This is the last week of February Trading in 2016, let’s see where potential new trends unfold, pause or need to be exited. As usual, we’re looking at the long-term picture to ensure not missing the big moves that will make the big money.
The USDOLLAR Index is our first market of focus. This one gives clear signals that the rise of the $ is coming to an end, at least temporary. The weekly chart shows such a huge divergence, accompanied by prices not at all showing any remaining steam to make new highs (moving upwards in a sideways manner). Just have a look at the time since June 2015: the $ is rising, but only barely, this timespan looks much more like a huge fight for bulls to go higher, however, while doing that the upwards price tendency doesn’t create any Momentum whatsoever. This leads to the current situation where the $ has created a new supportzone to the downside, indicated by the fractal sell signal. If this market becomes weaker, it may dive into correction mode by hitting that fractal. I am not necessarily expecting a new calm and ongoing trend here, I’d rather point out, that the long scenario seems to be over in the $ for now, and that a correction may be starting. Furthermore, the price action in this correction could move sideways in a huge range on the weekly, but it could also dive down deep, hitting the next support area (as indicated) quickly. The trader who wants to make a quick buck could therefore enter short here, however, risk should be managed well, since you are trading into a correction, and not a breakout or other signal for a smooth running trend.
The daily chart shows no opportunity for an entry yet. But a new fractal sell signal may be created on the way down, before the breakout fractal (which corresponds to the weekly fractal) will be hit. Once this has occurred the correction mode in the $ has definitely started.
I’ve talked about the Forex pair USD/CAD before, it was in an uptrend during the last couple of months. Even though this uptrend was running smoothly, we did see prices coming back into the balance zone on the weekly timeframe again and again. This is unfortunately, even though still profitable, because depending on your trading system you will get kicked out, profits are cut, and then you re-enter. If you could just stay long from initial entry, your positions have the chance to accumulate much more profit.
Please make sure to understand that as soon as this market makes new highs, you would buy again. A trend trader follows the market wherever it goes, if it still continues higher, then be long!
This scenario has just occurred again. On the weekly, price movements take time of course, so it is only now that it becomes clear that about four weeks ago, this uptrend had already finished and price is now moving lower into the balance zone. The second circled area on the attached weekly chart shows you that zone, also the place where trendfollowers like to exit their longs. Where exactly depends on your approach, but this exit zone offers profits as well as gets you out before bigger market declines occur.
On the daily we can see this retracement into the weekly balance zone in more detail. It becomes obvious that many fractal sell signals have been hit into the direction of that overall retracement. Not just that, just yesterday an important support area marked by three fractals at the same price level were taken out. This backs the trend-ending scenario of the weekly uptrend with prices now moving further down. They will be looking for the next important support area before stopping their downmove, if they don’t move even further.
However, this is, just like in the USDOLLAR, a correction, not a new trending environment. The weekly chart first has to come down from its highs trading into the balance zone (as it is doing now), then correcting that decline but NOT making a new high. Only when that has occurred will there be the possibility for a new downtrend, in the case of taking out that new low created by the aforementioned decline. This is not the case in the USD/CAD just yet. So let’s be careful shorting here for now.
It was quite a crazy week in the indices, last but not least. Bulls and bears were unable to decide where to go, Monday and Tuesday were up, Wednesday down, just so price could reach the highs of the beginning of the week again on early Friday. Towards the weekly close prices had retraced from that weekly high, but
are showing still a pretty bullish candle on that timeframe.
Even though last week and this week were dominated by the bulls, prices are still below the balance lines. They are coming closer now, threatening to trade upwards into this balance zone again, which is a bad sign for shorts. However,
the daily chart of the Nasdaq shows a pin bar, which is nothing to act upon, but a desicive bar right before the resistance area marked by fractals. Prices weren’t able to capture this area this week, instead they are bouncing off to the downside from the level of 4300. This chart also makes the case for the current market phase being a correction, eventually sending prices downwards. See the chart. We’ll have to just wait how it unfolds.
Therefore, it is still not decided if the disastrous January of this year started a bearmarket, or if the correction is finished and we’re on our way upwards, eventually reaching new highs on the weekly and monthly timeframe, already.
That’s why it is of utmost importance to have a plan and to follow that plan when trading. There is no use in discretionary desicions, no real risk management and a gambling attitude. That’ll be very costly in these market conditions. Nobody knows what next week will bring about, follow the market flow, and that is it.