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Hello and welcome to this month’s Safety in the Market Newsletter. Some of you may have read my article in the Trading Tutor’s Newsletter on Friday November 12, entitled “US Dollar – Ready to Rumble?” In this article I discussed a few currency pairs and indicated that the US Dollar may be about to make some strong gains. If the US Dollar rallies against the Euro, the price of the Euro futures contract (EC-Spotv in ProfitSource) will fall.
In this article I want to expand on my thoughts on the Euro and show you some Price Forecasting work that supports the current early November high as being important.
Chart 1 below shows the range up from the June low of 1.1874 repeating just over 100% in price.
Chart 1
click chart to enlarge
Notice that the market initially made a top at this level on October 15, then made what looks like a “false break” of that top, only managing to close above the old top for one day.
There is plenty of support for this November 4 top. It is approximately 90 degrees from the August top, and there is a large cluster of price pressure points around the 1.4000 level. Even though the market broke above this 1.40 level, it was only for a day and the Euro quickly fell back below this price cluster.
Let’s take a look at some of the reasons for a price cluster around 1.4000. We have already seen 1.4046 was the 100% milestone of the First Range up in Chart 1 above. Chart 2 below shows that it was just past 50% of the bear market range from the All Time High in July 2008 down to the June 2010 low.
Chart 2
click chart to enlarge
In Chart 3, we can see that this was also around 87.5% of the All Time High.
Chart 3
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And in Chart 4, we see that it was approximately 25% of the All Time Ranges Resistance Card.
Chart 4
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In Chart 5 below, we can see that the current monthly upswing has just performed approximately 100% of the previous two monthly upswings. We will look at this the simple way, on the monthly swing chart, but I would encourage you to recreate this in your software using the ABC Pressure Points Tool over these ranges, so you can watch how the market unfolded. Chart 5
click chart to enlarge
So the big picture is telling us that the Euro is potentially in a good position to have a decent bear market campaign from this top. Let’s have a quick look at the small picture.
Chart 6 shows us that the small First Range Out on the weekly swing chart from the June low helped to call the current top as well – in two ways. Firstly, this range of 603 points has repeated almost 100% into the final top, with the last weekly upswing being 588 points. Secondly, four times 603 points (the First Range Out) is 2412 points, and the size of the entire monthly range up from the June 2010 low was 2402 points.
Chart 6
click chart to enlarge
All the Price Forecasting work I have done here comes from Section 11 of the Number One Trading Plan, which we discuss in more detail at the 3 Day Interactive Trading Workshops and in the 10 week Advanced Trader Coaching program.
This is a taste of some pure Gann technique – Tim Walker will be taking students through plenty more of Gann’s work in his upcoming full-day Commodities Forecasting Online Seminar on December 11, 2010 which I’m really looking forward to.
Now that I have taken you through the Price Forecast on the Euro, I will briefly discuss how I will be looking to trade this move.
Firstly, there is more than one timeframe to consider here. You could look to trade this move off the monthly swing chart, or you could look to trade the smaller moves, perhaps off the one day or three day swing charts.
I would suggest keeping an eye on the monthly swing chart, but looking to trade the smaller sections of the market on the way down. I will be looking for a first lower swing top trade out of this high. At time of writing (Thursday November 11, 2010), we have a clear expanding downside range on the daily swing chart, so if we get a contracting upside range, the first lower swing top trade will be looking strong.
From here, I will look to trail stop losses behind 3 day swing chart tops, with a goal of reaching approximately 1.1500 and I will be adding contracts along the way.
This promises to be an exciting few months ahead, with plenty of signs that markets are starting to find some momentum again. Make sure you put yourself in the best position to profit from these moves.
Be Prepared!
Mathew Barnes
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