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$ index, topping....

Fri, May 16 2008, 07:45 GMT
by David Solin

FXA

$ index is chopping from last week’s high/test of the ceiling of the nearly 2 month bullish channel (then at 73.90) and is seen in the process of forming an important top, with eventual declines back to the March 17th low at 70.70 and even below after. Note that trade from that 70.70 low is seen as wave 4 in the fall from the Jan high at 77.35 (see numbering on daily chart below). However, there are still no firm signs “pattern-wise” that an important top is indeed in place (5 wave fall on shorter term chart for example), and leaves open scope for more topping back to the 73.90 high and even slightly above first. Short from the last week’s close below the bullish trendline from late April (closed at 73.05) but given the risk for more topping and even further slight new highs, would use a wide stop on a close above the bullish channel since March (currently at 74.00/10). Nearby support is seen at the 2 week bullish trendline (currently at 72.90) and the base of the large channel (currently at 71.50).

Longer term, the long held bearish bias remains in place as the market continues to chop lower within wave V in the fall from the June 2007 high at 83.25. Though seen as the final downleg in the fall from the June 2007 high at 83.25, wave V (which began at the Dec high at 77.85) is not yet “complete” and argues further new lows ahead (see “ideal” scenario in red on weekly chart/2nd below). Also, interesting to note how quickly sentiment has shifted to a more positive tone on the $. However, generally at important turning points, participants don’t believe that an important reversal has taken place (tend to fight it), and adds weight to the view that an important, longer term bottom has not yet been seen. For now for the long term, would maintain the long held bearish bias.

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Published on  Fri, May 16 2008, 07:55 GMT