New Zealand Dollar Bearish Set-up

The New Zealand Dollar saw a 36.70% rally from it's March 2020 low into its February 2021 high.  However, this market has lost 6.9% since and is setting up for a potential downside breakout.  The daily continuation chart shows an ABCD pattern developing off its 5/26 high.  The retracement of this pattern is less than 50%, which is bearish.  A move below 0.6921 triggers the pattern.  If the pattern triggers tomorrow, then it will be 11:3 right-handed skewing.  Right-handed skewing signals strong momentum, while left-handed skewing signals weak momentum.  That's what makes this pattern so interesting; the combination of bearish retracement and potentially explosive momentum.  The pattern, once triggered, would be void above 0.7104.  The downside target would be 0.6708.

Momentum traders, who would take the breakout trade, would be risking 1850.00 per futures contract.  The reward would be 2120.00 per futures contract.  Pullback traders would look to get long somewhere inside the 0.6921 and 0.7104 area for a better reward-to-risk ratio.

Downside obstacles? The 120m chart shows a tiny abcd pattern on the leg down from the 7/6 high.  It has potential Fib support extensions at 0.6869, 0.6796, and 0.6723.  There's also a July monthly S1 pivot at 0.6840.  Finally, there's a July monthly S2 pivot just below the target at 0.6697.

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One last thing worth mentioning is the bigger picture of this market, which is bullish.  A pullback down to the bearish ABCD pattern's objective would only represent a 38.20 retracement of the 2020 to 2021 rally.  Also, if we look at volume profile over the same time we see a larger volume cluster between 0.6683 and 0.6521.  This could present a potential BUYING opportunity.

To sum up:

Look for a break below 0.6921 within the next few days for a bearish breakout with strong downside momentum.  Play either the breakout OR wait for a possible pullback for a better entry.  The downside target is 0.6708, which is just above a larger volume cluster of support.  A potential long trade could present itself at that time.

Stay tuned!

 

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Mexican Peso: Possible Bullish Breakout

There is a potential bullish ABCD pattern, which closely resembles a flag pattern, developing in the Mexican Peso. This pattern is bullish because of the retracement, which is less than 38.20%. Anything less than 50% is bullish, while anything less than 38.20% is very bullish. The trigger to this pattern is a break above .05025 before going below .04936. If prices can trigger this pattern on Tuesday, then we would have 4 bars down and 2 bars up. This would be 2:1 right-handed skewing. The skewing shows the momentum, which in this case would be strong. Weak momentum would be skewed to the left (i.e., less bars down to the swing low, and more bars to the breakout high). That is what makes this potential pattern so promising. It combines very bullish retracement with potentially strong upside momentum. The target of this ABCD pattern would be between 0.05169 and 0.05191. This pattern fails below 0.04936.

However, we do have some possible scale out levels before reaching the target zone. The first is between 0.05704 and 0.05100. This zone contains the swing highs from 12-9-20, 1-21-21, and 6-9-21. The next possible scale out would be 0.05123, which is July’s monthly R1 pivot. However, based on the 60-minute chart, I would not be surprised to see some even earlier resistance around 0.05039. This level could cause a small pullback and create a nice buying opportunity.

Stay tuned for more analysis on this potential breakout.

 

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ARKK ETF Approaching Sell Zone

This ETF peaked on February 16th and has since seen a steady move lower the past 3 months. This downwards move produced a bearish ABCD pattern with a smaller abcd pattern inside of it. This double dose of patterns is called a butterfly and typically extends out to its 127 and/or 161 fib extensions. The May 13th low dropped just in between the two and has rallied over 10% since. However, I believe this rally is setting up a potential short trade.

Why? The dominant ABCD pattern had a neutral retracement (less than 50%), which indicates a strong bearish trend. The skewing on this pattern was to the left (7 bars up to 38 bars down). This indicates a downwards move that lacked momentum. So it’s no surprise that we would get a move back inside the breakout level. However, I still believe the 100% projection target of the ABCD pattern is still in play. That would mean a move down to 77.35 before it rises above 130.80 is still possible. Therefore, I would still look to make bearish trades.

But where? That’s where we look to volume profile for answers. If we look at all the volume from the Feb 16th peak to the May 13th low, we will find a large volume cluster zone between 120.34 and 126.25. This clusters point of control (POC) is roughly 122.14. The POC is the price level with the heaviest volume. This resistance zone alone is enough to be bearish, but there’s more. There’s a tight cluster of 3 separate Fib retracements and/or projections inside this volume cluster between 121.09 and 123.61. Price action often finds resistance in these situations.

What’s the trade? Look to buy puts when price trades between 120.34 and 126.25. You could build a small position towards the bottom of this zone and increase the size towards the POC. Or you can just wait to see if price moves to the POC at 122.14 or the middle of this zone at 123.30 and build your position there. This set-up is no longer valid when price breaks above 130.80. Initial downside targets would be the recent low at 97.22 and the 100% Fib projection of the ABCD pattern at 77.35. Look for further posts for other targets that will be available if this pattern develops. Stay tuned!

Nasdaq Long Trade Nears Resistance

In my last post, I wrote about the Nasdaq futures contract approaching a strong volume profile support zone between 13,047.00 and 12,635.50. I also mentioned getting long at 12,933.50, 12,878.50, and 12,850.75. The 12,933.50 level was reached, and a long trade initiated. Now we move towards managing the trade. If we were able to enter with multiple contracts, then I would advise scaling out of some inside an approaching resistance zone between 13,272.00 and 13,380.75. This zone has May’s monthly S1 pivot, the 100 DMA, the 50 DMA, the 34 EMA (low), and a Fib symmetry/retracement cluster acting as possible resistance. In addition to these, we also have a change of polarity (old support becomes new resistance) at 13,287.25, 13,353.75, and 13,380.75. I expect prices to stall inside this zone. The key question will be can prices break through and rally higher OR will this be the area prices stall and retest the recent lows. If you have multiple contracts, then scale out here. If you only have one, then you have a choice to make. I would also consider moving stops to below the recent low at 12,915.00. More updates to come.

Nasdaq Futures Approaches Major Support Zone

The Nasdaq 100 futures formed a bearish double top pattern on May 4th and reached its downside target on May 8th. However, it is now trading close to a major volume profile support zone on its continuation chart. On the daily chart, this support zone is based off volume between the most recent swing low on March 5th, 2021 and its April 29th, 2021 top. The range is from 12,979.00 to 12,777.75 with the point of control (POC) around 12,850.75. The mid-point of this zone is 12,878.50.

Further supporting this area is the 261/261 Fib extension from the double top pattern and the bearish ABCD pattern at 12,892.75. However, what makes this zone even more impressive is what you see on the weekly chart. It also contains a large volume profile cluster based on the date range from the March 2020 bottom and now. This range is between 13,047.00 and 12,635.50 with the POC roughly 12,741.75. This alone would be enough to take a long position, but there is even more support. We have May’s monthly S2 pivot at 12,694.25 and the upper end of the 34 EMA wave based off the high and close between 12,933.50 and 12,682.75.

I have established there’s strong support between 13,047.00 and 12,635.50 but any long positions should have stops below 12,609.75. That is a big range, so how do we narrow our risk down? First, we can narrow down the zone we would like to go long. I personally like using the 34 EMA wave based on the high, the mid-point of the volume profile, and the POC. If we take those prices, we have 12,933.50, 12,878.50, and 12,850.75. I would look for long entries at those 3 areas. You could use full sized Nasdaq futures, the micro futures, or options on QQQ. All would offer various risk tolerances. The most aggressive target would be the recent top at 14,064.00, but I would advise scaling out along the way if possible.

In summary, the Nasdaq 100 futures contract is approaching a potential buying opportunity with a favorable reward to risk ratio. It will be interesting to watch if prices fall inside this support zone. Look for continued updates on this set-up.

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