The Canadian Technician

Rona (RON.TO) Follows Home Depot and Lowes Higher

Rona (RON.TO) has been working to deal with the competitive power of Home Depot (HD) and Lowe's (LOW) as they have continued their push into the Canadian DIY and contractor markets. I am not quite a platinum member at all three stores, but when the staff call you by name, your not far away.

Recently, Rona went on a tear!

 

Something is a changin' in the stock! The surge looks parabolic, so I would have trouble adding it into my portfolio here, but a pullback might make a nice entry. The weekly says it might be about to pause as well.

Has Rona started something constructive? It would appear to have. The pessimist says its back to where it was 4 years ago. The optimist says it been making higher lows for years! You'll have to decide which camp you are in, but the SCTR suggests it is now a top quartile stock. That can't be bad, or we could say they are "Doing It Right".

Good trading,

Greg Schnell, CMT

SCTR Becomes Even More Powerful

The SCTR ranking system is by far my most powerful indicator. It got another boost this week and so did the Market Carpets. The SCTR got put on the Market Carpets as one of the drop downs.

So what does all that mean? First of all the market carpets are found here as demonstrated in Chart 1. On the home page, go to the golden line (my nickname for it because the links are so valuable!) and click on 'Market Carpets'.

Chart 1

Chart 1

That should bring up a magical look at the US Market  like Chart 2 which in this case means the S&P 500 ($SPX) with each box representing a stock. The size of each box represents its market capitalization (Total value of all shares added together), and the nine sectors have the various stocks placed within the sector frame. For today we'll focus on the sector that is top right. On the slider at the bottom, it is set to 2 days so we are looking for the change from day to day.

Continue reading "SCTR Becomes Even More Powerful " »

When Wood Rocks!

Looking at the Largest Percent gainers on the $TSX box on the home page, we see the lumber related stocks start to move constructively today on the housing starts report for July. 5 of the top 10 are lumber related.

4 of the 5 have moved up 10% or more in three days! Is this where we yell All A-Board?

Good trading,

Greg Schnell, CMT

Highly Correlated Markets Create An IntraDay Splash!

Back in March, all the high momentum stocks sold off meaningfully and there was a great debate about why on the financial media sites. Let's discuss why the momentum of these stocks becomes more important than the price/earnings at a given point in time.  You may recall the Biotechs going for a huge dive. Notice all of the other high momentum stocks had broken their trend lines in the weeks before. 

At the time, AAPL was still unloved until the April earnings breakout. Pandora was still trending higher. Now the two are opposite. Pandora looks unloved and AAPL is making new all time highs. I want to discuss market correlation and what could be better than a 5 minute chart. Let's look at a slightly different group of stocks on an intraday basis from todays trading. They all are considered high interest, high momentum stocks currently. 

Now this is an intraday 5 minute chart, but looking at the chart patterns won't tell you which one is a huge biotech. There is also a media content stock, a broad line retailer, computer hardware, software and search.

What is more interesting, GOOGL and AAPL surged down, TSLA, BIIB and AMZN surged up? All in 5 minutes, GOOGL went down and up $7 in 5 minutes. The other stocks all made outsized moves in 5 minutes. What was more interesting, is every stock tested the intra day high and the intra day low to the left of the large trading candle on each chart, all in the same 5 minutes. This high correlation of stocks by computer trading models, actually helps us because it builds strong trends that we can use to help us. If you trade intraday, its a nightmare. That tells me that the cycles moving the stocks are closely correlated, repeatedly testing for strength. I don't have an answer for who is big enough to move Google $7 down and back in a few minutes, but it wasn't me! If you trade high momentum stocks, it is critical that you establish groups for your stocks that trade similarly. If they all start to break down, you'll be more aware. As an example HPQ is Apple's peer in hardware, but there is no spike in HPQ today.  Comparing Apple to HPQ would have little informational value.

Lets talk about methods to compare stocks to other stocks. This does not help minute by minute, but trends do show up over time.

By plotting the  S&P 500 ($SPX) relative strength, you can start to see divergences especially on high momentum stocks. Let me clarify what all this "Relative Strength' means. For each candle, the stock you are looking at will be compared to something, in this case compared to the S&P 500 on a percentage move. So if the S&P 500 is rising, is this stock -rising faster than- the S&P 500? This - rising faster than - phrase is where we use "Relative Strength". This tells us how it is performing 'relative' to something else. So the S&P 500 moves up 1% on a daily chart, does the stock move up 1.1% to 'outperform' the $SPX? We can do that on a 60 minute chart as well. Now we can compare any symbol against anything we want. We can compare against the industry group, we can compare against the sector the stock belongs to, or we can compare to the bond market as an example. I like to abbreviate the S&P 500 Relative Strength as SPURS, just so readers understand what I am comparing to and I usually plot it in purple. It sounds so technical, writing it out long  hand every time. Now lets plot that comparison behind the stock price moves. I have reduced the chart to 5 ticker symbols as a StockCharts Pro account can use 10 price components per chart and I need 5 for the relative strength application. So here are 5 stocks, with their SPURS on a 60 minute chart.

Chart 3.

 This is important to understand. You can not use the scale of Relative Strength and expect it to track the price of the stock. They are on different scales. Please don't look at the gap between the price of the stock and the SPURS shown in purple. If I change the start date of the chart, I change the width of the area between the two lines. You can look for directional divergences. NFLX and GOOGL had the SPURS break down before the stock topped. AMZN did too, but its hard to see. When you see a stock like GOOGL in the bottom plot under performing the index in general for the last month, the institutional investors that hold GOOGL stock will be under performing the $SPX so they are less likely to add to their positions if they expect to outperform the index. This is especially true in high momentum names where there are no earnings like AMZN and TSLA. You will notice that for the first two weeks of August, GOOGL is performing flat with the S&P 500. If you invested in the other stocks, the purple SPURS area is rising, so the stocks are 'outperforming' the index. For an institution trying to outperform the $SPX, they need to get more weight into their best performing stocks. When this group starts to under perform like they did in March, you notice most of them continued to under perform until May. The odds of an institution using a 60 minute chart is low. They are more likely to use a weekly chart. Relative strength can be done on all time intervals depending on your trading interval. So when you scan Chart 3 even though it is a 60 minute chart, which stock has under performed the rest of the stocks on this list over a 4 month period? AMZN looks average at best compared to the $SPX just by looking at the purple area.

All that to say, these stocks are closely correlated in movements as the intraday 5 minute chart shows. When we expand that to 60 minute, daily and weekly, a trend change starts to emerge.  All of the  5 minute moves shown in Chart 2 would have tried to take out protective stops under the price for people going long or above for people short the market within the days trading range. Yes, every one of the moves at the same time was hunting for intraday stops. When these stocks all start to under perform the index, the price earnings story doesn't matter much. Down they go as a group. So, if you are invested in the greatest stock in the greatest sector (BIIB as an example), a clue to the potential demise in your profits might be found by monitoring the relative strength in your 'sister' stocks. The SPURS is one method, The Industry Relative Strength is another, the Sector Relative Strength  is another. 

 What IF there was an easy way to plot these in your default chart style?

Check out this chart below without scrolling down far enough to see the price. At the top in purple is my SPURS. Next is a 'sector' Relative Strength in red, which for Ford is XLY. The third plot shows Ford compared to the US Auto Industry ($DJUSAU). This blog is long, but lets quickly look at two powerful messages from these three area charts plotted behind the SCTR. Notice in January 2013, the first two area charts dropped but the third shows F performing the same as the rest of the autos. That means the auto group went lower than the $SPX and the XLY sector, but F performed the same as the industry. Notice how the SCTR started to weaken at the same time. Look what happened in March 2014. The down sloping trend on all three area graphs was broken. This was partially due to GM in the news. Ford started to outperform the $SPX, it outperformed the Consumer Cyclical Sector (XLY), and the Autos group. The price of the stock rose. We can see the SCTR line starting to rise as well. So this works pretty well to help see when stocks are gaining strength. How about breaking down? The SCTR and the Relative Strength charts all started to break down at the same time back in October 2013. Ford started to under perform compared to the $SPX - SPURS, but also under perform the sector (XLY) and was under performing the industry for a while. The SCTR was confirming the damage about to be done. Look how timely the signals are as a group are when you scroll down to price. You'll notice the RSI had no idea what was in store.

In this world of relative strength, being more aware of the stock relative to its peers can give some of the best signals. When you trade momentum stocks that get computer traded intra day and a $7 surge and reversal comes through in 5 minutes, stops are hit. The value of putting this all together into a chart or a group of charts can help you with timing your entries and exits. It can also help you with adding protection or using options to take advantage of trend changes. It won't help on 5 minutes surges though. Because the markets have more computer trading, it makes it more valuable to watch a wider array than your particular industry. You can click on any of the charts above to see the settings, but this is a snapshot of how I set it up.

The jungle of relative strength investing. Hopefully this clarified it all. If not, send me some notes on what is confusing about it. Thanks for reading. The volatility of these stocks are correlated right down to a 5 minute candle, but over time, some trends start to appear. Hopefully this article helps you understand the power of using relative strength and when relative strength starts to break down as a group. For an industry group or a group of momentum stocks that you might be invested in, these different RS indicators can help you.

If you liked this article, feel free to forward it to investing friends and family. If you didn't like the blog, please send me a note on what I could do better. The charts are printable and should also be clickable so that you can go look at the settings.

We try to keep our articles informative and entertaining. Make sure you check out the other blog writer articles in MailbagChartwatchersTraders JournalDecisonPointDon't Ignore This ChartChip AndersonScanning Technically, and The Canadian Technician. Subscribers have access to blog articles by Arthur Hill, John Murphy, Martin Pring as well as the DecisionPoint Tracker and DecisonPoint Reports. Most blogs have a subscribe option for email or RSS feed. If you are paying for market commentary elsewhere, make sure you are reading all the value add from some of the best technicians who write at StockCharts. On the Blogs tab, there is also a Top Advisors Corner on the right side panel. Some great technicians post samples of their work there. This is free for everyone. 

Good trading,

Greg Schnell, CMT

The Miners Canary Just Fell Over. ($SPTMN) What Now?

No wonder miners gave up on using candles for illumination and went to battery powered helmets. The Canadian Mining Index Chart ($SPTMN) is riddled with technicians signals for illumination based on candles and almost every typical bullish candle pattern has been snuffed out. Looks like a few technicians have been beaten on this chart. It loves to give bullish signals and fail. I recently thought the breakout in July was good to go. Wrong so far.

Starting at the top of the chart. The RSI is still below the 60. It recently gave a new high (bullish) at the end of June only to fail. This continues to cap the RSI in the 3.5 year bear trend it has been in. The green uptrend on the RSI is intact, but the pullbacks are getting closer together... The relative strength of the miners to the $TSX is stuck (shown in red area). While the $TSX moves higher, this has been moving higher too. However, to get money to rotate into the sector, it needs to outperform.

Onto the price chart....This is a technicians nightmare. The only thing that could be worse would be using fundamentals. This chart just keeps getting cheaper and in fundamental terms (better value) all the time. Notice the blue horizontal lines. Breakouts that failed. Notice the big bullish green candles, labelled in red ( I through VIII). Big bullish moves only to stall...ouch. Focussing on the July 2012 - December 2012 period now. The Red downtrend line gets broken to the upside, the horizontal blue line gets broken to the upside, multiple long green candles in the base, oops, it rolls over. Starting January 2013 it produces 2 green candles in the next 10! Moving into 2013, it makes a head/shoulders base with April, July and November. Breaks the downtrend line with a huge candle on the highest volume in almost a year, and rolls over. Then it takes 6 full months to break the neck line of the Head shoulders pattern. We push through with another bullish green candle in late June 2014, only to print a shooting star on the next candle. The two subsequent weeks have now confirmed the shooting star. On the 2014 year, there has been declining volume while the price rises. Looking far left, you can see going into the 2011 top we had rising volume. This uptrend is questionable. I have drawn a  dashed support line just below the neckline shown in solid blue. This is half way on the bullish breakout candle. This level must hold. I reproduced the same chart below here so iPad readers won't be flipping up and down so much. 

The MACD has limped higher. The two lines never get very far apart which means there is little very little acceleration in the trend. The slope of the MACD is getting shallower but it has not crossed below the signal line...yet. The Full sto's finally gave us a breakout signal in July. The Full sto's have already crossed below the signal line. Yecch!

I think stops need to be tight. This chart demonstrates the pitfalls of trying to be bullish in a primary bear trend on a 4 year chart. It might just be testing the conviction of the bulls on this breakout, but it has given the bears a lot more to be proud of than the bulls on every breakout attempt over the last 4 years. The low slope of the 2014 advance does not feel impulsive. The 2011 bear market rally (Moving up in a downtrend) has a very aggressive slope up, the 2012 is less aggressive, the 2013 move is short and failed to make a higher high and now we stare at the price action from November 2013 to the last candle. Each rally within the move is shorter and there is no real momentum building. Sometimes that is what makes a base work. Look at the $SPX from August 2011 to January 2012 as it rose out of the 2011 lows. A few failed breakouts but continued to make higher lows. When it finally got moving, the weekly candles were small and orderly. (this was also under Fed Stimulus so we (me) should be cautious on my comparison).

If this is a Wyckoff base, we should have a plummeting test of the 700-750 range to weed out the last of the weak hands before we mount our next major bull market. Conversely, if it rips lower and keeps going after taking out the 662 lows, we'll see some serious issues for the miners. Or the middle of the tall bullish candle holds and we start to walk higher and higher. This chart couldn't be at a more important inflection point than right here, right now. 

Good trading,

Greg Schnell, CMT

 

Lumber ($LUMBER) Builds A Base

Just when things look desolate for the lumber industry, $LUMBER turns higher. One of the critical points today, is that Lumber ($LUMBER) soars through the neckline of a base.

First of all the SPURS are breaking out in Purple at the top. This means the symbol is outperforming the $SPX.

$LUMBER snaps a neckline on the chart. Only three days ago, $LUMBER was making lower highs. Finding support above the 50 DMA, surging through the neckline and closing above the 200 DMA is very bullish. The basing pattern built by lumber looks to be intact with the MACD finding support at the zero line after surging above and the gently pulling back to retest it. 

The Rate of Change (ROC) indicators have turned bullish on all time cycles (44,22,11).

It looks good here. What a nice change.

Good trading,

Greg Schnell, CMT

Is Air Canada On Final Approach?

Air Canada (AC/B.TO) has been a phenomenal stock for the last 2 years. From July 2012 to July 2014 the stock went from $1 to over $10 for a 1000% gain. I recently covered off the stock in June, but today is a compelling day to look at the stock.

First of all, earnings are scheduled for August 7th, 2014 so that will be the next catalyst for the stock. 

Today the stock is just barely above a confirming cross down on the MACD. With a significantly lower MACD momentum and the RSI showing divergence as well, this is a very important earnings announcement.

Up top, the SPURS trend line in purple was broken so now Air Canada is under performing the $SPX. The SCTR ranking is still top quartile, but I find the SPURS to be a better exit signal than waiting for the SCTR to break down.

Full sto's are still bullish so that helps. Lets quickly look at the Dow Jones Airline Index ($DJUSAR).

 

The price action is sideways since mid-May. This week looks to close near the lowest close in 12 weeks. So it is still in the range, but it seems to be weakening. While the MACD is still strong (nice and high) , it is making lower highs and lows.

It is a tricky time here. Air Canada's number one competitor, Westjet (WJA.TO)  broke out to new highs this week but failed to stay above the previous high.

For me, its time to add some insurance to the trade. The overall market seems to be pulling back and the breadth is waning. Last of all, earnings are scheduled for August 7th, 2014 so that will be the next catalyst for the stock. 

Good trading,

Greg Schnell, CMT

 

 

Agrium (AGU.TO) Tries To Break The Downtrend

Agrium has been a hard stock for investors. Breaking out and then breaking down. Recently testing under the 200 DMA, it started to show some positive divergence on the MACD and CMF.

Today it sits at the top end of the range. A breakout here would be a nice trend change. A continuation down here would be a nice short trade. The RSI is in bear market signal mode currently on the daily.

 

On the weekly,  it looks pretty interesting. I like everything about it except the SCTR ranking is so weak. Lots of room to move up ?

Why do I like it here? First of all the five year trend line has been tremendous support. RSI is on a bullish signal. Its breaking above the 40 WMA and the 10 WMA and breaking above the down trend. It also appears to have built a multi year base shown in orange.

The MACD looks like it is resetting at the zero line and the Full Sto's give a pretty good buy signal at the 50 line. July is also a good rally month for Agrium. You can see the pinnacle high back in 2011 at $94.04.

Full disclosure with a few chuckles from the Atlanta SCU meeting. I bought a July breakout in 2013, only to get stopped out on the October lows. A couple of days later it went on a $23 swing without me. 

The long term uptrend looks to be major support, but make your own trading plan. 

Good trading,

Greg Schnell, CMT

An Important Time For Major Currencies - Chapter 8 - The US Dollar

So, the US Dollar ($USD) is at the center of the currencies we covered. Lets look into the long term weekly to set the stage.

First of all, the Weekly RSI is in bull mode since 2011 ! That is a substantial change as most other currencies had an RSI trend from the end of 2012. We can see the tight compression for the last year on the RSI is unmatched going all the way back on the chart. That is 35 years. So while the RSI is in bull mode, the currency has been tightly coiling in a very, very narrow range. 

The large view on the $USD suggests the red line from 1987-1997 is similar to the red line from 2004-2014. Notice the similarity in price pattern from mid 1995 to 1997 and compare it to the 2011-2014 period. While the coiling has gone on longer now, the tension on this coiling spring looks to be huge. We currently have a large pennant forming between the two red lines and you can see the blue arrow would be another long term support/resistance level that I did not draw through the price because it would make everything congested! The RSI suggests to stay bullish.

The MACD is coiling similar to price for the last 8 years and the MACD lower trend line actually extends all the way back to the 2003 low. Notice the 1995 low was at the start of the tech boom. The currency made a head/shoulders top from 2000-2002. It topped after the US equities topped, and started to decline before US equities started rising. The US dollar bottomed in early January 2008 as the US equities started to decline in earnest. The equities stayed below the 200 DMA for all of 2008. The $USD low in 2011 coincided with the equity market low. All that to say, the change in direction of the US Dollar is usually at a turning point for equities. 

Zooming in on the last few years on the weekly data in Chart 2 now. We can see the bullish RSI at the top. This week it has moved to the highest level in a year. Something is changing. The price is trapped below the 65 week MA for the last 9 months and we are testing it again. Conversely, we recently broke below a major neckline for a week, then price reversed and pushed higher. With the close up view of the MACD, we can see the trend line is currently being tested. I have found that major MACD trend line breaks are usually valid. If we look across the chart at 81, there is a lot of resistance at this level. 

With the Yen moving higher and the Euro breaking down, these offsetting forces make the dollar direction more difficult. Although the yen moved a staggering 35 points from 130 to 95 in eight months from October 2012 to May 2013, the USD only moved $5 on this chart. During that same period the Euro only moved $5 on its chart. So a big swing in the Yen and the Euro can offset each other and the dollar remains little changed. The Euro has a weighting of more than 4 times the Yen.  The table below shows the currency ratios for the Dollar index. 

Source: theice.com

What I think is particularly compelling is the European currencies appear to be rolling over, with the exception of the British Pound ($XBP). This would support the case of a rising $USD index.

Let's move to the daily chart because it needs some discussion now that we have drawn out the longer view. First of all, the RSI is in a bearish posture, but we saw the wild swings on the RSI the last time it changed from bullish to bearish. If the RSI touches 70 here, we would confirm a new bull market on the daily and the weekly has been reading bullish for 18 months.

The price chart is confusing, so lets discuss the moving averages as the wavy lines are distracting. You can see I have marked where the 50 DMA has crossed the 200 DMA with green arrows. The 50 has now crossed the 200 DMA. Both those averages are below the 300 DMA so we are not in a bull trend on that premise but price rests above the 50 and 200, but below the 300. This would have some positions long and some positions short the $USD depending on the investor. stepping away from the moving averages, we have an orange resistance line that is trying to be broken. This line would be the opposite of the line we have on the Euro. The influence of the other currencies in the basket is why they do not cross simultaneously on both charts. The Head/shoulders basing pattern is drawn in but we could have an extended right shoulder that would match an extended left shoulder if we include the September/ October 2013 as part of the pattern. This would mean another few months of uncertainty. However, with the down sloping trend line in blue being broken already, it is clearly at a point where the USD could accelerate from here rather than waiting for a few months. This is especially true with the June 30/ July 1 low that backtested the trend line, found support and quickly pushed higher from there.

 A move above 81 gets almost every form of resistance below the price and would probably create a strong move higher.

Lastly, the coiling MACD on the daily and the coiling on the weekly MACD suggest whatever move that comes will probably be very significant in size.

So with that we have wrapped up all the currencies in the Dollar Index as well as the Aussie Dollar. 

I'll post a summary blog to put it all together. John Murphy, StockCharts.com Chief Technical Analyst uses inter market analysis including currencies to help him with the equity markets. I have used some of Martin Prings work here to discuss the 65 WMA and the longer moving average rather than using my regular 40 WMA just to demonstrate the difference.  I have used Constance Browns work with the RSI and Gerald Appel's analysis on the MACD. I have discussed some of Tom Bowleys work. My technical analysis style uses a lot of these methodologies. Chartcon 2014 will present many methodologies to you. We hope to provide you with compelling new tools that we are adding to the site regularly and demonstrate their value as you develop your analytical style. If you have not registered for the Chartcon 2014 conference, it starts two weeks tomorrow. Click on this line to attend. my understanding is we are close to full but would like to max out the opportunity, so please join us. If you are an individual investor, a Portfolio manager, or a hedge fund manager, you will find immense value in both the discussion by the technicians as well as the website tools demonstrations that will enable you to move around the website quickly.

Good trading,

Greg Schnell, CMT

 

 

 

 

An Important Time For Major Currencies - Chapter 7 - The Euro

Now for the largest European currency and it makes up over 1/2 of the US Dollar Index. The Euro ($XEU). This is arguably the most important chart in the group for the direction of the $USD. However, I think it is very important that we worked through all the other charts to see where they are because they are all at important support  or resistance lines.

Starting with the long term Euro Chart, one thing stands out to me. There is a massive 6 year descending triangle forming. That is very important. The other way to think about it is the recent series of lower highs and lower lows. With the exception of the Draghi speech, a channel line suggests this could continue oscillate lower down to 105. The bottom of that channel line would actually be lower than 105 as the months go by and the trend line extends down. The light grey dotted line is a parallel channel of the red line marking the tops. So the declining top trend line and the horizontal support around 122 are currently the zones. While the 135 was meaningful resistance in the 1990's and the first 1/2 of the 1st decade,  you'll notice the Euro broke above 135 as the US markets topped out in 2007. With the subprime situation in the fall of 2007 starting to show, everyone moved to the Euro and other world currencies. When the subprime and the debt markets started to quickly unwind in July 2008, investors moved to the safety of the $USD and this shows as a plummeting Euro. One thing that is very interesting is that the 134 level has not provided any support when the Euro rolls over. This would suggest that the 122 level is probably the next level of long term importance. Just doing some quick math, between 80 and 160, the centre of the Euro is 120 as well so even a reversion to the middle of the range is a reasonable expectation.

I have one other important thing to consider. Notice the slope of the rallies since 2007. All of them were very vertical impulsive moves except the last one. It was a series of overlapping, grinding moves higher. The break above the Spring 2013 move at 137 never saw a pop or breakout higher. This would suggest the last move with the lower slope and the grinding price action is a corrective wave, not an  impulsive wave.

The RSI is currently at 40 which is the bottom end of the bull market range. We can look at it on the zoomed in view of the weekly.

The MACD has an important coiling pattern. It would suggest that a breakout either way will be substantial. By looking at the legend we can see the MACD has a negative in front of it. We can also see the third number has a negative which means the MACD is below the signal line. The second number is the level of the signal line. Time to zoom in on the last few years on a weekly in chart 2.

We can see how strong the RSI was since the Draghi speech in July 2012. We also had the support of the ECB, the Fed, Japan Central Bank and the Chinese Central Bank from October 2012. Onto the price action. The top red line is located at the level with the most touches rather the the two extremes. We can see the two blue trend lines. This would imply the support has failed on both, now that the price has moved below. Looking at the legend, we can confirm that the price has closed below the 65 WMA. The 40 WMA is even higher, so we are now below all the major support levels with the exception of the 134 level. Based on our view from the broader picture, it does not appear that this support level is meaningful. We can see the 127.5 is important.

This MACD coil is important. It is below zero but the lines are not accelerating down so that would add a little caution. 

Here is the daily. I noticed the RSI is in a bear market. The price has clearly marked out a rolling top or a head/shoulders pattern. Even on this daily chart, this is an important zone that the currency would have a reason to rebound after breaking the neckline. The MACD tested but failed at zero which would confirm the weakness on this right shoulder of the topping pattern. 

The Euro looks set up to fall here. My expectation is the 134 level does not provide any support and the next level of support is 127.5. This should be very bullish for large multinational European companies that get a lot of their revenues outside of Europe. Companies like Total and Unilever may be the types of companies that get a real bounce on a falling Euro.

I will write a separate blog to summarize all of the currencies, but first we should look at the resulting pressure on the $USD.

Good trading,

Greg Schnell, CMT

 

An Important Time For Major Currencies - Chapter 6 - The Swiss Franc

The Swiss Franc ($XSF) is an important currency in Europe. During the Greek crisis back in 2011, the Swiss Franc soared in the heat of the crisis. It immediately plummeted back. It was a goto currency in times of stress, but it also mimics some of the other European currencies. Let's look at the long cycle weekly first.

We can see that the Swiss currency has become more valuable since the Y2K top in the equity markets. The Swiss Franc was in a down trend and reverted to an up trend at the turn of the century. There was some long term resistance marked at 88 based on the peak in 2005. More importantly, the Swiss Franc had money moving to it during the early parts of the financial crisis in 2008, but really started plummeting in the 3rd quarter 2008. As the US equity markets topped in the financial crisis, the Swiss Franc broke through resistance going up. It rolled over and fell below the established uptrend line in late 2008, early 2009  and retested the low in 2010. The 85-100 level was the dominate range during the financial crisis through 2010. 

The Swiss Franc went on a run to the moon with a massive spire top in mid 2011. In one year the $XSF went from 85 to 140, with the final week being over 10 cents in exchange or $10 on this chart. Wow that can only be called a blow off top.  The chart from 2001 to 2012 reminds me of Gold, but that is another tangent.  For 2012 to 2013, the price stabilized around 100-110 after gapping down out of the spire top. Since the latter half of 2013, we saw the Swiss Franc break above the 110 level and push up to 115. Now it is back looking for support at 110. The RSI is still on a bull signal, but the indicator is right at the low end of support.

The MACD finally moved above the zero line in mid 2013 and now sits just above the zero line. It has broken the 2 year long MACD trend line shown in blue. 

So the big picture is the Swiss Franc is in a 13 year uptrend and currently near the support line for the trend. What happens next? Lets zoom in on the shorter weekly chart.

It gets a little busy, but look at the RSI first. The recent push down is the weakest in a year so this is very important. If the Swissie is going to stay in trend, it will have to bounce very soon. Moving down to price, I have drawn horizontal support in orange. It is also the junction of the up trend line and the 65 week MA.  I would suggest the Franc is at a critical level here. If it breaks, it would imply significant weakness. There is a case for the last year above the orange line to be a head/shoulders topping pattern, especially with the junction of the trend line and the 65 week moving average all marking the right side termination point of the pattern. We'll zoom in on that on the daily after we finish Chart 2.

We can see the MACD didn't make a strong push above the zero line, but we are testing that zero line support right now. I would suggest the weekly chart points to a critical long term junction now. Onto the daily.

The Daily RSI has moved down to 30 so it is a bear market signal, but I place more emphasis on the weekly RSI. The bottom line is this does look weak after staying above the 40 level for the whole move up. The Head/Shoulders topping structure we see is an important trend change. The Orange line has been fine tuned up to the 111 level rather than the 110 on the weekly.  A break below the brown line or the 300 DMA would be very important and would also break the thick blue uptrend on the weekly. The test of 110 will be watched by many currency traders. Should that long term support fail to hold, the most probable level is the 100 level to look for next support based on the weekly above.

The MACD looks like it was unable to climb above zero in July. We'll watch closely to see what happens on the test of 110 but currently it looks bearish.

Another major currency ($XSF)  is at a critical chart level. Next we'll cover the Euro.

If you missed any of the other currencies like the Yen, the Aussie, The Canadian Dollar, The Swedish Krona,  or the British Pound,  you can find them by going to The Canadian Technician page by following this link.

Good trading,

Greg Schnell, CMT

 

An Important Time For Major Currencies - Chapter 5 - The British Pound

The British Pound ($XBP) is one of the world's most prominent currencies. With all the turbulence around the Scottish referendum only 2 months away, I might expect more weakness. I was pretty young when Quebec held a vote for separation from Canada in May 1980, but it embroiled the country for a long time. Investors were reluctant to invest in Quebec and in Canada. The British Pound charts look unaffected by the separation turbulence. Here is the long term weekly. The RSI has broken above the bear market level of 60, and looks very strong. Now, the price action is at the long term centre of the 30 year range. It is also a significant resistance level. In late 2003 the price broke above the 170 level and stayed there until late 2007. It would generally appear that the Pound has most of the historic price action below the 170 level.

Now that the price has reached this level, there is nothing showing it is about to stop. The historical area suggests we might pause here before moving higher. The MACD is showing a very strong push on the MACD and until we see some volatility enter the trend, this looks to continue higher.

Now zooming in on the weekly, the pound continues to climb. We can see it nudged above resistance and sits right at the 170.60 level at time of writing. The RSI has been in bull mode for almost a year. The Pound continues to look healthy on the chart by any standard.

Look at the MACD just maintaining a nice high posture. The only reason to expect any change in trend would be the long term resistance.

Onto the daily... Well, this doesn't need much analysis. The RSI is in bull mode. The Moving averages have smooth up sloping trend lines. The price is moving in the channel, the blue trend line holds up. If you were hunting for a negative, it would be that the price has not challenged the upper channel line since early March.

The MACD looks very normal, and continues to stay above zero. This daily chart is a great starting point for a new technician. We have an uptrend, we are in an uptrend and until we start to see some volatility or trend line violations, the trend is up. 

If you missed any of the other currency articles, they can be found on The Canadian Technician Blog page. Click on this link to get there. The Canadian Technician.

OK, The Swiss Franc is buried amidst the Euro countries. Let's do the Swissie next and move into the Euro for our last currency.

To Summarize where we are so far:

The Yen is trying to break out to the upside but is stuck just below the long term resistance.

The Aussie is trying to stay above a major 4 year up trend line and is trapped under the 6 year horizontal resistance.

The Loonie is trying to break back above a 4 year rounded top neckline and is currently trapped between two long term horizontal support/resistance levels.

The Swedish Krona has broken down from the 4 year up sloping trend line and this week it broke to new lows.

The British Pound is at major resistance/support but is in a nice tight uptrend.

Good trading,

Greg Schnell, CMT

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