Friday Morning Chart Candy: S&P 500

Was That It?

That was short-lived, at least as I traded it.

GBP/JPY took profit at 0337 ET @ 160.63: +100

EUR/JPY took profit at 0443 ET @ 136.29: +101

Took USD/CAD off for +11, EUR/USD for -4.

Currently appraisal of bias is still short on these pairs, with USD/CAD holding out (momentarily) at 1.0650.  Was that it for the correction?  If that’s right, what follows below will seem oddly chosen, and I’ll be looking short yet again.

Two current trades:

• Took a long on a piercing pattern (not such a good example, in retrospect) around the 1.6956 261.8% fib extension I’ve been trading around on GBP/USD at 1.5982.  Got in there at the close of the 0400 candle, but think that was a premature given the range over the past 3 hours.  Not liking my choice:

GBP/USD: Piercing Pattern, or Just a Range? Meh.

• and a long on a corrective bull flag for EUR/USD at 1.4411 that has yet to break out…likewise a bit premature on the entry.

EUR/USD: Corrective Flag, or Topping Formation?

Those trades are in progress for the moment.  Check out my Twitter (also on the sidebar ->) for more timely updates and analysis as things unfold!

EUR/USD: Breakdown?

Enticing, Eh?  Short from 1.4235 on the pair I swore to hate.

We’ll see how this plays out: watchful for a bear trap, curl around to break above 1.43 as the alternate, adverse scenario.  Stop hanging out above 1.4280….

Oh, And GBP/USD

GBP/USD is muddly the past several weeks but is moving in substantial correlation to GBP/JPY with the ebb and flow of risk aversion.  The construction is different, but not unlike GBP/JPY, as an example the 07/23 high clocked at the 78.6% retracement for the decline from 06/30-07/13.  If you’re wondering why I’m attributing so much significance to what can be a highly fickle metric, I’m not; just noting the relative correlation.  GBP/USD is in a symmetrical triangle at the tail end of a 2 week consolidation that may continue to sputter around, but I think could be poised for a decline of similar depth as the Guppy’s.

GBP/JPY: Double Top?

Maybe.  Or not.  I emphatically declare that I am not calling a double top.  But, for the first time since…well, for a couple of weeks anyway, I’m cognizant of short-side potential beyond the quick flick of a countertrend throwback.

In favor of a top we have:

• A rapid return to the 78.6% retracement level of the entire decline from 160 to 147 that played out over the first two weeks of July.  This area around 157 yielded a brief hesitation 07/03-07/06 (holiday weekend ranging?).   A first occurrence last Thursday moved back to the 61.8% before being batted upward once more.
• The 07/23 and 07/27 swing highs occur within pips of each other on a closing basis, creating a violation of the series of 4 higher highs in place since 07/09.
• The Modified Schiff Pitchfork (MSPF) in green (Points: 1) the perpendicular of the 07/22 low and point 3, 2) 07/23 high, 3) 07/25 low) cuts a median line through the 78.6% retracement level where price topped today: confluence reinforces resistance.

In opposition to a top:

• The momentum of a 6 month (still corrective) uptrend favoring further upside.
• A Standard PF (1) 07/17 low, 2) 07/20 high, 3) 07/22 low) with a lower forkline tested unsuccessfully on two and now potentially 3 touches that…
• …looks to produce the lower ascending trend line for an ascending triangle that would break just above 157 (and very soon, I’d add)
• The price objective for the Adam & Adam Double Bottom of 07/08, 07/13 comes in around 158.60ish

But, the converging MSPF median line and Standard PF lower fork line are producing a rising wedge of sorts, which could produce a bearish move down.  Hmm.

(continued below)

Assuming a short confirms: A close below the Standard PF blue line targets the lower MSPF fork at 156, then the 61.8% retracement/07/23-07/25 bottoms at 155.25-50 to move out of a horizontal congestion scenario there.  Also, that would mean a break of the lower ascending trendline for the correction from 07/13, which is itself part of a corrective rising wedge.  Then 154.  And, the price objective measuring peak to trough of the potential double top is ~245 pips from the breakout, coming in right at the 07/22 low in the 152.80 neighborhood.

For now, I watch and wait.  Though I trade against the trend with regularity, dedication to those trades are subject to whatever contingencies arise and are usually cut off if they turn adverse with little leniency.  This trade, if it did fire off would likely play out over a swing timeframe and require a little more perseverance than I’m presently accustomed to.  As usual, trade timeframes open up or contract as each trade evolves.

GBP/USD: Descending Triangle

A very clear descending triangle is set up on GBP/USD. A downside break here would constitute a reversal and add up to drop to 162.60ish in the vicinity of the ascending trendline underway from the March low on.

GBP/USD: Descending Triangle

Watching and waiting for materialization. The diamonds mentioned earlier are evolving into descending triangles themselves and in one case (AUD/JPY) a symmetrical triangle. This leads me to retain a bearish bias, considering a short on the typical JPY basket I trade (GBP/JPY, EUR/JPY, CAD/JPY, AUD/JPY, NZD/JPY) and GBP/USD.

Diamond Patterns on USD/JPY, EUR/JPY, CAD/JPY, NZD/JPY and AUD/JPY

Diamond patterns setting up on five of the six XXX/JPY patterns I trade with regularity (the exception in this case: GBP/JPY). Typically these resolve in a bearish reversal, and in most cases a bearish setup (H&S on USD/JPY, potential double top on the others) appeared to be in the offing already. Monitoring these closely to see how convincingly the case is built for the short side once volume upticks with Tokyo coming online.

Diamonds: EUR/JPY & NZD/JPY

Diamonds: USD/JPY & CAD/JPY

Diamond: AUD/JPY

EUR/USD: Symmetrical Triangle

This is a symmetrical triangle perched at the top of the larger symmetrical triangle I talked over here. Featuring a downward tilt and located at the top of a region dense with upside resistance, I think probability lies with a downside break. In fact, there was a breakout on the 0800 ET 1H candle, but that has peeled back into the pattern. A great example of why setting stops to straddle a triangle breakout isn’t an infallible or even effective tactic.

EUR/USD: Triangles within Triangles

And speaking of the all pervasive H&S, there may be one in the making with the left shoulder and now head mid-yesterday already put in…neckline would be the lower ascending trendline of the larger yellow triangle.

Why I Hate EUR/USD, and Where I Think It’s Going

That’s a little on the melodramatic side.  But, I do stay away from EUR/USD.

It is the most often-analyzed and highly traded pair by volume, making technically pure comprehension of its chart more difficult.  Fundamentals are interesting for their own sake, but I care little for them day-to-day and they are never decisive for a trade aside from avoiding event risk.  EUR/USD is covered heavily by pundits, analyst bloggers, talking heads on Bloomberg TV and CNBC.  I like to stay mostly clear of that ick but don’t find my way around it entirely, so the excessively-discussed and regrettably sullied EUR/USD suffers from neglect by association.

And usually I don’t like EUR/USD’s price action, probably because it doesn’t seem to have the technical insularity of some other pairs.  This is my own subjective perception, also reflecting an appetite for greater short-term volatility than EUR/USD typically experiences.  Through experience, I’ve found I have better fortune elsewhere, so I rarely lend much scrutiny to it.

Lately I’ve been following the pair, though, tracking the symmetrical triangle evolving from the beginning of June, denoted with red and green diagonal lines here.  The triangle has very good uniformity and clarity; touches are nicely spaced and the distance to the apex suggests a breakout is approaching.

EUR/USD Daily: Symmetrical Triangle

The second chart has a lot of things going on (trend line saturation point!).  The yellow horizontal lines resembling a trident are an Andrew’s Pitchfork.  Notice how price is support by the lower fork line, while the rally stops short of touching (or breaching) the median line at 1.4162.  In Pitchfork (PF) theory that usually (over-simplification, but not by much) presages a fall, which in this case would probably extend back to 1.3915, which coincides with the 50% fibonacci fan extending from the February low ~124.50 (above) and the lower ascending trend line of the triangle itself.

The upside has two major immediate barriers: 1) the .786% retracement at for the 06/03-06/15 range of 143.38 to 137.48 @ ~141.90, tagged on 07/01.  Next, 2) the top of that range itself: 143.38 .  I’m not looking for a return to these levels until another low has been put in, at least.

One other, contrary item I see is the craggy yet conspicuous inverse H&S: left shoulder at 07/06 at 138.77, head 07/08 at 138.33, and right shoulder at 138.78 on 07/10.  The neckline is drawn in white, to which you’ll find a return move in the early morning hours today.  If that pattern doesn’t fail, it targets ~142.50 as an initial price objective, which is the level of the left and right shoulder of the H&S top set in early June.

EUR/USD 3H: Pitchfork, FibRet, Inverse H&S?

Maybe, just maybe, I can persuade myself to take a position….

Upside Reprieve for Equities, Crosses?

Yesterday’s spinning top on the S&P pulled back to close at the 880 mark, almost giving a doji star after a long marubozu candle Tuesday extend the correction from 930. With Alcoa (AA) posting an upside “surprise” Q2 EPS of -$0.26 versus -$0.39 estimated (did I already say “surprise”?) – and hosts of green shoot junkies becoming apprehensive about lower highs and an 8% pullback off the 06/12 high at 956 – the impetus is here for an up-day.

My thoughts are that the S&P will move back to ~893-895: this is the neckline of the H&S top created with swing highs at 05/08, 06/01-06/10 and 07/01. This is also the horizontal resistance level left by the trough between the head and right shoulder on the aforementioned H&S, and is the median line for a modified schiff fork plotted off the head, trough, and right shoulder extremes.

The correlation between equity down-drafts and flows into risk-averse/haven currencies (USD, JPY) has remained very tight for the last week. I expect that to continue and that we’re seeing a substantial retrace of yesterday’s move.

Silly fundamental histrionics not withstanding, I think we’re in a fundie-driven return move to the H&S neckline and will see a resumption of the decline, with a price target of 820. Also expecting xxx/JPYs (USD/JPY perhaps being the exception) to sync up with that progression.

I’ll try to post some charts later, especially of that “Schiff fork” thing I mentioned.