The Canadian Technician

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

An Important Time For Major Currencies - Chapter 4 - Swedish Krona

The Swedish Krona (FXS) is a thinly traded currency with gaps all over the daily chart. However, because it is part of the dollar index it is also extremely sensitive and I like it as an early warning currency. This ETF started in 2006 so that is our maximum data range. Here is the weekly view. Here we can see the Swedish Krona has broken through a four year trend line. After tracking in a very tight range since October 2012, the stock has now declined below the lowest level in the 2 year range. Notice the 65 week moving average has turned down and we broke through the long term up trend at the same time we broke through the 65 WMA. So, while the global stimulus was intact, the Krona moved sideways. This week, it is starting to make new lows.

With the long term trend line breaking, It reminds me of the long term trend line in the Yen breaking in 2012 which caused a lot of the long term currency trends to change shortly after. I would expect this to affect other European currencies including the Pound and the Euro. We'll see if that is what the charts show in the review. Looking at the daily, this is a well defined downtrend with no real reversal signals showing up on the MACD or the RSI. 

We are now below the main moving averages. You can see the blue trend line also cut through the 200 DMA at the same time as the 300 DMA. So as an advanced guide, this would suggest the Euro currency is going to break down. I know not many people watch the value of the Krona, but I've found it to be a good indicator in terms of direction.

If you missed any of the previous currency articles from yesterday. here are the links. The Japanese Yen, The Australian Dollar, The Canadian Dollar.

Arthur Hill does a great job of covering the major moves in the Euro. He will be presenting at Chartcon 2014. If you watch Art's Charts or his great work on the Market Message, you'll be able to see him live as he hits the stage. If you want to see some of Arthur's unique charts that he looks at to examine the market, make sure you take the time to enrol in one of the few remaining seats for Chartcon 2014 on August 8th & 9th. He is doing a special presentation on StockCharts.com Hidden Gems. That will be a massive reveal for everyone.  Chartcon 2014. We are so close to a packed house. 

Next we'll roll through the British Pound which just keeps pushing higher. There is a significant clue on that chart as well.

Good trading,

Greg Schnell, CMT

 

 

 

An Important Time For Major Currencies - Chapter 3 - Canadian Dollar

Well, the first two chapters had provocative charts that look set up for major moves. The Canadian Dollar ($CDW) looks ready to move as well. Once again, starting with the long term weekly chart, Lets study the RSI.

The RSI has been in bear mode for the last 3 years since the 2011 commodity top. We can see it recently broke above the blue down trend but is still below the red line marking a bear market range. The Canadian Dollar does not respect the typical bear market ranges for RSI as nice as the Japanese Yen as an example, but we can still see the bull and bear market areas generally. The bottom line on the RSI  is we are trapped in the bear market mode and approaching resistance at $95 on price. Notice the downtrend channel that the Loonie has set up since the 2011 top. Switching to the pink uptrend line, it is very steep. Some more moderate trend was definitely possible. After the 2009 correction, the pink trend line became resistance. This is typical of trend line work. What was support becomes resistance. Gaan also talked about the slope of the trend lines and how a chart will move through different slopes. The Canadian Dollar bounced off the huge support level at 89 in 2014. Notice how the 2000 - 2009 lows trend line also formed a supportive trend for the $CDW that coincided with the 89 level.  

The MACD is gently trending down over the last 4 years, but the real question is what happens now as it returns to the zero line from below.

Lets move on to the shorter weekly view and zoom in on the recent price action. I have been covering off the major topping structure in the Canadian Dollar for at least a year.  The 2009 low was clearly a bear market on any scale. Notice the spire top in 2007. Moving almost 6 cents up and back in 3 weeks. It moved up 17.5 cents in 3 months. That is a classic spire top. So where to draw the bull/bear market lines on the RSI? After that colossal move and a spike or climax high, it was probably ok to recognize the best was in. While you are never sure in a bull market, these final grand runs are usually on a few charts at the end. We can see the pink uptrend line and how the price action changed after the 2009 low. The L-L-H-H-R-R topping pattern is listed in some of the old price pattern books in my office. These are usually very significant long term tops, especially when they form on the weekly and take years to build. Once again the brown line runs through the gap like the chart for the Australian Dollar.  The Brown line was support for the entire head/shoulders topping structure and this current bounce back up looks like a classic retest of the support. Having the 65 week MA right around this level  and down sloping only confirms it could be a place for a major slide to start in the Canuck buck. 

This is really the charts last line of offence. If it can not break out here and demonstrate serious power, I would want to be very aware of the potential move in the $CDW to the downside. The fact that this was the same levels that the Canadian dollar fell apart at back in 2008 before the major L-H-R topping structure almost confirms that the spike high and the subsequent failure to retake it confirms this top is in place for a while.

Onto the daily in Chart 3. This looks much more bullish but it is very short term. Having the price stall above the 200 DMA and below the 300 DMA is not bad by itself. A significant breakout above would be very powerful and probably convert my pessimistic views from the weekly. But the blue up sloping trend line must hold. A breakdown on this line would put the price back below the main moving averages at 92.5 and really mark a top based on the weekly.

.

Lastly, the MACD has been pushing higher. It still looks bullish. If it rolls over and goes below the zero line with some pace, It would confirm a lot of my broad suspicions. 

So once again, another currency at a critical place on the charts. The back test of the neckline for the major rounded top or double L-H-R top. I am watching the Aussie and the Canadian as a pair. This has been a good bear market rally, but my weekly charts tell me it is just that, especially in the context of the European charts which we will cover next.

Just a shout out to John Murphy who does a lot of currency analysis in his regular Market Message for subscribers of StockCharts.com. John was instrumental in helping me see the power of analyzing the currencies as part of the broader market. John Murphy will be a primary speaker at StockCharts.com Chartcon 2014 in 2 weeks. His insights are powerful. I remember being in New York October 2012 at the SCU 101 class we were teaching, looking at the Japanese Yen head/shoulders top with him. John just said "Wow- that's a massive top, what is it?" He saw the pattern, didn't know what the symbol was, and then we talked about the implications. We got some time to discuss the implication with John's extensive inter-market work over the next few minutes and it really stuck with me. If you are looking for that kind of quality time with some of the nicest, publishing technicians in the business, I would encourage you to come to Seattle for August 9-10. Not only will you get a broad sample of what a group of technicians are thinking all in a timely two day summit, but you will get a chance to really hear the why of their thinking from some of the best technicians like John, Richard Arms and Alexander Elder about the same market at the same time. Typically that price is a mastercard commercial - priceless-. To get more information, Chartcon 2014 is the link you need to click!

The Commodity Currency charts are still in bear market mode on the weekly. That is the primary trend. Until its broken, we expect it to continue. This would appear to be the upside limit of the bear market rally. A breakout to 70 on the RSI's in both currencies would be very bullish. At this point, I don't expect it but that's why we have charts. To help identify when the trend is changing and when we are wrong. If you missed the blogs on the Yen and the Aussie Dollar, the links are here. The Japanese Yen  The Australian Dollar.

Lastly, to subscribe to most of the blogs, they are available by email or RSS Feed found in the top right of the page. For the Canadian Technician, it looks like this. Feel free to click on the link and connect to the page.

Enter your email and you are good to go! Feel free to forward any of the work when you find it compelling! 

Good Trading,

Greg Schnell, CMT

 

 

 

An Important Time For Major Currencies - Chapter 2 - Australian Dollar

Following on the back of Chapter 1, here are the charts for the Australian Dollar ($XAD).

Here is the Long Term Weekly first. We can see the RSI is demonstrating a bear market. While everything is obvious in hindsight, the RSI is at that critical level. More on that when we zoom in on the weekly. One thing to note, in 1999, the RSI broke through the red 60 level but never got into the 70 level but that would have been a difficult period using the RSI. Where did price stall? Previous support based on the 1993 and 1997 lows. 

With regards to price, we can see the horizontal resistance at the 95-97 zone. Interestingly enough, the bear market for the Aussie Dollar in the "Eighties" also found that level as important as it paused the downtrend, then broke through downward, then found resistance trying to come back up and low and behold, it marked the final interim high in 1984 for a long time which was 26 years before it held meaningfully above that level.  Notice the Commodities top of 2008 also found Aussie Dollar resistance at 97 and then that level came to be support for the topping structure in Commodities with the 2011 high.  The Aussie is widely considered a commodity currency. Here were are again, testing that 95-97 level from below.  We currently have a series of lower lows and lower highs which is the definition of a downtrend. I have drawn the dotted blue line as a parallel marker. It would also suggest the rally stalls at the 95-97 level.  

There are two uptrend lines that I have drawn through the gap in 2008. Gaps are caused by a sudden change in expectations. With 5 touches of the blue line that line seems strong like the black line on the Japanese Yen ($XJY)  chart that was broken in March 2012 as well before resuming the trend.  I have also drawn the brown dotted line which has touches on both sides meaning it has behaved as both support and resistance. It would appear to be a resistance line for the Australian dollar currently. Either way, both up sloping trend lines are broken with the January 2014 low. We can obviously draw another line that extrapolates to around 70 off the 2002 low to 2009 low. That line is really not of interest yet, but if this Aussie Chart lets go, that might be a new long term target which would be about 15 - 20 cents (price moving down while the line rises) from here! In general the up trend from 2004 - 2011 would be a weakening pattern where the lows and the highs get farther apart as the rise continues or the 'indecision' increases.

Lastly on Chart 1, we currently have positive divergence on the MACD as explained in the Japanese Yen discussion in Part 1.  We also had it in 1998 on Chart 1 where we were in a bear (down) market, the price rallied in a bear market rally, but ultimately the MACD rolled over in 1999 just above zero and went on to make lower lows through 2001. So the divergence can indicate a short term momentum change but at each inflection point we still have to watch. The MACD zero line is usually identified as a zone of support or resistance by many technicians. Tom Bowley calls it a reset for the prior trend. Tom will be speaking at Chartcon 2014, which still has a few tickets left. Click here to find out more. The MACD was almost always above zero from 2002 to 2011 with the exception of the financial crisis. We can see since 2011, every time it gets above zero, it rolls over again.

Lets zoom in on the recent price action on the Weekly Chart 2. What is interesting is how little commodities showed any increase in demand through the 4 central banks applying Stimulus in September 2012. Notice how the Aussie Dollar rose with the commodities boom off the 2001 low to 2011. Sometimes its hard to believe that this is not a commodities chart. This Aussie Dollar broadly followed the Commodities like gold higher. While the RSI is still in trend, if there was to be a change, this is when we want to pay attention. We can see the price focus is currently at major long term support/resistance. The price is above Martin Prings 65 WMA, but we can see this MA has a lot of whipsaws (crossing down through and bouncing back above). I continue to fear the 95 -97 level as it seems to me, this level has historically marked major bear market levels. Living in commodityville, Canada, (AKA Calgary), I want to see this move well above!

On the MACD, we can see the recent positive divergence with price making a lower low but the MACD making a higher low between the most recent lows. That has given us a push up, but we have not taken out the most recent high yet, so it is still too early to call any major change in trend. Lastly, the MACD is almost rolling over at zero as mentioned, but it is still above its signal line. 

Lets move onto Chart 3 and the daily short term view.The RSI is still held up by support, but the lower highs over the last three months are suggesting further weakness. Moving to price. the false breakout on the price is a significant clue. Usually a failed breakout is a better clue than a breakout as it allows you to set your stop tighter if you are wrong on the direction. In this case, no support at the higher price, suggests lower prices are next. We can see clear resistance around 94.5. I have drawn a pink arrow at 93. This gapping behaviour at this level is important. Currently it would also be the level where stops are placed to support the price action over the last month. The price has moved sideways below the short term blue trend line. Currently the Australian dollar is sitting on the 50 DMA for support. A break below would suggest looking for new support at the 200 DMA and Martin Pring's 300 DMA down around 92. 

While the short term view is not clear, the failed breakout and the sideways move suggest to me things are losing upward momentum. The MACD could be coming down to 'reset' as Tom Bowley likes to say. A breakout to the upside would suggest to me that Asian demand for commodities is improving. A breakdown would suggest wider implications to me in the global demand for commodities.  I like to watch Canada and Australia to see what is going on. It can also help to watch the Russian Ruble and the Brazilean Real but they won't be part of this currency series.

I want to add one thing. The Aussie dollar volatility. The Bollinger band width recently hit 1.36 cents. That is a rare level of calm. Below is a really interesting chart.

 I drew a horizontal line on the Bollinger band width and looked for extreme lows. The level reached last week was the lowest I found going back to 2007. I drew a vertical line on the extremely low Aussie-Dollar-Bollinger-Band-Width readings. I made the Aussie Dollar price information invisible and overlaid the $SPX.  I'll leave it to you to decide if the currency traders can smell fear or if there is a correlation to $SPX market tops. The exception of course is the 2013 low on Jan 1!

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. They should also be clickable so that you can go look at the settings.

We try to keep our articles informative and entertaining. You can subscribe on the top right of the page by email or RSS. 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 by Carl and Erin. Subscribers got a new tool this week with the launch of RRG (Relative Rotation Graphs) by Julius de Kempenaer! These charts take the identification of Sector Rotation to a whole new level. I absolutely love RRG.

Lastly, Chartcon 2014 in Seattle is only 2 weeks away. Click here for more information on Chartcon 2014. It is an unbelievable lineup. PS. Chip Anderson was able to get Julius De Kempenaer to come speak at Chartcon 2014!  Really, another global superstar in Technical Analysis! Its crazy how many speakers will be available for working with 400 attendees over 2 days.

See you in Part 3. I think we'll go to the Canadian Dollar next and then do the European currencies one after the other.

Good trading,

Greg Schnell, CMT

An Important Time For Major Currencies - Chapter 1 - Japanese Yen

The Currency markets are the early movers. The Japanese Yen ($XJY) is a very important global currency. I like to stay aware of major changes in the currencies to help me in the equities market. Lets roll through the 7 major currencies over the next few blogs. These are the crosses that make up the Dollar index.

I'll go through the weekly first on each currency, then roll into the daily. Stage is set, now into the charts.

Let's start in Japan with the Yen. The Yen is used for carry trades.

Here is an example of a Yen carry trade from Investopedia:

"A trader borrows 1,000 Japanese yen from a Japanese bank, converts the funds into U.S. dollars and buys a bond for the equivalent amount. Let's assume that the bond pays 4.5% and the Japanese interest rate is set at 0%. The trader stands to make a profit of 4.5% as long as the exchange rate between the countries does not change. Many professional traders use this trade because the gains can become very large when leverage is taken into consideration. If the trader in our example uses a common leverage factor of 10:1, then she can stand to make a profit of 45%.

The big risk in a carry trade is the uncertainty of exchange rates. Using the example above, if the U.S. dollar were to fall in value relative to the Japanese yen, then the trader would run the risk of losing money. Also, these transactions are generally done with a lot of leverage, so a small movement in exchange rates can result in huge losses unless the position is hedged appropriately."

The Yen is a huge indicator towards equity markets. Here Is the weekly chart of the Japanese Yen ($XJY).  If the Yen rises, then the dollar is falling to the Yen, so this negatively affects the carry trade. They can use the trade for equities for large high yield dividends or corporate bonds as well.  Looking at Chart 1, just a quick start at the RSI. We can see in the uptrend, the RSI stayed above 40. Immediately after the early 2012 test of the high, we had divergence  (lower RSI highs while price was flat) on the RSI from the 3rd Q 2011, 4th Q 2011, then Early Q1 2012. The break of RSI support on a weekly chart is a slow moving train. The right shoulder bounce stalled below 60 on the RSI as the long term trend line broke on the price. One more thing on the RSI currently. The RSI has moved above 50 for the first time since the major slide, however it remains below the 60 level. It is a critical time on the RSI.

Moving to price, the major up trend broke on the right shoulder of the H/S top. You will also notice that the price never really paused at the final h/s support line shown in thin black at 120 in the Q4 2012. Look what central banks did in Q3 2012. They all added stimulus. The rush into the carry trade was on. Now, the thin black resistance line has been broken to the upside, and the price has moved into a narrower range continuously throughout 2014. This is a significant coiling and would usually lead to a major breakout one way or another. Lastly, note the positive divergence - lower price but higher MACD - at the December 2013 low. The MACD is at a critical point, which also marked a trend change back in 2012 long before the central banks added stimulus. Once the stimulus was added, the carry trade was accelerated and the yen plummeted. Now it becomes critical for the yen. What is not shown on this chart is that the 95-100 level on the Yen is meaningful all the way back to the 1993 - 1995 time frame. It was meaningful resistance back throughout the 2000 top, 2005 and then broke out in 2007. If the Yen found support and started to accelerate meaningfully above that level, would it mark a long term top like 2007? Look at the weekly below.There is a ton of compelling data here that the Yen is at a meaningful turning point. 

Starting at the RSI, You can see the up trend marked in blue. Well now the down trend in red has been broken so that suggests further upside. The price action is right in the zone of support. Look how important the 65 week moving average has been. Why 65 week MA? Martin Pring likes 65 WMA. In case you have not heard, Martin will be speaking at the Chartcon 2014. Click here to sign up. From the legend below, the 65 WMA is at 99.19 and over a 30 year chart looks pretty timely. On the chart above I used the 40 WMA which I usually use. Price is now above the 40 WMA and below the 65 WMA. Take your pick, both are important! A slower MA will always have less whipsaws.

The focus point for me is created by the up sloping trend in blue, the horizontal trend in black and grey,  the 40 WMA and the 65 WMA meeting right here. We also have the red downward sloping trend line at the same slope as 2007 and we are just breaking through the topside as sown in Chart 1. You will notice the vertical green line marks the 2007 low for the Yen but also coincides with the top for the US market. It doesn't have to hit on the same quarter, but it is a critical time to watch the Yen for big time frame moves.

Now let's zoom in on the daily below. The RSI is still stuck below the 65 level so no change in trend yet. Rarely does the 'daily' RSI behave this clearly. We can see an RSI uptrend in blue on the daily version of the Japanese Yen. You will notice on the price chart the moving averages are all converging. The Price is also converging. I have put Martin's 65 WMA equivalent (300 DMA) on the charts. This comes in at 99.22 and on the weekly chart it was 99.19 so close enough. You can also see the horizontal support and resistance level in black at the centre of this convergence of MA's. This screams how important this chart is. Should it fail to break out and roll over, I would follow that trend. The market has spent 6 months thinking about it and a final break would be very decisive in my opinion. 

Lastly, the MACD has gone to sleep. To reference the volatility, the calm before the storm. Should it successfully break higher here, I would expect a rapid closing of the carry trade and a sudden move higher. Should it break lower, I would expect a surge in the NIKKEI equity market ($NIKK) for Japan and erase the large head shoulders top currently building. Here is a link to the monthly Nikkei for why a cancellation of that top and a resumed uptrend would be important.

Next we will cover the Aussie and Canadian Dollars. This will give us an important barometer for commodity demand. They are also at critical points on the chart. Feel free to send some comments. I like to hear back!

Good trading,

Greg Schnell, CMT

 

 

 

ZoomInto: Pictures, Images and Photos

The Wider View On West Texas Crude ($WTIC)

Crude is a remarkable fluid which dominates world politics. We have recently seen Russia pushing into the neighbouring markets with Oil and Natural Gas and the rest of the world watches every deal. I want to spend some time reviewing West Texas Intermediate Crude ($WTIC) today and study the chart from a more broad based perspective. Trading in crude oil has been an active traders game. 

Normally, we talk about the RSI staying above 40 or below 65. Here we have the RSI shooting from one extreme to the other. We can see the price relative (SPURS)  of $WTIC is keeping pace with the $SPX for the last 9 months.

Analyzing the price plot, we can see three distinct green zones on the chart.

Continue reading "The Wider View On West Texas Crude ($WTIC)" »

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