GBP/USD set up for next big move



GBP/USD June 2012

It's been a long drawn out process but Sterling looks to be close to breaking out of a large symmetrical triangle which has its origins back in January 2009. GBP just hung on to the lower boundary a couple of weeks ago, slightly breaching it during the week but recovering to close above the line.

Which way will it break? Best to just wait and see. I'm favouring the downside. The selling of the past couple of months was heavy and I don't think that momentum has ended yet. Another sell-off would most likely see the lower triangle boundary tested and breached.

The move either side of this triangle will be one worth being on. On the downside I'd expect the 1.3500 level to be revisited and I can make a case for 1.2200 should that support level fail. An upside break would imply a retest of 2008 resistance/former support levels in the 1998-2000 area.

Gold Descending Triangle Potential Bear Warning

Daily Spot Gold

Since topping above $1900 in early September 2011 Gold has eventually formed what looks like a very large descending triangle. Sometimes these patterns break on the upside but much more frequently the flat bottom and downward sloping upper trendline pattern eventually breaks to the downside.

Should Gold clearly break below $1520 the downside target is massive. The distance of the move is usually the width of the triangle. For Gold that would mean close to a $400 drop to around the $1120 to $1130 region. And that could happen quite quickly.

Fundamentally it's very hard to find many Gold bears out there which makes the potential for a large fall even more likely as the speculative market is long to the gunwales. I also very much favour a much more severe deflationary environment still to come before any reflation emerges.

Kiwi Triple Top Danger

The Kiwi (NZD/USD) has formed what could be a triple top. Three drives to make new highs have failed around the same level (8420-8470). The critical support level to watch is the 8240 to 8260 range. A daily close below that range would signal a possible large decline with no significant pull-back in the kiwi having occurred since December.

This pattern could also be viewed as a broadening formation - each top is slightly higher than the previous one. The base is slightly upward sloping from February but the downside implications are the same. A close above the upper line would negate the bearish scenario. The target on a downside break is at least 2cents but will often be much more.

Wheat bullish wedge break

Most of the talk around at the moment is bearish for wheat with good rains forecast. However the technicals look more bullish. The March chart above shows wheat breaking up out of a large falling wedge. Wedges typically return to their starting point which in this case would be up around the 900 to 950 level. A move back down within the wedge would negate my bullish view.

Copper triangle breaks on the upside

In my December 26th, 2011 blog I warned that Copper was forming a clear converging symmetrical triangle and to wait for which way the market broke. Well as can be seen above Copper (March 2011) made a clear break to the upside and never looked back. It has hit resistance at what was previous strong support at around 390. However, the measuring implications from the triangle implies 420 is still a possibility. Probably wise to consider recent support in the 372-377 area as a stop-loss point.

Aussie Dollar triangle breakout

The weekly Aussie dollar chart above has now had 2 triangle breaks. One  a few weeks ago around the 1.0500 level out of a large symmetrical triangle which started forming in July 2011, and another break upwards through an ascending or flat top triangle with the critical level being 1.0750. The measuring implications from even the smaller ascending triangle are huge with the potential for the Aussie to reach 1.21000 or about 13 cents higher. My only warning on this would that large triangles after markets have already moved a long way in the same direction can sometimes disappoint by not fulfilling all their measurement potential. However at this stage I'll go with the 1.21000 level.

Euro possible Head and Shoulders

The channel breakout in the Euro I pointed out in my previous euro update certainly proved to be important. Channel formations are not necessarily reversal patterns on their own  but a potential Head and Shoulders bottom could be forming as well now with the neckline now around 1.32000. Should the Euro close clearly above this line I'd expect a further advance to the 1.3800 level. Often breaks from h&s patterns retrace to the breakout point before continuing the move in the direction of the original break. So watch out for that.

Of course on the fundamental side the next major move seems to hinge on Greek debt talks although as a technical analyst I try to ignore the news and focus on the price action. The market still feels like the big traders are very very short to me and that's a recipe for massive short covering should this pattern above play out.

Euro bullish channel break

I always hesitate to say channel breaks are topping or bottoming formations. They very often signal at least a temporary end to the most recent trend. The significance of the break also seems to depend on how many times it's boundaries have been tested, the length of time within the channel, and the steepness of it. A very sharply sloping channel break will often mean another less sharp formation is being constructed.

However the upwards channel break in the EUR/USD with strong daily closes was not to be ignored. It is too early to tell if the larger major trend has finished but it is a warning short was not a place to be when this broke. Record numbers of futures net short Euro positions was also a bullish sign.

Copper triangle awaits breakout

We have some clear boundaries now in March 2012 copper futures. the converging pattern since October invites patience for a clear breakout. More likely a continuation of the previous downtrend but let the market show. A good strategy could be to use options either side of the boundaries.

Newscorp channel break unconvincing

In an earlier blog I suggested the downward sloping channel in Newscorp should be watched for reversals at channel boundaries or a break through the upper boundary for a change of trend. Well Newscorp has pierced the upper line on the weekly chart above. However the move is unconvincing. Note the lack of increase in volume on the breakout and the fall off in volume in general as Newscorp rallied from its June low. I'd like to see a significant pick-up in volume of shares traded on any new advance to be convinced this is the start of any major move.

Sugar Wedge forming

After its triple top break in September the Sugar continuous chart has been forming a neat downward sloping wedge. Volume has dropped off and trading boundaries have converged. Watch for a break out of the top line of this wedge. Until then the trend remains down with the horizontal support line in Nov/Dec indicating where a further down-leg would commence if broken.

S&P 500 marking time but still bearish

The S&P 500 is still in bear mode after its fall from a head and shoulders top in August. The rally back the the neckline was classic charting. The oscillations in narrowing ranges since then also fit within what is becoming a channel or flag. So there are some clearly defined levels to watch now. ON the downside the uptrend line from the 1073 low in early October.There is also the support line linking that August low with a slightly lower low  back in July 2010.

On he upside there are several important levels of interest. A signal another upleg is coming would start with a break above the down-sloping line linking the right shoulder in July with the recent test of the neckline. The next resistance level to overcome would be the right shoulder and head themselves.

The most likely scenario still seems to me to be we will test the 2009 lows.

Spot Gold bullish short term, bearish long-term

View my video of spot gold action since making its top. I expect a short-term bounce after Friday's outside range day and strong close but there is no sign that a major uptrend is about to emerge any time soon. I think it is more likely recent lows will be taken out with a retracement back to the 1000 level. But I'll wait for the break.

Dow bear market rallies

Everything points to us being in an equities bear market now. The October rally failed neatly at the head and shoulders neckline after which it formed a symmetrical triangle. The downside break from that confirmed the bear bias now gripping the market. The rally of he past couple of days is unconvincing although a test of the traingle breakout at around 11700 is a possibility. Only a rise above the recent traingle top would negate the bearish outlook.

Qantas reverses

Well qantas looked promising but I did say $1.80 might stop it. It barely made that level and has now failed by falling back inside the neckline of the head and shoulders bottomand also reaking a small uptrend line. Disappointing but not all technical patterns come to pass. There was some money in this one but I'd call it a failure really. Waiting for the next pattern to emerge now.

National Australia Bank in middle of channel

After hitting the top of the channel as shown above NAB has moved to the middle of the channel. The important levels are plain to see and the next trading opportunity will eventuate when either the lower boundary is reached or an upside breakout occurs.

Cotton futures make a break for it

I'm not really interested in what the news is or what the fundamentals are. All I know is that this chart is telling me if I was long I'd be very afraid. This continuous cotton futures chart shows a break down out of a head and shoulders continuation pattern with increasing spread and closing near its lows. The only saving grace could be the lack of volume but given this is a continuous chart that may just be a factor of he December contract petering out. I'd expect at least an 18.00 fall from here to around 77.00. If it can regain that lower boundary line shown on this chart and move above 105.00 I'd reconsider. But for now the path of least resistance is down.

S&P500 index coiled and ready

The S&P500 index is tightly coiled in a small triangle poised for the next major move. After stopping near the neckline of the August breakout activity has slowed as the bulls and bears battle for supremacy. My preference would be for a downside break from this triangle but lets let the market show us.

Apple (AAPL) Broadening Top?

Is Apple forming a broadening top? The horizontal lower boundary at 353-354 represents a crucial level for Apple. An island reversal signalled the third top in this pattern in October followed by a small triangle formed on dercreasing volume. The measuring formula from this type of patten should Apple break clearly below 353 is minimum around 280. Unwise to pre-empt this move. To me charting is all about breakouts. But people sometimes do on this pattern.

Euro FX - fails again

Since breaking down out of a channel in early September the Euro has now made two attempts to push back inside that channel - just after the breakout and near the end of October. Both rallies were rejected giving this channel line some importance. We also now have a sort of broadening wedge from the April top and the most logical next move would seem to be a test of the lower boundary line of that near 1.3000. That should now be support. A break of the upper line of this broadening pattern would be significant. So short -term and medium term down but watch for a breakout.