Cable has corrected lower from the Aug 5th high at 1.7040 and remains overbought after the sharp gains from the Jan low at 1.3505. Though this suggests that bigger picture risk is high for at least another few months of correcting lower (see longer term below), there are no signs “pattern-wise” that a top of that magnitude is in place. This in turn argues further wide ranging, and even new highs (though may be limited) before the final top is seen. Note too that the market remains contained by the bullish channel since early June, while the fall from the 1.7040 has occurred in 3 waves (a-b-c, see numbering on daily chart below), both adding weight to the view of at least some near term upside.
Long from the Aug 12th buy at 1.6525 for gains back to the 1.7040 and even above.
Continue to use a wide stop on a close below the base of the channel (currently at 1.6220/35) as there is some risk for more basing over the very near term, but will want to trail stops more aggressively with the market on gains, and especially a retest (and break) of the 1.7040, as further upside may be limited. Nearby resistance is seen at 1.6650/65.
Longer term, with no firm signs that this multi-month period of topping is complete (see above), would maintain the longer term bullish bias that has been in place since March 27th at 1.4300. However, further new highs are likely to be limited, while the market is also nearing the long held, longer tem resistance area at 1.7315/40 (50% retracement from the Nov 2007 high at 2.1160, see “ideal” scenario on weekly chart/2nd chart below).
So would be looking for further signs of a more important topping on gains above the Aug 5th high at 1.7040, to switch the bias from the long side.
