is not clear yet – will it become reversal and continuation of monthly trend down, or just a kind of BC leg of greater AB=CD upward pattern. But taking into consideration fundamental component, the probability of just BC leg is becoming suspicious.
Weekly price action confirms possible deeper move down. Until market will not erase weekly bearish engulfing pattern, it’s difficult to find any reason to take long position.
In shorter-term perspective market technically oversold at support. Despite how bearish the market is – it is not reasonable to take short right now. It is better to either wait a pull back staying flat or try to take scalp long on intraday charts.
The technical portion of Sive's analysis owes a great deal to Joe DiNapoli's methods, and uses a number of Joe's proprietary indicators. Please note that Sive's analysis is his own view of the market and is not endorsed by Joe DiNapoli or any related companies.
