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We’ve seen plenty of strength in the US Dollar in recent times and the Euro in particular has provided little resistance against the greenback. The Euro (EC-Spotv in ProfitSource) has gone from a high of 1.5144 in November 2009 down to a current low of 1.3266 on March 25, 2010.
I had been watching for a low in the Euro around the middle of March for some time and the market certainly struggled throughout late February and early March, with a prolonged period of sideways movement. This is shown in Chart 1 below.
Chart 1
click to enlarge
When the market finally broke down, out of its sideways movement, a strong bearish move was expected, however the market pulled up very quickly. Clearly the message was that the market was not ready to go down further – yet.
There is plenty of evidence to suggest that March 25 is a major low and the end of the current bear market. One piece of evidence I am basing this on is the Power of the First Range Out, as taught by David Bowden in his Number One Trading Plan course manual.
First, let’s take a look at the run up from the March 09 low to the November 2009 top. In Chart 2 below, we can see that this run up consisted of three almost equal sections of price action.
Chart 2
click to enlarge
The entire bull market range was 2688 points, or very close to twice the First Range Out (2 x 1284 = 2568).
Now let’s take a look at the bear market. So far, we have seen two full moves down and we are currently in the middle of a potential third leg down, as shown in Chart 3 below.
Chart 3
click to enlarge
At the time of writing (Wednesday April 7th, 2010) the Euro is struggling to break below the 50% milestone of the First Range Out. Interestingly, the March 25 low has taken the bear market range to 1878 points – which is very close to double the First Range Out (2 x 929 = 1858). The previous bull market range was twice the length of the First Range Out and the bear market has currently made twice the First Range Out to the downside.
I’ll be watching this market very closely for a long entry in the coming days. If it breaks the March low, it will obviously be heading down further but IF this third leg were to fail, it is in a great position to do so.
As always, watch your swing charts and as David Bowden says, “Don’t be anticipatory stupid!”
These charts are worth creating and studying in conjunction with Section 11 of the Number One Trading Plan – in particular, page 147, David’s lesson on seasonal ranges. I would strongly encourage Safety in the Market students to take up this challenge.
Be Prepared!
Mathew Barnes
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