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| by Clive Corcoran |
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| July 29, 2010 |
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Yesterday I talked in terms of a volumeless rally in US equities and today I would like to flip that over and talk about a volumeless correction.
The indications in the early part of the session, following weak economic data, were that the bears were seizing the initiative to push the S&P 500 back down for a test of the 1095 area. However there was no dynamism to the move and no volume to the selling. The S&P 500 bounced off the base of the cloud and still seems to be set to gyrate its way through the cloud towards an eventual testing of 1130.
The daily chart for the Nasdaq Composite seen below shows a slightly different perspective using Ichimoku formations as guidelines. Yesterday's close also tested the bottom of the cloud and survived the test (just), but as can be seen on the chart the level indicated by the arrow 2220 may be a more critical test for this index. As with the S&P 500 the very flat top of the cloud at 2337 suggests that this will also pose quite a hurdle if the bulls keep control of the agenda.
My favored speculative scenario or exercise in dreamscaping (by the way, in my estimation, Inception is a very good movie) for price developments going forward is for a gentle upward bias for equities and risk assets through August but with gathering clouds for risk aversion (see below for the FX perspective on this) as we move into September.
The daily chart below for CHF/JPY indicates that this pair is poised at quite a critical juncture. The fact that recent closes have dropped below the ascending trend-line and that yesterday's close has pierced the top of the cloud should be monitored closely in coming sessions.
As suggested this cross rate is a good indicator of two things:
1. Likelihood of a safe haven play to the yen, especially since the Swiss franc is also considered a safe harbor during troubled times
2. An early warning that EUR/JPY may also be susceptible to downside (as is the case now) or upside as has been the case previously.
I shall discuss this chart later today on CNBC's European Closing Bell .
Also up for discussion on the TV slot will be the chart of CHFUSD which shows the relationship from a Swiss franc basis with the US Dollar.
Again the advice would be to watch this closely as a failure to break above the recent highs at 96 would lend some weight to the view that we could be entering in the coming weeks(i.e. possibly late August/early September) a period when the Swiss franc would lose ground to both the Japanese yen and the US dollar. This scenario would almost certainly be an accompaniment to a period of risk aversion.
The 15 minute chart below for Sterling/Yen or GBP/JPY shows a profitable setup for the short trade on the pair which eluded me on Tuesday, as discussed in yesterday's column, but which turned out to be a very profitable trade for me yesterday, in a relatively brief time frame.
The parallel upward sloping lines and the clear downward trendline through the highs provided the clue to the imminence of the breakdown. The point marked by the arrow represents the decision point and the long red candlestick provided me with the entry signal on the short side. The sell off was abrupt with a quick gain more than sixty points.
For those interested I did provide an early warning of this potential set up via my Twitter account which is @morph366 and which ideally can be monitored using a desktop tool such as TweetDeck.
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TRADE OPPORTUNITIES/SETUPS FOR THURSDAY JULY 29, 2010
The patterns identified below should be considered as indicative of eventual price direction in forthcoming trading sessions.
None of these setups should be seen as specifically opportune for the current trading session.
For full details on time horizons, risk management and hedging techniques please visit http://www.tradewithform.com
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| ABOUT CLIVE CORCORAN | | |
Clive Corcoran, publisher of http://www.tradewithform.com, is based in London and has been an active trader for many years on both sides of the Atlantic. He is a trading software developer and consultant and focuses on risk reduction and market neutral strategies for portfolio managers. His book Long/Short Market Dynamics: Trading Strategies for Today's Markets was published by Wiley in early 2007 and his articles have appeared in Traders' Magazine and Active Trader. He is an acknowledged communicator on the capital markets and has been a featured speaker at trading expos and workshops.
He can be contacted at clive.corcoran@tradewithform.com |
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DISCLAIMER:
The purpose of this column is to offer you the chance to review the trading methodology, risk reduction strategies and portfolio construction techniques described at http://www.tradewithform.com There is no guarantee that the trading strategies advocated will be profitable. Moreover, there is a risk that following these strategies will lead to loss of capital. Past results are no guarante of future results. Trading stocks and CFD's can yield large rewards, but also has large potential risks. Trading with leverage can be especially risky. You should be fully aware of the risks of trading in the capital markets. You are strongly advised not to trade with capital you cannot afford to lose. This column is neither a solicitation nor an offer to buy or sell securities.
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