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….

Pivoting Up?

The corrective pullback channel that the JPY crosses have been working through is just about at an end.  And now I’m just looking for some solid technical justification to prove that intuition isn’t horribly wrong.

What do I see?

• Longish lower wicks on 0300-0500 1H denoting bearish exhaustion
• (At least temporary) floor beneath price at fibonacci retracement levels, dynamic support (e.g. GBP/JPY at 153-153.25)

Not enough.  So I’ll sit on my hands until what amounts to an arbitrary directional bias is something more.  Then I’ll be back with the details.

Overnight Trades for 07/13/2009 Closed

The carnage I mentioned will have to wait for another set of trades: those four trades I threw up on twitter went as planned, more-or-less.  By that I mean: my only regret is money management on exits in this instance: late at night and tired, I settled for generic stops on two of them, rather than evaluating S/R more closely to determine appropriate objectives.  I decided to close  out the remaining two (G/J and E/G) bleary-eyed and groggy this morning, giving little time to evaluate but preferring to take profit to flatten things out.  Left some pips on the table in both cases as a result.

In the order placed:

• GBP/USD: SHT 161.50; TP @ 160.50. +100 pips
• GBP/CHF: SHT 1.7527; TP @ 174.27.  +100 pips
• EUR/GBP: Long .8640; closed manually @ .8689: +49 pips
• GBP/JPY: SHT 149.09; closed manually @ 147.71: + 138 pips

Not a bad night.

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.

Capitulation?

At the current levels, the market is crumbling with an even more dramatic parabolic angle and velocity of movement than that with which it built higher and higher through the mid-1990s. Unsurprising, but the sheer relief of peak to elusive trough is enough to leave me aghast. Co-workers and clients I speak with have the pall of despondency, resignation and brokenness cast over them. Hope ebbs low.

I came across this pile of journalistic garbage from Businessweek the other day. After laughing at it and brutally criticizing it with others, an interesting conversation ensued, regarding something made mention of here-and-there but which isn’t getting much play, if any at the moment.

That’s the idea of capitulation: relinquishment of heretofore tenaciously-held long positions, shaking those who’re on the fence about riding the bear off, and a generally massive wave of liquidation that is event-driven: a major bankruptcy (GM and GE come to mind), a sovereign default (Eastern Europe), or some other devastatingly bearish event.

Nothing technical has stanched the bleeding, and that’s simply because below Dow 7200 there’s is virtually nothing wide enough to land on until 4k. There are points of varying noteworthiness: 6300-6500, 5800, 5275, 5000; but nothing persuasive. Below 610 (and there is a cluster of support 610-680), the S&P offers nothing in terms of support before 475-500.

But 4000 and 475? Not impossible: those levels represent about a 70% decline peak to trough: the Nikkei suffered worse in the nineties, and the Dow suffered far worse in the early thirties. At this point, all that I see averting an irrepressible sell-off is a capitulative market event. The sentiment is there: of that I’m certain. All that is lacking is the token catastrophe that changes the game and raises the volume.

Oddly, that all sounds optimistic.

GBP/JPY, EUR/JPY: Turning Bullish?

The Guppy has been staging something of a rally on the back of a bit o’ risk appetite seeping back in and ahead of the all-but-certain BoE/MPC rate cut (consensus is held at 50bp from 1.0% to 0.5%), vaulting out of a symmetrical triangle yesterday (about which I almost posted, but life somehow got in the way) from the low 138’s around 24 hours ago to the present level, where the pair is yet again approaching a retest of 141.65.

This session brings with it a retest and tentative breakout from an ascending triangle above 140.75. With room above of 100 pips, the pair should tag the 141.35-141.65 region with little difficulty, but with a rate cut in the offing in several hours a break above this level (in place since early January) is anything but assured.

After 0700 ET I’ll be monitoring for a break above, but wonder if a rate cut will hamper the lift necessary to get over the hump. If that break occurred, the next area of interest lies at 143 and then ~144.50.

EUR/JPY and GBP/JPY have show a tight correlation, with similar consolidative constructions occurring in tandem on both pairs. Not coincidentally, the ECB also has a rate decision today, with a 50bp cut widely expected. The levels on EUR/JPY to break above are at 125.50, followed by 126 and then 128.20, the latter of which would bring the pair back to resistance set in early January, correlating to the 141.75 level on the Guppy. Past 128.20, the field is wide open to ~131, as denoted by the 261.8% fib projection line (purple)/horizontal resistance line (white) in the upper-right corner of the following chart:

Both pairs look poised to continue their corrective action to 141.75 and 128.20, which represents 100% retracement of the January highs to the lows set out in February. A break above there (of which I’ll have no certainty until it sets up on a TF that’s tradeable for me) throws the medium term bearish scenario on each pair into serious question.

GBP/JPY: Conflicted

Here’s a brief followup on yesterday’s abbreviated IKH post:

As discussed briefly yesterday, the cloud usually exercises a momentum-mitigating effect. This is because in IKH theory the area between SS-A and SS-B comprising the cloud represents price equilibrium, disorienting weak trending or capping counter-trending moves. When price lies above the cloud, this is a field of support; when below, a field of resistance.

Here, price did squeak out a counter-trending rally to 138.37 mid-day, but in keeping with the neutral-bearish bias gave back those gains through the NY close. Mid-day Tokyo retested 12/10’s high, but could not attain a close above 138. Now price has sold off again, retesting the week’s low at 135.90 where a morning star was put in on 12/09.

Chikou Span suggested resistance (printed on 12/03, not pictured) with a top around 138.40. Price current sits below price at the Chikou around 12/08’s high at 139.60.

Tinkan and Kijun still maintain their sideways march with no substantive divergence, suggesting neutral sentiment remains in play.

Here’s the GBP/JPY 1D chart referred to yesterday:

As you can see, price remains firmly in a mode of decline in IKH terms.

Looking elsewhere: is that a falling wedge, giving portent of a bullish reversal? There is horizontal support in the 135.50 area, but pattern clarity for a descending triangle is weak. There was previously support around 139 for a descending triangle with much better clarity, but price has wandered aimlessly just below that line.

Back on the 3H, the long lower shadows the pair continues to turn out suggest possible maintenance of a bottom on the retest here. Bolstering this idea is support the .618 retracement line (for 133.29 on 12/05 – 140.79 on 12/08) is offering at 136.10.

Price is moving out of the cloud below it, and while that is bearish, the kumo does pull back to ~138.84, where the .382 retracement for 133.29-140.79 sits 5 pips away.

Trades: yesterday’s long from 137.17 missed its target by a few pips, closed out manually last evening for a negligible gain. I may sit today out because of conflicting input – we’ll see.

A Deeper Look at Ichimoku

I’ve incorporated Ichimoku Kinko Hyo (IKH) as an ongoing feature of my analysis regime for about 6 months; and while often including the overlay on charts posted, my conception of what IKH is communicating is something I don’t usually mention.

Given the remarkable insight IKH offers, along with its relative obscurity and daunting appearance, I think it’s time to change things up.

My plan (maintaining some degree of pragmatism) is to post a thoroughgoing IKH analysis every couple of days or so: probably for GBP/JPY, EUR/USD and a handful of others. I’ll be dipping into other pairs and maybe even other markets, but only insofar as intermarket analysis improves comprehension of some correlated pair(s) – e.g. equities vis-a-vis carry pairs.

I don’t employ many tools to analyze, execute on and manage through, but there’s certainly more to how I go about things than IKH. While I think Ichimoku can stand alone, I also use S&R, fibonacci studies, candlestick and chart patterns, looking for unanimity and confluence to disregard (what I think are) less probable trades. And sometimes, it actually works out.

Along the way, then, I’ll be bringing all of this together, while giving IKH more explicit treatment.

IKH Resources

For a primer on IKH, the best singular resource I’ve found online is the Ichiwiki.

As TLT pointed out some months ago, Nicole Elliott’s Ichimoku Charts is the best treatment of IKH currently published in English in bound book form. While Elliott has made invaluable contribution on behalf of students of IKH in the English-speaking world, I look on her book more favorably because of the sheer dearth of IKH material in publication in English, rather than true expository merit. As trading books go, it can be acquired for a relatively cheap price, and whatever its faults is indispensable for any IKH chartist without competency in Japanese.

Chris Capre holds a weekly webinar on FX Street called “The Weather Report” that covers the basics of IKH. As webinars go (always excruciatingly slow), the material is decent and Chris an able analyst, even if there is nothing so novel being presented as Chris suggests. But then, that’s the staple of anyone hawking fee-based mentoring, signals services and system packages via the “free” education carrot.

Out of time, so a chart for now, and the first formal installment this evening.