Markets To Watch #2

Last week I mentioned to keep a close eye on the Euro, the US Dollar, and the Swiss Franc for possible corrections.  All three markets made slightly newer highs or lows, but my analysis remains intact.  I still expect reversals in all three.  The biggest question to me is how big will they be?

Let's briefly look at each market.

Euro:

The COT report on the Euro shows large traders holding record long positions, commercials holding record short positions, and the small traders holding record long positions for the 2nd consecutive week.  A bearish engulfing candle also formed on Friday and a possible double top is forming as well.  This pattern is confirmed with a close below 1.17065.  Below this double top neckline is the first area of support between 1.16765 and 1.1659.  This is a cluster of symmetrical Fib retracements since March.  Any move below these levels would suggest a bigger move.  The next expected retracement zone would be between 1.1610 and 1.1440.  This area contains the 34 EMA wave, which often serves as support in bullish trends.  It also contains a bigger symmetrical Fib retracement, the 50 DMA, and the double top target of 1.1484.  Any move lower than this zone would signal a change in the bullish trend.

Swiss Franc:

A possible double top is forming.  This pattern is confirmed with a close below 1.0829.  The first area of support happens before this patterns neckline between 1.0908 and 1.0884.  This is a cluster of symmetrical Fib retracements since March.  Any move below these levels would suggest a bigger move.  The next expected retracement zone would be between 1.0814 and 1.0656.  This area contains the 34 EMA wave, which often serves as support in bullish trends.  It also has the 50 DMA and the monthly S1.  Any move lower than this zone would signal a change in the bullish trend.  It is worth pointing out that the double top target would be below this 2nd zone @ 1.0602.

US Dollar Index:

A bullish high close doji pattern formed last Thursday and Friday.  A possible double bottom pattern is also forming.  This pattern is confirmed with a close above 93.98.  Above this double top neckline is the first area of resistance between 94.22 and 94.595.  This is a cluster of symmetrical Fib retracements since March.  Any move above these levels would suggest a bigger move.  The next expected resistance zone would be between 94.715 and 95.885.  This area contains the 34 EMA wave, which often serves as resistance in bearish trends.  It also contains a bigger symmetrical Fib retracement, the 50 DMA, and the double bottom target of 95.45.  Any move higher than this zone would signal a change in the bearish trend.

 

 

 

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Markets To Watch

Keep a close eye on the Euro, the US Dollar, and the Swiss Franc futures contracts this week.  All three made huge moves in July without any meaningful corrections.  However, all formed engulfing candle patterns inside Fib reversal zones on Friday.  All three are above 2.50 standard deviations away from the yearly VWAP.  In addition, the COT report on the Euro shows large traders holding record long positions, commercials holding record short positions, and the small traders holding record long positions.  All signs are pointing to a possible correction.

Check out the charts below.  Each will have two retracement zones.  The first zone will contain symmetrical pullbacks from the past 4 months.  If this area does not hold, then the correction will be its biggest since March.  A bigger correction becomes more likely.  The second zone is an area that offers support for the Euro and Swiss Franc with resistance for the US Dollar.  This zone is a big move away from current levels.  However, all would still keep the overall recent trend intact.  So there's a lot of room for these 3 markets to go and still not do major chart damage.

 

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Nasdaq Inside Support Zone

In my July 14th post, "Nasdaq Pullback Begins?", I mentioned some possible areas of downside support.  That day prices fell below the fib cluster 1 zone, but closed above it.  This was a bullish sign.  Five of the next seven days saw that zone continue to hold, again bullish.  Finally, on Friday, prices moved lower into the top of the fib cluster 2 zone before closing back inside the fib cluster 1 zone.  Also, the 34 EMA wave area has moved higher since my last post.  The fib cluster 2 zone now sits inside it.  This 10414 to 10159 area offers strong support.  If prices manage to break lower, then next up would be the 50 DMA  ~ 10043, followed by POC ~ 9950, and finally the monthly pivot @ 9937.25.  This is a big week for the markets with tech earnings, the FOMC meeting, and GDP.  Let's see if these support levels hold.

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Cocoa Nears Possible Resistance

Cocoa is approaching a possible resistance zone, which could provide a favorable short.  First, let's look at the bigger picture.  The weekly chart shows Cocoa has been in a down trend since February.  This sell-off is dominated by a shallow ABCD pattern with almost 3:1 right-handed skewing.  This represents a strong trend with strong momentum.  The 3 downside targets of this pattern are 2094 (met), 1981 (not met), and 1694 (not met).  It would be better if none of the targets were reached, but the bearishness of this pattern suggests we could see further downside targets hit.

Next up we take a look at the daily chart.  We want to focus on the move down from the June swing high.  This sell-off has two ABCD patterns.  The first is a double top and the second has medium retracement.  This suggests a weak trend, which is why we are seeing prices rally.  However, the daily chart is still bearish.

Now that we see bearish tones on both the weekly and daily charts, we want to look for sell side trades.  I'm not interested in fighting the trend.  My analysis has narrowed down the following zone as potential resistance: 2221 to 2280.

Let's take a look at what's inside this area:

-fib symmetry, retracement, and extension cluster of previous ABCD patterns

-3 separate point of control (POC) levels

-34 EMA wave on the daily chart

-seasonal tendency of Cocoa is to see a mid July to mid August sell-off.

Therefore, I would look for sell trades inside this zone.  Aggressive entries would be in the lower half of the zone.  Conservative entries would be in the upper half of the zone.  You should place stops above the top of the zone.  Targets would the recent 7/8/20 swing low of 2092, 1981, and 1694.

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