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Tuesday 4 May 2010

USD trending upwards but a confusion of patterns on equities

The USD is strengthening well according to plan and is more than halfway back to the top trendline of the wedge.A short term rising channel has formed and it looks as though it should intersect the upper wedge trendline in the 83.7 to 84 area:


Here's a closeup of the current DX rising channel which looks very tradeable:


EURUSD is declining nicely as you would expect from USD. I have a head and shoulder pattern on that with a target of 1.3060 and a tentative declining channel with a target of 1.3030:


Equities are a much tougher call right now as we have a confusion of potential patterns and channels, more than one of which may be valid. I'll show the main ones on ES.

First of all we have the declining channel on ES:


Within that declining channel we also have a symmetrical triangle. That is completely consistent with the declining channel and if it breaks to the upside it would indicate a new high back to resistance in the 1225 ES area, and if it breaks to the downside it would indicate to the bottom of the declining channel below 1170 ES:


Tim Knight pointed out yesterday that we may be looking at a diamond top, which can also be a strong continuation pattern and so once again could point either way:


I don't much like the diamond but it is worth mentioning. Lastly on the ES daily chart there is the possible broadening top and I have also added in the longer term rising wedge that may well be forming with the upper trendline being the very strong overhead resistance that has been touched six times since September:


That is rather too many viable potential patterns to lean very strongly one way or the other today, but I have a short bias at the moment based on the strongly rising USD, as equities generally trade flat to down when USD is in a wave up. As soon as that upper wedge trendline is reached within a few days, that bias reverses of course, so we'll see what the bears can achieve in the meantime.

Short term, a break with confidence of the upper declining channel / triangle trendline at 1203 on ES would signal likely new highs, and a break with confidence of the lower triangle trendline at 1186 would signal a likely hit of the lower declining channel trendline in the 1165 to 1170 ES area.

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