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Much of the commentary that we hear on financial markets relates to shorter term analysis. A market move lasting only a few days up or a few days down can create a lot of excitement among journalists and analysts!
For example, the Euro (EC-Spotv in ProfitSource) has been running up for its 8th day at time of writing (Wednesday September, 22nd, 2010). We can see this in Chart 1 below.
Chart 1
click to enlarge
While it’s fine to make decisions based on short term analysis, a quick look at the longer term charts on the Euro indicate that this may just be a run up into a lower top.
Chart 2 below shows the monthly swing chart on the Euro.
Chart 2
click to enlarge
In actual fact, despite the apparent strength of the Euro, it is still potentially forming its first lower swing top on the monthly chart after the big high of November, 2009. The swing ranges to the downside are getting larger and the current swing range to the upside is smaller.
So the big picture perspective is still quite bearish for the Euro. Now while the Euro can still push up into higher levels, its current position is more a sign of weakness than strength. As always, time will tell.
As I write this article, the Euro is approaching a potential Double Top around the 1.3333 level we last saw on August 6th, 2010. At the Hot Commodities Summit over the weekend I stated that if the market breaks and holds above that August top, I would have to rethink my bearish position on the Euro.
It’s having a go at it as we speak, but Double Tops on 50% levels on Seasonal Dates can prove to be very effective short trades. By the time this newsletter reaches readers on Friday, we should know whether this Double Top has held, or if the Euro has shown strength to push through.
Keep in mind though, the Euro has already been running up for eight days – WD Gann’s “Seven to Ten Day Rule” suggests we should at least see a pullback in the short term.
Be prepared!
Mathew Barnes
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