Thursday, February 14, 2013

British Pound Major Breakdown

It appears that we may just have the next big currency move underway. The British Pound is in the midst of a major breakdown that could lead to a test of the recent 2009 lows and a potential measured move lower. We currently have a magnificent setup that could turn out to be the trade of the year as everyone is currently focused on the yen getting pole axed. I have been looking for longer time-framed swing/position trades and this one fits the bill perfectly. 

/6b Weekly 

As of the middle of this week, we have a weekly breakdown in progress. The pound has been setting up a 4 year triangle. As the chart above shows, volume has seemed to decline a bit as price has tightened in its coil. Only in the past month or so has volume begun to pick up during the decline. This decline was setup with a clear bearish RSI divergence and the breakdown we are seeing is being confirmed with a bearish MACD centerline cross. 

From an ichimoku perspective, the chikou span has cleared beneath prior price as well as the tenkan-sen. Price itself has broken below the cloud and will the cloud will quickly flip bearish if a downward move continues. The triangle price objective measures down to the 1.25 area.

$XBP monthly

Zooming out to the monthly chart, we been holding below the major 1.70 pivot the past few years. RSI has been entrenched in a bearish look and MACD appears to be getting rejected at the centerline. Bollinger bands are the tightest they've been in 4.5 years. In the past, when BB's have become this tight we've seen sharp and extended moves, a classic BB squeeze setup. A test of the bottom of its multi-decade range seems to be in order, at a minimum.

One thing to keep in mind through the remainder of this week. This setup has the opportunity to benefit both ways. On a breakdown, classical TA rules and should serve as a guide. However, nearing the apex of our triangle, something to remember is that "from failed moves, come fast moves" and we can easily see a failed breakdown turn into a bullish breakout with a 1.92 price target. 

Sunday, January 13, 2013

Commodity Run Coming?

Long time no post! Over the past few months I've become significantly busier with my other professional obligations such that I haven't had the time to post anything here or much at all through Twitter. I've made some commitments that should occupy a majority of my professional time which has caused me to have to extend my trading time horizons. No longer having the time necessary to follow the markets tick for tick each day, the setups I discuss and take will generally be those which I feel can sustain 6-18 month holds/moves.

Looking at some charts of the commodities, I believe the past year or so action has been quite constructive and we are setting up for some larger moves across the board.

Taking a look at the CRB/SPX ratio, we are sitting at a significant level of support that's been established over the past decade. We are really sitting at a critical area where a bounce could have some very positive ramifications. Technically, a bounce here would give us a double bottom (W) along with positive divergences both on the RSI and MACD.

Sugar (SB) is one of my favorite current setups. Almost all of the softs have been beaten down and trying to bottom. It is currently sitting just above a 4+ year uptrend line and has been constructing a falling wedge over the past 2 years. The price action has tightened up significantly over the past months with bullish divergences developed in both the RSI and MACD. I'm looking for a break of this wedge with an initial target of 24-26 and PO = 31.60.

Disclosure: Currently long 21 calls expiring in March and April.

Crude (CL) broke its upchannel in 2010 and backtested it early in 2011. Since then, we've seen a sideways base on declining volume. We are currently in a textbook symmetrical triangle with a breakout imminent. A breakout should coincide with a bullish MACD centerline cross and a PO = $120.

Copper (HG), as well, broke its multi-year upchannel late in 2010 and since has been moving sideways into a symmetric triangle. Another case of declining volume, which is what you want to see. MACD is positive, and you want to see the chikou span clear the 3.82 level. PO out of triangle = 4.60.

Was calling for a natural gas (NG) bottom last year and we saw an inverse H&S break. After backtesting the neckline, natty made a b-line for the top of its downchannel. Seeing some hesitation at this level, however, we now have cloud support and should continue to see an extended move. $5 is the key level. The last two candles are quite supportive with bottoming tails at the 30wk MA as well as price holding the kijun-sen. 

If you go back to my last point, I made a pretty nice call on wheat (ZW). It has yet to meet the price target of its bullish wedge breakout of last year which is about the 965 level. I believe we are in a great spot to buy the dip with uptrend support as well as cloud support. Watching the chikou-span, look for a bounce at the prior tenkan/kijun. We may triangulate a bit further before moving higher.

Thursday, May 17, 2012

Wheat: 'Cereal' Underperformer No More

For those that follow the grain markets, I'm sure you must be aware of Wheat's relative underperformance to corn and beans over the better part of the past 2 years. I believe this may be coming to an end, as it appears some serious buying has entered the picture and the technicals speak well to its future prospects.

The weekly chart tells a story of repetitive patterns. From '08-'10 wheat was bottoming in a wedging type pattern, making multiple nominal lows, but not breaking down. Throughout the time, positive divergences were forming in the RSI and MACD indicators. We have a similar situation occurring over the past couple of years with the look of an upside break approaching. 

We've made a very strong move this week, breaking above the tenkan-sen and kijun-sen on strong volume and the chikou span has finally been able to clear prior price congestion. Similarly, we've cleared both the 10 and 30 week MA's on volume, with a flattening 30wk. 

Potential resistance will come from kumo (cloud) just above.

The daily chart gives us a clear view of the sideways action we've put in over the past 7 months. We've spent a great deal of time in what looks to be a bottoming process. There is evidence of accumulation especially in the current calendar year. 

We've cleared the kumo this week and a bullish tenkan-sen cross will occur on any new nominal high from this point forward. A bullish MACD centerline cross is imminent and RSI has remained firmly in bullish territory, consistently holding the 38 level.

Zooming into the 4h chart, we can see the strength of the move over the past 2 days. We managed to breakout of a downchannel on heavy volume and are currently in overbought territory. A sideways consolidation would not be unexpected and a solid opportunity to enter what could be the beginning of a very strong trend.

The chart above is a daily chart of the wheat-corn spread. It has held in a fairly narrow range over the past year, but is now once again nearing the highs. These highs are far from the traditional spread between these products, where wheat has averaged a ~1.46 premium. I think we are about to revisit those levels.

Finally, we have a weekly of the soybean-wheat spread. We recently touched extreme levels here and got firmly rejected. Looking for some mean reversion to occur here.

As timeframes and risk tolerance vary for most traders, I have trouble giving exact entries, stops, etc. for this post. However, I believe there are plenty of different points for traders to be able to enter into a long trade. One could wait for a breakout of the weekly falling wedge, a break of the past year's range, or look for a bull flag/consolidation over the next few sessions to buy the dip. 

BONUS: A few quick setups in the agriculture/soft commodity space that I am very high on.

Oats are set up beautifully. We've entered an ichimoku uptrend on the daily chart as evidenced by the bullish cloud. Confluence support was found this week at the 50day MA and top of kumo. Oats have been in a 1+year downchannel and a breakout appears imminent. 

One thing to keep in mind is that trading in this product is a bit thinner than other grains.

Cocoa is attempting to break out of a 1+ year downchannel as well. The tenkan-sen has crossed above the kijun-sen and we are currently in a symmetrical triangle (not drawn). I am currently long and I believe that cocoa is in the process of bottoming here. However, we're currently on the cusp of falling back into the prior channel and the weekly close should be extremely important.

Finally, coffee, which has been beaten down severely, is in a compelling area to buy. We can see support from a 3 year uptrend line and a move towards the top rail of a falling wedge. Positive RSI/MACD histogram divergences are apparent and a bullish MACD cross is imminent. 

The daily chart is holding just below the 50d MA, along with positive RSI/MACD divergences. I'd be a buyer on a high volume move and hold of the 180 level (which we were briefly over today).