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Cable, finally into longer term support.....

Fri, Sep 12 2008, 05:45 GMT
by David Solin

FXA

Cable has finally reached the long held, longer term support in the 1.7400/1.7500 area (both the base of the bullish channel and a 50% retracement from the June 2001 low at 1.3690, see weekly chart below). With the market oversold after the last 2 months of sharp declines, this is a “logical” area to form a bottom for at least a few weeks. Note however, that there are no signs that such a bottom is in place so far (see shorter term below). Also in the bigger picture, such a bounce would be seen as a correction (wave 4 in the fall from the March high at 2.0395), and with eventual new lows after (within wave 5, see “ideal” scenario in red on weekly chart below).

Shorter term as mentioned above, the market is within longer term support and is a “logical” area to form a potentially multi-week bottom. Note too that the $ is approaching longer term resistance versus a numbering of other currencies (1.3800/50 in eur/$, 50% retracement from the Nov 2005 low at 1.1645, 1.1475/25 in $/swiss, 50% from the Nov 2005 high at 1.3285, and .7850/00 in A$, 50% from the Apr 2001 low at .4780), adding weight the possibility of an important bottom forming in cable ahead.
However, there are little other signs of even a near term cable bottom (never mind a more significant bottom), so currently too risky/early to attempt buying for this potential countertrend bounce. Note too that the bottom (when it comes) is unlikely to be a sharp reversal higher as many missed the tumble since July are likely at higher levels waiting to short, and would “stunt” any rapid moves to the upside. Also, those who did manage to get short may have done so at significantly higher levels, and would not immediately feel the need to cover on a short term bounce (have lots of profits to play with). Overall, this bottom (when it does form) is likely to be an extended period of ranging/chopping as the downside momentum slows, and should give plenty of time to build longs. So for now, would be patient for a better risk/reward entry ahead. Key resistance is seen at the multi-month bearish trendline (currently at 1.7775).

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Published on  Fri, Sep 12 2008, 05:54 GMT