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Posts Tagged ‘Futures’

Technical Analysis: Update on the Euro

November 3, 2011 1 comment

In our last article regarding the Euro published on May 16, 2010, The Euro Breaks Long-Term Support: Watch Out for Short Covering, we warned that although the situation seemed dire and the Euro futures had just broken down through a multi-year low, it was not the time to get on the short-selling bandwagon. At the time, I was expecting at the least a moderate sized bounce but we ended up getting a lot more than a “bounce”.

At the time of the post, the most recent close on Euro futures was $1.2369 and over the course of the next 12 months, it staged an enormous 20%+ rally (with a very nice, easy-to-trade trend I might add) up to a interim high of $1.4925. Since then however, new worries regarding whether or not Greece would default (or if markdowns were accepted by bondholders, how much of a markdown) and rising yields on the sovereign debt the other PIIGS (Portugal, Ireland, Italy, Greece, Spain).

So now with the possibility of a Greek referendum on whether to stay in the Euro and the possibility that Prime Minister George Papandreou will be forced to resign, what are the charts saying about the direction of the Euro, and possibly the direction of markets in general? Let’s take a look below:

(Click here for a larger image)

This first chart is a basic long term trend line analysis reflecting the development of a VERY large wedge/pennant formation. Wedge patterns are indicative of uncertainty and a lack of conviction among investors and are not effective at predicting price movements (aside from trading the range) until they break up/down out of the pattern. The fact that the Euro has broken below and above the lines at certain points further illustrates the lack of conviction.

However, there is slightly more evidence indicating downward price pressure from where the Euro currently is for two reasons. 1.) The trend line from the June 2010 lows that had been acting as support was breached to the downside and the Euro has just finished retracing to touch it in what is possibly a “kiss of death”. 2.) As you can see on this zoomed in daily version of the same chart, there was strong resistance at the top of the wedge’s range so it would be completely normal for the Euro to retest the lows of the pattern again. The daily chart also shows that the Euro ran into resistance at the 150 and 200 day SMA lines (white).

Despite the bearish trend lines that I mentioned above, I currently have no position on the euro (I’ll explain why on the next chart). I would however become very bearish if it were to break down below $1.3020 because it would be a clear break of the wedge and would also be indicative of a head and shoulders pattern.

The reason I am not positioned short at the moment is shown on the next chart that uses Fibonacci retracement analysis.

(Click here for a larger image)

The graph shown above paints a slightly different picture. While it’s true that the 61.8% line was not penetrated in the short setup from the interim high at$1.4925 to the recent low at $1.3139, the long setup from the same recent low at $1.3139 to the recent high at $1.4243 also held. This situation mirrors the indecisiveness that was evident with the wedge pattern above. However, this chart leans more towards the bullish side because the two setups mentioned above in this paragraph are taking place within a much larger weekly long setup from the June 2010 lows to the interim high at $1.4925. The bigger the setup more more trustworthy it is and the trend is in place until it isn’t.

Based on the Fibonacci chart, my bias at the moment would be long but with a stop at $1.3560. If I got  stopped out, I would then wait for the next 50% retracement to get short. At that point, both the trend line and Fibonacci analysis would be pointing towards the bearish side so it would be more likely for the Euro to break through the weekly support. It’s also important to note that in the last six years, the Euro has never held a full half way back 50% long after breaking trend (as the Euro already did back in September).

In this case, we have the only area where the two indicators agree, is that the outlook is still mixed until the Euro breaks out of it’s current range so the best way to play this would probably just be being patient and waiting for the market to tell us the next move. I’ll try and give an update on this later when a trend materializes.

Disclosures:
No current Euro positions.

-MJB

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The Euro Breaks Long-Term Support: Watch Out for Short Covering

May 16, 2010 1 comment

The Euro just broke four year lows over continuing fear over the Greece Sovereign debt crises and the related risks of contagion to Portugal, Spain, Ireland and the rest of the Euro zone.

While the situation is certainly bleak, a large majority of traders are currently short the Euro and you don’t want to sell lows. You can see from the chart below that we just hit a medium term short target and although its definitely possible that we could just keep going in an extension, it’s also very possible that we could see a near-term retracement to 1.26’s as shorts take profit in a crowded trade.

-MJB

(Click to Enlarge)

Chart View of the Germany and Greece Debt Bailout Rumor

February 9, 2010 Leave a comment

Pretty funny chart courtesy of ZeroHedge showing today’s price action on the ‘news’ of a rumor that Germany was going to bail Greece out of their sovereign debt problems.

The interesting thing to note here is that it would appear the market is still pricing in a decent probability of some form of assistance coming in, possibly from another country.

-MJB

Follow-Up: Technical Trouble on the S&P 500 (SPY, GS, JPM, AAPL, CSCO, GOOG, F, GE, CAT, GLD, UUP)

December 8, 2009 1 comment

We have posted discussions about this in the past, most recently on November 25th and also on October 30th, where we looked at the charts and decided that the S&P 500 was possibly in for some trouble.  On November 25 the broad market index closed at 1111.18, and today it closed at 1091.94, for a loss of 1.7%.  Basically, the market has gone nowhere in that time.

What has happened, however, is that the chart has given us some more signs that the market is running into trouble.  Here is a 1 yr daily chart of the SPX, similar to the one we showed in our previous posts, except with some updated lines.

As you can see, we still remain unable to break above that 1120 line (yellow horizontal line), which is the long term 50% Fibonacci retracement line from the 2007 high to this years low.  It is likely that we are seeing heavy resistance at this level as traders anticipate this weakness and front run it to exit positions for the year.

Additionally, this chart shows that we have broken the uptrend that was established since the March lows.  Keen observers will note that this also happened in October, but the break is much more definitive this time especially when combined with that price ceiling. However, we will need to take a look at where we close on the weekly chart because that should be much more indicative of future movements.

For good measure, the same analysis applied to the E-Mini futures (/ES) yields similar results:

The /ES is attempting, and thus far failing to break through its own ceiling which has been established at 1112.  As you can see, the E-Mini futures just broke below the upward trendline that has defined this rally since March.

The root cause of this is, in our opinion, fund managers selling off risky assets to lock in the substantial gains some of them have been able to accumulate during this tumultuous year.  Obviously, this situation is not sustainable, as mutual fund managers often have a mandated maximum cash balance, and hedge fund managers generally do not like to have their end-of-year statements to clients say that they are in cash.  But there is a lot of money available to be taken off to the sidelines, so this situation may continue through the end of the year.  It will be important to watch leadership stocks over the next couple weeks such as Goldman Sachs & Co. (GS), JP Morgan Chase (JPM), Apple (AAPL), Cisco, (CSCO), Google, (GOOG), Ford (F), General Electric (GE), Caterpillar (CAT), etc. and of course gold (GLD) and the US Dollar (UUP). We’ll be making a follow up to this over the weekend.

-Lucid Markets Team

Disclosure: Long GS, CSCO, GOOG, GE, GLD, UUP, JPM and the stock market in general through various other positions.