Week 4

[pipMonster 10]

I wonder if cable has just run out of gas on this rally. There was a surprise rate hike. A lot of good data to support it, but not great data. There in lies part of the problem. The U.S. economy showed signs of life. I think the BoE minutes this week will be important, but possibly not enough to hold off a $ rally. True enough, the trend is till up but there are multiple past tops in this area that price has not passed convincingly. The 78.6 fib has supported price Friday, though we see lower highs forming along with a couple of lower lows, though these lows were rejected convincingly as shown by the long wicks. It could be attributed to dip buyers. The 14ema is also supporting. You could almost blend together the two previous candles (not the final one) into a doji. Indecision anyone? One more thing: oil. Oil prices are as low as we've seen in quite some time due to the mild winter weather on the US east coast. U.S. consumers need only to get a taste of lower oil prices to get spending in gear. It'll also lead to a dip in the US trade balance sheet. It's only temporary, but it may be enough for a decent rally. I just noticed slight divergence in the MACD in the image below. Hmmm....

[cowpip 10]

Since I like to play the devils advocate (I really miss that devil emoticon on here!), and since I know Jack well enough to understand he won't be offended by offering an analysis that runs counter to his, I thought I'd throw this out for the beginning of the week.

 

But first, I would emphasize exactly what Jack is saying. This level up here on cable near 9700/9850 is extremely tricky to navigate and has in the past been the subject of some very whippy action. The daily has printed a firm doji and the divergence has been building for some time on this pair now. So it is very possible we could see prices dip back as low as perhaps 9200 (or lower).

 

My personal view is more bullish, although I recognize the susceptibility noted above and will trade according to whatever price dictates. Being aware of both sides of the coin leaves us better prepared, in my opinion. So...

 

I'll start out on the longer monthly and weekly time-frame. If we go waaaaay back, there is one nagging trend line that price is currently trying to navigate (bottom pane below). It has, particularly during the last month or two, pushed far enough above this trend line to convince me that we're now on the up-side. Technically, we have broken through, pulled back and are now pushing on with a new leg. Pattern target would be near 2.2920 (typo on the image - sorry) in the longer-term. Perhaps most significantly, we have recently (end of 2006) breached the previous monthly swing high which may help to confirm this pattern and aid in the thrust beyond 2.0000.

 

The weekly (top) panel is also bullish to me. Aside from the bullish engulfing candles 2 and 3 weeks ago, there is also a possible bull-flag that has (as of Friday) closed above the upper bull-flag trend line (just barely - not perhaps convincingly). If this holds, it could mark the start of the completion of the next pole which would thrust cable through to perhaps 2.0590. If it fails, prices could easily re-enter the bull-flag channel and retest the low near 1.9200, which is also the 78.6% fib from the move up started in December 2005.

 

 

Divergence hasn't yet confirmed on the weekly, and has in fact widened a tad during the last week. I have spotted one other period in the past that has had a similar divergence pattern (see below). In both cases, the divergence preceded a breakout higher.

 

 

I wouldn't personally place too much weight on this latter analysis. Just because there was one period of similar patterns in the past means diddly-squat about what may happen in the future. But it is, nonetheless, a bit interesting.

 

It is entirely possible that the BoE minutes this week could be the trigger for a further move higher. If the minutes are unambiguous and clear that further rate hikes are on the table, that may be all it takes. If the minutes are ambiguous (which is probably the more probable scenario), then we may have to wait until U.S. news shows further degradation before seeing this bullish scenario materialize.

 

So that's my take on current events. As I always say, time will tell...

[pipMonster 10]

The wonderful thing about analysis is that there are two sides. My view is predicated on the shorter term outlook where as Cary is looking at the much larger picture. I believe there is definitely room for both views.

 

It's quite possible to have a short term (two weeks) $ rally only to see it reverse and take out the old highs. The monthly chart shows 2/3 of an inverted head and shoulders pattern? It could take all of next year to play out. I wouldn't be surprised if there was quite a bit of central bank buying to try and keep the $ in line and below the magic $2 threshold. Keep in mind the current Bush Admin is fully aware of what would happen should the $ 'get away' from them. They brought Treasury Sec. Paulson(sic) in from Goldman Sachs to manage the weak $ scenario.

 

We also have no idea what the UK and US central banks are saying to each other (at least I don't). I'm sure they're both trying to manage the situation without overheating the Pound Sterling or weakening the buck too far.

 

Cary, that's an excellent analysis. I can't wait to see how it plays out. No matter how it does, hopefully we can all pull some profits from it.

[cowpip 10]

You're bang on, as usual, Jack! If I restricted myself solely to the daily and shorter time-frames, I too would be looking very closely toward the short side of things. The daily doji on Friday as well as the divergence setting up on the 240 min time frame, combined with the fact that the market is quite long on cable right now suggests that a correction lower may be due before a continuation higher occurs.

 

I'm sure we will both be trading with the herd rather than trading on a guess in which direction the herd is going to move next. Stay with the herd.

[torero 10]

Well, here's my view on cable, purely technical. From the 240, we only see the resistance as any indication where trouble lie, 9750-9850. It doesn't tell me much. But on 60min, I see 2 patterns in play, one is a rising wedge about to be confirmed and a triangle which is still moving moving toward apex. If the triangle breaks down, the wedge is sure to be confirmed. If the triangle breaks to the upside and break the resistance, then wedge play is off. The only conclusion I can draw from this moment is there is no clear clue to direction other than wait and see.

 

[cowpip 10]

The only conclusion I can draw from this moment is there is no clear clue to direction other than wait and see.

 

And of course, that is precisely all we can do. The important point of all of this analysis is that we all have plans regardless of what price does. If it breaks higher or lower, it shouldn't matter. If you have a plan on how to handle things, you can make money going either direction.

[cowpip 10]

Well wasn't yesterday's session a bore? The daily ranges are contracting and it appears to me as though prices are beginning to coil up. Cracks are also beginning to appear in what has been fairly solid resistance at 9780. Prices made new multi-day highs today during the tail end of the US session. Perhaps defenses are shifting back toward 9850 now.

 

What is most clear in the current price action is the consolidation that is continuing to take place at this level, which solidifies this area as a possible launching zone for another leg higher.

 

 

The market is undoubtably waiting for the BoE minutes to decide how best to get positioned now. Price is hovering around very key levels. A break above 1.98 (particularly 1.9850) would likely herald a rise toward the psychologically important 2.0 level.

 

I personally don't expect much to happen until the minutes are released. They might take another crack at breaking 9800, but I wouldn't expect prices to break 9850 until the minutes are released - assuming the minutes favor such a move.

[torero 10]

I went long late yesterday when the prices popped above 9780. It seems to be doing one of the churning-the-bears-slowly movements. I'll see how this one plays out.

 

[cowpip 10]

Nicely done, Torero. I too jumped in long at 77. It'll be interesting to see how it handles 9850. The door is now unlocked for a solid test there.

[cowpip 10]

This was just a quicky for me - Scaled a portion out at 08 and closed the remainder at R1 (9826). If only all trades were so worry-free.

 

 

So the question now is whether investors have the gusto to push prices through the ceiling at 9850 pre-BoE-minutes news tomorrow, or whether they'll let prices consolidate yet again. T'will be interesting.

[torero 10]

Great way to scale out and exit, very timely, cowpip. Looked like smooth sailing to me, in just before taking off and out just before consolidating.

 

I'm still long, seeing this triangle comforts me. Target for this triangle is 9845. Let's see if it can make it there and then some.

 

[torero 10]

I'm still short on EURGBP since last thursday I believe. A slow mover but this one will test my patience and I'm learning to be one.

 

[steveshutts 10]

Nicely held on there Torero.

Looks like you got a nice little boost from the Euro positive data. Euro has broken 3000, lets see if it can sustain this break!

Price still contained within this daily bear flag on Euro at the moment, painting a different picture to that of cable at the moment.

[torero 10]

Thanks. I actually missed setting my target exit (was moving my computer from living to office and it shot down) so I'm going to just let it trail from support at 9835 and see if it can take it from here.

[steveshutts 10]

Doesn't look like we are going to get any follow through this side of the US open. Pretty heavy resistance at the 9850 level with a failure to punch through convincingly.

Currently flat this morning, those inverted hammer bar prints on the hourly are keeping me away from going long at the moment.

Price currently finding support at the asian high and R2 but this is by no means a value area for me to take on so will wait and see what happens this afternoon now.

You guys definitely got the value punt this morning, well done.

[torero 10]

I got stopped out at 9840 but maybe there's more upside? Seems to be eager to go higher. I'll look for a re-entry on the next pullback.

[steveshutts 10]

Yeah maybe,

didn't think we would get that last burst up. Cable has already put in a days range now of around 130 pips so i am waiting for a more significant pullback on the hourly frame now. It could well continue up, but considering the climb already, it has a less chance of doing so.

Watch it fly through the roof now!

[torero 10]

I'm watching carefully at 9750 as possible support here. The first pullback from the breakout will be significant. This is a major breakout to a historical high, making history!

[Anna-Maria 10]

So the question now is whether investors have the gusto to push prices through the ceiling at 9850 pre-BoE-minutes news tomorrow, or whether they'll let prices consolidate yet again. T'will be interesting.

 

Although they'll be eyeing the minutes for confirmation (of the Banks hawkish line) Cary, this recent consolidation & continuation leg is all about "the carry"

 

UK hold the gavel now regards yields. It's likely the Bank will raise again to further dampen forward inflationary concerns, whilst the States hold their current peg a while longer (at least).

 

That will put Sterling firmly on the front foot. Similar case with GBP/YEN. The value (for Jap investors) will increase as UK rates extend beyond those of the BoJ too.

 

These moves on the Sterling often get shoved to over-extreme whilst the jawboning & heresay gets ripped around the arena, & then corrects as firms book profits, whilst waiting for any continued moves back up.

 

Also when interest rates are high on the agenda, commercials will begin stirring. They're usually on the case, transacting large order bundles for import/export transactions, also looking for yield values etc.

 

Therefore, the Bank & Prime broker desks are busy with customer order flows - feeding deals thru at 'best price'. Multi flow transactions are generally the cause of sharp & hard thrusts thru these s&r levels. A case of everyone & his budgie clambouring to get in & out at their perceived "fair value" zone.

[torero 10]

I'm watching closely of this breakout as it's making a major resistance it just past. Could be an interesting ride up or a quick way down if the rejection is valid (rising wedge).

 

[cowpip 10]

Therefore, the Bank & Prime broker desks are busy with customer order flows - feeding deals thru at 'best price'. Multi flow transactions are generally the cause of sharp & hard thrusts thru these s&r levels. A case of everyone & his budgie clambouring to get in & out at their perceived "fair value" zone.

 

Ah, if only I had the depth of vision to see the inner workings as like that. Excellent (and eye opening) explanation, Texxas. Thanks.

 

Torero, you did very well holding that trade as you did. You demonstrated great patience. I can tell you're trying hard to engage a swinger. I'm a bit surprised prices didn't hold up a bit better above 9850, but then these are very lofty levels for cable. Perhaps a correction is due?

[steveshutts 10]

Yep, cable has come off much more than i was anticipating.

The real test will be the 9750-70 area now. Probably started off with some profit paring before the news this morning, with speculative shorts jumping on the bandwagon, which seems to be aiding this shove back down??

[steveshutts 10]

They are certainly dumping GBP/YEN this morning, but that pair hasn't looked back for quite a while. These corrections will hopefully produce some good opportunities to leg back into these trends.

[torero 10]

Yes, I did ok but I set the trailing stop a bit tighter than normal so I missed the rest of the leg. No biggie, live and learn.

 

After waiting for the pullback which may turn out to be a one day reversal, I just went short here. I saw the long tail on 240min and didn't look very promising on the upside. I'll keep an eye on the 9750 line here. For now, I keep this target hit first and ask questions later.

 

[torero 10]

Now I can ask questions: will it stop and reverse or will it take it lower? I'll wait for london open to hopefully get an answer then.