In this trade there were 2 major mistakes:
1. There were demand signals before at this price level, so any short should be avoided, unless the price had made a very significant rally.
2. There was no weak signal before the trend change. This is necessary to guarantee there is some smart money support for the down move
1. Background was weak
2. Wait for an up bar near the broken support. Entering on the break-out bar, about 2 hours before, is also valid, as long as it has a volume above average.
3. Set the take-profit on the red-line of the StopLoss indicator for the S/R Breakout setup. If there were strong signals (Major Demand/Demand signals) before they would be the exit point instead.
After the Greek voted ‘No’ on accepting the Troika’s bailout proposal, Euro gapped down at the opening, in seeming weakness. But lower prices meant it’s now a currency more attractive for buying, which is what institutional traders did – we can see 2 major demand bars, still in the Asian session, and afterwards test bars (Oanda’s feed). EURUSD also failed to break the previous support at 1.095. I’d like to see either a trendline break or the prices testing the demand zone, to get in long at a better price and to ensure the trend is really about to change. The daily trend is still clearly down, and this move is happening after major supply at 1.134 in the beginning of June, which could dominate over these smaller trends if there’s not enough strength for a pullback to happen.
The referendum on whether the Greece government should accept Troika’s bailout presented at 25th June, will be held this Sunday. The polls show that the ‘Yes’ and ‘No’ are tied, and so speculation about the result will last until the very end. This undecision is of course being reflected on the markets.
In the Euro pairs, we can see there was significant supply at 2nd July (today was US Independence day, which means most of the positioning for the referendum was actually made on Thursday), marked by the red dot and very high (red) volume. Similar signs can be seen in other Euro pairs, such as EUR/CHF and EUR/GBP. This was to be expected, as investors are disposing of their Euros to reduce their exposure to the expected volatility.
In stocks, there was buying in the last few days, and no selling pressure when prices were coming down. These are most probably traders closing/reducing their short positions from the beginning of the correction (CAC40).
In normal conditions, institutional traders more or less know how to value on what they’re investing in, otherwise they’d be bankrupt given time, and their trading based on that analysis can then be seen on the volumes and prices action. But in this case, since nobody has a way of knowing the results of the referendum beforehand, the safe approach for an investor to take is to reduce or close completely any open position on Euro pairs or stocks. I believe that the results on the markets of the Greek’s people choice is skewed to the downside though, since if ‘No’ wins it means the negotiations will continue and Greece is closer to exiting the Euro, and it’s extremely bearish for the Euro and stocks. If ‘Yes’ wins, Greece will go through the path it’s been on for the last years, and so it carries a more predictable effect on the markets.
As prices rose above the long-term trendline (drawn in the daily), supply signals quickly made the prices reverse and come below it again, continuing the downtrend. After the recent gap, there was some buying, seen by the green signal, but as prices reached the trendline, they again reversed on a supply signal. Currently prices are near the previous demand area, which is the key area to be hold or broken; a rally to the trendline and more weakness would mean further down movement, and in that case this demand area would become somewhat meaningless, as the supply in higher prices more than compensated for the demand that there was at this area.
GBP/AUD was near a support after the low at 18th June (red line below prices). Everything fit into place in this trade for the Support/Resistance trading setup.
1. Background was neutral
2. Demand signals near the support, which is the smart money buying into a previous area of demand
3. Went long in a test-like bar (part of long type bars), shown by the volumes indicator
4. Exit in a weak signal. Holding through the weekend and exiting on the trailing stop was also OK
In Euro/US Dollar we’ve seen massive buying recently, which subsequently made the downtrend reverse. This can be seen by the very high volumes and green signals, highlighted in the drawn box. Tecnically, the prices are just below a down trendline, and an interesting bar was seen in the weekly timeframe, signaled by the arrow and an orange histogram – this was an upthrust, a bar that closed on the lows of the week, yet making a high significantly far away from it. The high is at 1.138 and the close at 1.110, and it’s accompanied by a very high volume. If the prices traveled such a distance on such a volume, this means that was actually selling coming into the market that week. The question is whether this is just a temporary weakness, and we can look at the daily for more clues…
In the daily timeframe, there were many strong signals since March’s bottom, and prices are making higher lows ever since, which means until now the market has been sustained, but reaching at the trendline, the volumes are quite low. Two possible scenarios are: the trendline being broken with moderate/high volumes, which would be a good demand confirmation for a long OR the market makes a lower high or lower low, which would break the uptrend going on in the daily and would mean the weakness seen in the weekly timeframe is ‘spilling over’ and preventing further advances.
Gold (XAU/USD) and Silver (XAG/USD) are naturally, two very correlated commodities, and the recent action is no exception.
Gold is near a support and a previous broken trendline. There was recent strength (blue signal) with moderate volumes, in an area of previous strength, which could be the first signal the support is holding, but so far the market doesn’t show signs of stabilizing – it keeps making new lows, and the background is still weak.
Silver is too near a support, and in the mid of a down trending channel. Given the price range silver showed today, and the fact it broke a previous support at 15.8, it was expected that the recent strength has higher volumes than in gold, since more traders and stop-losses were ‘shook-out’. Like gold, it’s making lower lows, and the background is still weak mostly due to the downtrend. I would like to see a rally to finally break the downtrend and confirm the recent strength was in fact accumulation; if the downtrend is to continue, it’s probably going to test the demand at 1162 in gold, which occured in early June. In the case the market rallies and it gives an opportunity to enter, I’d be more inclined to invest in silver rather than in gold, or at least to have a larger position in silver, as XAU/XAG (Gold/Silver ratio, tradable in some brokers) is showing major selling, which it’s preventing it to break a key resistance.
The low-volume rally I referred in my last post was indeed weakness, and the prices quickly rejected the trendline. Since there wasn’t a bullish test or strength above the trendline, there was no confirmation; the strong signal was formed below the trendline, which means it could be buying from traders buying at the broken trendline (in analogy with the commonly seen demand signals near an important support). The prices continued to drift downwards, and the market is now rallying, yet again on low volumes. I only kept the older trendline for reference, as there’s another one validated with the last high, which is the one that should be used.
Eventual shorts should be taken nearer to the trendline, though with the recent strong signals at this price level, I want to see weak signals with significant volumes first to prepare for a short trade. On the other hand, a break of the trendline with good volume would be bullish, given the strength behind; the background should also change accordingly.
Euro/Pound has seen massive buying around 714 price level, seen by the green signals and very high (red) volumes that accompanied them. The trendline is coming from 10th June, and has been recently broken. The prices also went below the 61.8% Fibo, levels used by retail traders that are usually shook-out for stop-losses on long positions by the smart money. The volumes on the up bars, however, are low (yellow in histogram), which doesn’t seem to be strength after such an heavy professional support that there was before. Perhaps the smart money isn’t interested in higher prices right now, and they either need to buy more to support an uptrend, or they need to see there isn’t significant supply (by a bullish test at a lower price), or it’s just a temporary weakness. I’m therefore looking for the prices to go lower and test the supply there, or waiting for more strong (demand) signals. If they go up on high volumes (above average) that would also be a confirmation that the trend is changing.