For those of you who enjoy their reading, John Mauldin's latest on the unfolding EUR crisis is a must: http://www.johnmauldin.com/images/uploads/pdf/mwo052011.pdf. I hope to do a summary of this piece today and offer my own thoughts. Some of this is grim reading indeed and the contrarian in me wants to view this as a timely reminder that a low may be forming. However, no doubt there are many very real and valid points in this argument that will come home to roost. At some point, the markets will say enough is enough. We just don't know when that point is.
One of the main reasons I have always used charts as my primary trading tool, is that they offer a complete summary of price action and what the market is actually doing. The breakup of Europe (or the ejection of certain member states) may be a very solid fundamental argument indeed but you can't time the markets using this. You have to wait for the market to confirm your scenario. I have been calling for a potential bullish turning point based on some strong areas of support holding and some initial price confirmation, but we are now very close to this being invalidated. The next 2 days will be key. It is one of those horrible binary moments as a analyst and trader where all I can say is if it holds we are going higher, if it breaks get short.
I showed the pitchfork in my FX summary last week. The low end of this channel must hold otherwise we could be looking at a steep decline indeed. Note that we have seen a bearish break of a small flag pattern on the Daily. This action looks eerily similar to November 2010 where the EUR fell from 1.43 to 1.30 in a sharp ABC move down where A=C on the low. If the market breaks here, we are looking at a possible move down to 1.35 based on the same pattern and relationships.
No real follow through from my ending bullish pattern. A clear range has been established now from 1.40/1.405 to 1.43. Trade the range and if the low end breaks, get short targeting 1.35.
The triangle pattern that I postulated is still playing out. Need to see the 1.055 level hold and a break of the downward trendline.
The SPI is set to open at around 4700, a 40pt drop from Friday's close. There is a big area of support from 4690 to 4705 based on an open gap, fib relationships, and the psych 4700 level. I am buying support first, shorting below. Keep it simple.
XJO Cash 60mins:
Breakout of the Ending wedge pattern is still in play. However, the market must hold in the next 2 sessions to keep this valid.
Copper June Daily:
Copper has always been a strong benchmark for risk appetite. We have an A=C retracement pattern in play and a failed breakdown through 4.0. A solid close back above 4.10 would be a strong long signal. However, I am certainly weary of a potential bearish flag here thus we need to see follow through promptly.
In sum, in bull markets you keep buying supports until they drop. Have we reached a point now where the market is telling us enough is enough? It is still early but the market needs to quickly recover and hold support for me to keep my conviction. I am sure the market is focusing on the EUR very intently indeed, so keep those levels on your radar.