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In my article last week, I wrote that I believed the Euro had finished its run down, and was now in a position to consolidate before continuing its move up. I also said I believe it will begin to replace the troubled US Dollar as the currency of choice for investors.
Let’s take a look at the current market action of the Euro (EC-Spotv in ProfitSource). Chart 1 below shows that the Euro is still tracking in a sideways pattern after the recent falls.
Chart 1
click to enlarge
Safety in the Market students should have recognized 1.2367 as an important level to watch on the Euro as this is 150% of the All Time Low of 0.8245. The actual low in October came in at 1.2326, with the market bouncing from here before coming back to rest at 1.2372 on November 13th.
Trading out of a sideways pattern can be tricky, so it pays to remember the words of WD Gann – "the safest place to buy is the first higher bottom."
When we get accumulation or distribution (sideways movements) after a major low in the market, it’s often best to let the market break out of this range first before entering the trade. More often than not, after the market breaks out, it will come back and sit on the resistance level before continuing upwards.
Chart 2 below shows the market action coming out of the November, 2005 low, which was the end of the last major bear market on the Euro.
Chart 2
click to enlarge
The Euro had been trading in a sideways pattern for over a month, then broke out of its trading range, and came back and made a higher bottom on the 3 day swing chart. After the market has given you a higher bottom like this, you have two extra things going for you. You have greater confidence that the low will hold and you now have the “first range out” for the new cycle, which you will use to rate the rest of the run.
You don’t need to get in right at the exact low of the market to make a profit. Those of you who read Tom Scollon’s newsletter Sharesbulletin would appreciate Tom’s patience in not jumping in to the markets too early, as his “safety first” philosophy has kept you safe and out of some pretty wild falls in the share markets.
You’re not in this game to be a hero – you’re here to make money. So why not trade with the odds in your favour? Give the Euro some time, and let it prove that the low is well and truly in. Then, when the odds are in your favour, you can think about getting long and staying long!
While I expect to see three or four decent up moves between now and the first quarter of 2009, I don’t expect the Euro to really take off until around the middle of April 2009, so there is plenty of time to watch this market, and stalk it for profitable trade setups.
Be Prepared!
Mathew Barnes
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