Created on: 4/17/2011 9:07:20 PM Last Update: 4/18/2011 8:01:07 PM Posted by: RTT
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Euro approaching another cycle top (405)
We have been following the EURUSD (FXE) cycles with great interest. You can see from the chart we are approaching a critical time for the EURO.
Main points are:
1) Strong resistance from $146 to $150
2) RTTTrendStatus is entering EXTREME readings. In the past this has signaled a reversal. (Pink Circles).
3) Hurst Cycle (66 periods) is timed to peak around early May (Green Arrow).
4) Recently the FXE has been rallying along the 1x2 Gann Angle, and a break may signal a reversal.
5) FXE has been trending along the 1x1 Gann Angle from May 2010 lows.
6) The wave structure from May 2010 lows is a large ABC.
7) The overall chart is generally poor for trending, more a swing traders play ground.
We did expect the FXE to roll over in Jan 2011, however the ECB president leaked to the market that an interest rate rise was imminent (ECB lifted rates by 0.25% on April 7th). This caused a cycle inversion (red arrow), a rewarding LONG trade was the result from 135 to 145+. Currently, we are approaching another 66 period Hurst Cycle top in May 2011.
At the moment we dont expect another FXE inversion, because:
- Simply, back to back price to cycle inversions are rare.
- Euro long traders have yet to bank very good profits.
- The argument for further ECB rate hikes should diminish due to debt issues from the PIGS nations.
- QE2 ending in the US should be bullish for the US Dollar ('risk off trade' back on).
- Inflation heating up in the US will attract rate hike talk by the Fed hawks.
- US Dollar short is very much a one sided trade.
- 'Sell stocks in May and run away'. May 2011 could repeat May 2010.
- FXE around 1.50 does not make the German exporters very happy.
- Cycle work posted on this blog confirms the markets are due for a roll over.
Picking tops and bottoms is a great way to make a fortune, or go bust! At the moment there is no sign that large traders are making bets for an FXE sell off. We would like to see the volume double in the UUP (US Dollar long ETF) just like it did prior previous US Dollar reversals. The forecast Hurst cycle top in May can be skewed with price for a few weeks, so we are watching..watching. Give us a sign Mr Market !
NOTE: FXE and UPP are inversely correlated.
UPDATE: Standard and Poors downgrades US debt, but Barry Ritholtz says 'Who cares', I guess we will find out via currency markets very soon. When trends are entering extreme readings on the RTTTrendstatus, reversals can be rather quick!
NOTE: readtheticker.com does allow users to load objects and text on charts, however some annotations are by a free third party image tool named Paint.net
.."TIME is the most important factor in determining market movements and by studying the past records of the averages or individual stocks you will be able to prove for yourself that history does repeat and that by knowing the past you can tell the future.
There is a definite relation between TIME and PRICE.
Now, by a study of the TIME PERIODS and TIME CYCLES you will learn why tops and bottoms are found at certain times and why Resistance Levels are so strong at certain times and bottoms and tops hold around them.
The most money is made when fast moves and extreme fluctuations occur at the end of major cycles." ..
William D Gann
...“To me, the 'tape' is the final arbiter of any investment decision. I have a cardinal rule: Never fight the tape!”...
...“People somehow think you must buy at the bottom and sell at the top to be successful in the market. That’s nonsense! The idea is to buy when the probability is greatest that the market is going to advance”...
Martin Zweig (The inspiration behind a number of Martin Zweig’s methods came, from Jesse Livermore).
My experience has been that in successful businesses and fund management companies, which performed well over the long-term, some courageous decisions were taken. Courageous fund managers reduce their positions when markets become frothy and accumulate equities when economic and social conditions are dire. They avoid the most popular sectors, which are therefore over-valued, and invest in neglected sectors because being neglected by investors they are by definition inexpensive. The point is that it is very hard and that it takes a lot of courage for a fund manager to avoid the most popular sectors and stocks and to invest in unloved assets. Finally, every investor understands the principle ‘buy low and sell high’, but when prices are low nobody wants to buy.
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