Commodities Countdown

Checking In On Currencies - PnF Chart Style Tip

Turn-around Tuesday was an interesting day. The US Dollar ($USD) moved higher, but there were all kinds of interesting technicals. The RSI touched 30 and bounced so perhaps we can expect a rally for a few days from here. The price box is loaded with technical signals. First of all, a bounce off the 200 DMA is a logical place for some bounce. The last time the $USD tested the 200 DMA was the overnight low on the US Election results. One of the concerns for technicians expecting the dollar to go higher, would have been the break below 99.19 at the horizontal support level. But breaking below support for one day, then reversing and closing back above support is very bullish. Next, we have a three wave correction off the high. I am not a big Elliott Wave technician, but that looks to be a nice wave pattern. Now the 100 level is back in play as we watch to see if the Dollar can get back above. We can also see an excellent Head/Shoulders pattern with the highest momentum on the left shoulder on the MACD, then lowering levels on each subsequent peak. So far, the break below the neckline and a reversal back above has to be considered a whipsaw. We would normally associate that with an above average move in the opposite direction which is higher from here. Lastly, a chartist could draw an extremely obvious trend line of rising lows on the $USD here. So the Dollar's big move back up on Tuesday suggests the bulls haven't dropped the dollar. It does suggest a massive tug-of-war as to where this is going to go directionally. At this point, tread carefully!


Today's announcement of BREXIT seems to have alarmed almost no one. The British Pound ($XBP) is trading down slightly on the actual event. Whether that is the continued direction for the Pound after selling off for 9 months is a great question, but at this point, the stall at resistance near the 200 DMA looks like it wants to trade down on the  event. We can see the RSI has maintained a bearish posture since the BREXIT vote. I want to keep watching to see if it makes it back to the bottom of the range.  A high bounce and a break out to the upside would be a big trend change. 

The Euro ($XEU) failed a Head/Shoulders break out, opposite that of the $USD chart above. The RSI maintains a bear market posture. The price action failed at the 200 DMA and the red down trend. The price is currently below the Head/shoulders neck line. 

The Aussie Dollar ($XAD) is just as interesting. Trading back and forth between levels, we can see the Australian Dollar has built a table with two long legs down. This flat top has been in place for a long time. Notice the middle of the price range also has a red dotted line that represents a secondary support/resistance layer.

There is a time pattern that looks pretty symmetrical relative to the two major low points (I'll call then legs for this table analogy). To the left of the first major leg lower there is about 2.5 months, then six months between them, and now 3 months on the right hand side. Will this chart finally breakout to the upside? 

The Canadian Dollar ($CDW) continues to hover in this 75 level. The 200 DMA has been a pretty solid ceiling for the Canuck buck. The $CDW oscillated around the 200 DMA most of February but could not break out to the upside. Within the zoom box, a small flag seems to be building on the chart. A break above the 75.20 range would probably push the dollar up against the 200 DMA at 75.80.

The battle in the currency pits is hard fought right now. No clear direction appears present. Even Gold (GLD) has spent most of the quarter range trading between 114-120. 

I will be recording a Commodities Countdown Webinar on Thursday. With so much going on, and all the charts changing quickly, it will be an important quarter end review. I will post the video link on the Commodities Countdown blog.


For the educational segment, I want to cover the Point and Figure (PnF) charts. StockCharts.com does a beautiful job of making PnF charts easy and there are some nice tweaks to the display. First of all, PnF is a great chart style as it takes out the wiggles and shows the big trend. It does this by continually adding to a column as long as the price does not retrace more than 3 box sizes. One of the easiest places to learn about the PnF chart is in ChartSchool. Point and Figure Introductory Article

To compare how the chart is built, you can use the Gallery View which includes a PnF chart.

First of all, from the home page, click on the picture in the Today In The Market Chart. I am going to use the $SPX chart. Click on the $SPX tab, then click anywhere on the little chart.

That brings you to a page with 4 charts. Intraday view for members, then daily, weekly and PnF.

If you want to understand how the chart is created, you can compare it to the daily and weekly charts in the Gallery View as the price moves around relative to a level on the grid.  The X columns are created when price is moving up, the O columns are created when price is moving down. The trend information (higher highs or lower highs) will not change until the  price for the X column takes out the previous high column of X's. Recently the trend changed when the O's made a lower O than the previous column of O's by going down to 2350.00. Currently we are building a column of X's. Because the price moved above 2360.00 we have moved three boxes higher than the lowest O, so we started a new column of X's. So far, we still have lower highs and lower lows which is the definition of a downtrend. This is the first time since September. You can tell the months based on the number and the ABC in the columns. 1-9 for January to September, ABC for October, November, and December. I have pointed out the 8 and 9 with an arrow, the ABC annotations are in the circle. This is not where the chart is on the first of the month. It is the first new box whenever that happens within the month. So this makes it very obvious when we are in an uptrend. Currently we are in a downtrend with lower X column highs and lower O column lows. Lots more in the ChartSchool article.

There are some easy settings to control on the Chart Attributes. I like the columns in different colors. I also like the monthly annotations of 1-9, A.B and C. You can hide these by clicking the check box for Hide Months. You can also turn on price objective measurements based on the PnF patterns. You can change the chart scaling but I would suggest that works better when you become really familar with the chartstyle. Lastly, you can save this as your default chart. It will not replace your regular chart. It will just save these settings so when you look at the PnF chart, it keeps these settings. 

PnF charts clear out a lot of clutter and sometimes the charts don't change for a long period of time. PnF does not care about time as it will not add a new column until the price changes enough. Most of us are familiar with the stock market price action after the election. Look where the A for October is, the B for November and the C for December are on the chart above. This will help you understand how the chart is built. When we made a higher column of X's at 2160, we moved above the previous column of X's to start a new uptrend. Simple information. We are currently in a down trend because the higher column of X's compared to the previous one has not been met.

Again, for more information, look to the ChartSchool article, but I hope I have introduced you to changing the default settings for PnF charts and how they can help you read the PnF charts easily.

Good trading,
Greg Schnell, CMT, MFTA.

 
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