Indices Analysis for 23/01/12

Indices for Week 23/01/12
It's a lengthy one this week, apologies for this but it's necessary.  Some more retro stuff in case you need something to chill out on whilst reading ....http://www.youtube.com/watch?v=OdpTcvSn8HQ&ob=av2n

USDX

Monthly: Trend up, overall, BUT the current candle, which albeit has not closed yet, is currently forming a ‘Shooting Star’ pattern.  ‘Shooting Stars’ are bearish reversal signals when they appear in an uptrend. 

Weekly:  Trend up, overall, BUT the last candle was a bearish engulfing candle. This has engulfed the previous week’s ‘indecision’ Doji.

Daily:  Trend up, overall.  There are two mixed signals on this chart though, just to keep us on our toes!  The daily bull trend line has been broken and this is a bearish sign. The last candle, though, was another ‘inverted hammer’ candle.  These are often seen as signs of potential reversal (hence bullish) or signs of indecision.  Hmmm, which one though? Price has finished the week at the 4hr 200 EMA and strong psychological level of 80.  BTW: I don’t have a complete TS signal to Short the USDX based on the daily chart; I find this interesting!

4hr:  Trend down, overall. There are two technical ways of looking at this chart which paint very different pictures. Firstly, price has broken down and found support at the 4hr 200 EMA and strong psych level of 80 and, thus, may bounce back up in a bullish mode from this point. Or, secondly, a ‘Bear Flag’ pattern has formed which is a bearish sign.  This is where price, in a downtrend, has paused and is simply biding its time before the next down thrust.  Technical theory states that the next down thrust is often equal to the length of the initial flag pole.  In this case, it would suggest a further down move of some 160 pips, which would take price to the monthly S1 pivot level of 78.5.  How convenient!  This apparent confusion is also reflected in a falling ADX and the fact that both DMI lines are trending down or near the 20 level.  Hmm, again, which way do we read these tea leaves?  Don’t worry though...I have a suggestion here, read on!

Thoughts:  Price has not yet closed below the 80 level and I will be watching to see how it reacts around this level early next week.  I will look to SHORT the USD in pairs with TS signals if the USDX breaks, closes and hold below the 80 level and if the –DMI ticks up above 20 with a rising ADX.  I will look to LONG the USD in pairs on TS signals if price holds above the 80 level and the ADX signals to long.

As always, Fundamentals, by way of Euro zone dramas and news announcements, continue to be triggers for price movement on the indices.  These events can always have the potential to undermine all Technical analysis.

EURX

Monthly:  Trend down.  Price has fallen and closed below the bottom trend line of the large symmetrical triangle dating back to May last year, 2010. The current monthly candle is forming an indecision style ‘spinning top’ pattern though but is still bearish (red) at this stage.

Weekly:  Trend down, overall.  The previous week’s candle, an ‘inverted hammer’, did indeed signal a reversal as discussed.  Last week’s candle was a bullish engulfing candle.

Daily: Trend down/flat.  Price drifted up for the first 4 days of last week though, touched the bear trend line and then moved down on Friday.  Friday’s candle formed an ‘inside bar’ candle.  ‘Inside Bars’ represent a period of indecision (join the club!) or consolidation.  Price could indeed be consolidating whilst mustering the energy to thrust up through the daily trend line!  Like with the USDX though, I do not have a TS signal to LONG the EURX.  Hmm!

4 hr: Trend up, overall. As with the USDX, this time frame is giving of two different and opposite signals.  These are the inverse of the USDX.  Firstly, price moved up last week, hit the resistance level of the bear trend line, failed to break through and bounced back down.  This could be viewed as a reversal and a bearish sign for the EURX.  Or, secondly, price could be forming a ‘Bull Flag’ pattern which is a bullish sign.  This is where price, in an uptrend, has paused and is simply biding its time before the next move up.  Technical theory would suggest a further up move of some 190 pips, which would take price to the monthly pivot of 103.5.  Again, how very convenient!  Like with the USDX, this apparent confusion is also reflected in a falling ADX and the fact that both DMI lines are trending down or near the 20 level. 

Thoughts:  I correctly spotted the reversal signal for this index last week with the inverted hammer on the weekly chart.  There are a number of mixed technical signals in play now on both indices though; as discussed above.  I will look to LONG the Eur in pairs on TS signals if the EURX breaks up, closes and holds above the daily trend line and if supported by the ADX.  I will look to SHORT the Eur in pairs on TS signals if the EURX continues its down move and if supported by the ADX.