For the past months, Euro/Yen has seen buying between 121.00 – 124.50, shown by the multiple strong signals at this area, and the high volumes at the bottom. It’s a quite loose accumulation pattern, since the market made a lower low at mid April (point 2) than the first bottom at February/2016 (point 1), along with the very significant selling seen on the lower timeframes, on the last rally (point 3). There is also a down trendline nearby, and due to these reasons, I’d be more inclined to trade a break-out of it on a lower timeframe such as H4, where it’ll be easier to manage the trade for a faster exit.
In the 4-hours timeframe, in point 1 VSA marked the bar as Major Supply, and as Supply using multi-timeframe analysis (showing as a circle). In this lower timeframe the most recent buying can be more easily seen, starting in point 2, where the arrows are pointing. Those are either high volume bars (red painted bars), which after a strong fall and price congestion, show demand in a more ‘disguised’ way than the VSA signals, and 2 VSA Demand signals. In point 3 there is another Demand signal, which is also a churn.
It’ll be valuable to see if there is a break-out of the trendline for a long trade, and to be alert for supply signals in the zone of previous supply, painted as the red rectangle. At 24/May (Tuesday) German ZEW Economic Sentiment is being announced, which if positive, could provide a price boost towards 124.670.
After breaking the down trendline mentioned in our latest analysis post, AUDJPY started a healthy uptrend. On the 80.500-80.600 level high volume without any price progress was seen, and on a news event it went down on a wide range, in the 15 minutes timeframe. On a reaction to this down move, while the background was weak, a down reversal appeared (on sensitivity 4, which has the best Rating on this pair/timeframe), where the short was taken. A Minor Supply Signal confirmed the weakness on this reaction. The stop-loss was set above the previous high, and the take-profit near the up trendline, for a +29 pips move.
In the first hours of today’s London session, activity and volumes spiked up in gold. This activity, VSA showed, was major supply hitting the market, just below a high formed days before, on heavy supply, at $1258. In the last post we noted that below $1270, the “control point” of selling of the last weeks, we should be looking for shorts in lower timeframes, and this was the ‘golden’ opportunity.
In M15 there were multiple supply signals, and the background turned from strong to neutral.
In M5 the dynamic trend turned red shortly after, when the short was taken, with SL above the previous high and TP a bit above the down trendline, where buying is to be expected. Prices went down on wide range and reached the target, with the rally afterwards showing low volume. When prices attempted to break the trendline, VSA showed Minor Demand, and the price then went up on high volume. The no-demand test shown in M5 (pink bar) succeeded, as there was supply afterwards and its low was broken, which is a temporary stop of the uptrend. The background is strong in M5, and more demand, or a bullish test, just above the broken down trendline, would be a long.
These commodities have been among the biggest rises in prices in the past few months, and coupled with the bond market, give an interesting inter-market view on the global financial markets.
The latest rally has been in a great part, lead by gold/oil groups. Interestingly, bonds have been falling for the past month (interest rates rising) after a climax top, which means there is going to be a shift from interest-rates driven stocks to inflation-driven stocks. Tech stocks, the former stock market leaders, are now laggards, with NASDAQ lagging behind S&P and Dow Jones. Financial stocks, which also lead much of the bull market, have also been weak, despite the stimulus from the Fed and ECB. Getting on defensive/commodity stocks, or staying on the sidelines altogether, it’s probably the best course of action to take at the moment.
After showing persistent demand between the $1050-$1100, and breaking the long-term down trendline, it didn’t stop until major supply hit the market again. It’s good to note that there is an important resistance at $1306, and the supply here might come from the fact that there are major traders taking profits before it gets there.
On the H4, we can see the current action more clearly – a trading range, with a slight uptrend. $1270 has been a key resistance in the last weeks, with significant supply showing every time the prices approach it. Last Wednesday on FOMC’s announcement, the prices got near this price again, and VSA showed another supply signal (purple dot), along with an high volume (red) later, with prices reversing afterwards. The key levels are therefore this resistance, and the up trendline below. In M15 there is a down trendline at $1260 right now, and as the background there is weak, this will be a good timeframe to look for shorts while prices are kept below $1270.
Brent Crude Oil
Brent Crude Oil uptrend didn’t pick up so fast as gold’s in the beginning, but it has been steadier. Looking at H4, it has been showing supply and down reversals at fresh 3 month highs, and it’s getting to the ‘overbought’ part of the trending channel, so I’d prefer to wait for the prices to reverse to the trendline first. If there are low volume down bars or a bullish test in this area, it’d be another long opportunity, because that would show the supply before was overcame.
Like I wrote in last Monday’s post, it was likely for the uptrend to continue due to the major shakeout, in the first blue rectangle. After the rally on the Asian session, yesterday by the end of NY session, we have seen one good VSA setup which will often mark as Top Reversal, near a zone of previous supply.
The reason why we commonly should consider this as sign of weakness are:
1. Volumes were decreased on two up bars when this candle tried to break 1.1050 level.
2. On the second try, which is marked in the 2nd blue rectangle, confirmed this as Top Reversal. Combination of two bars give us insight that supply has swamped the demand. First bar is marked up with very high volume and closing on the highs. And the next bar rapidly reverses down on a wide spread and closing on the lows.
The market went down quickly after, which gave no opportunity for a confirmation, in the form of an upthrust or no-demand bars. But as there was an up trendline nearby, its break would be another confirmation (Trendline breakout), of course, if you happened to be watching the markets in the mid of Tokyo’s session! EURUSD kept on downtrending and only more weakness after a significant rally would give another opportunity for a short. Below the support at 1.09394 I expect more demand to show up, as the trades who bought at the shake-out earlier might still be interesting in buying more at those prices.
After a break-out of an important support at around 9300 on 8th February, DAX, along with the other European and American indices, made a significant retracement and rallied above the break-out price. The chart of M15 below shows the second rally, with prices reaching the previous high.
During this uptrend the background was strong, and any supply signals that appear need confirmation for a short to be taken. These can mean various things – some traders taking profits, short stop-losses being hit at important levels, or just selling that had no follow-through among other institutional traders. Counter-trend trades should be taken on a lower timeframe, using VSA signals from the above timeframes, so you’re more likely to spot an exit bar, such as a demand signal.
Over the next week, it’ll be interesting to watch if there is more supply at this level, with DAX breaking the up trendline on the intraday with good volume. On the more long-term side, to watch if prices falls below the break-out price.
- The first thing that we should do – this is to find out in which direction we will open a trade. In this chart we can draw an up-trendline (200+ bars) with more than 3 touches. This trendline is a support for prices and it will require effort and money from professionals to cross this support. We will be looking for long entry when the price is near the trendline and if there is no VSA signals (in this case weak signals) which would tell us that the trend is over.
- The background is strong. It means that imbalance between supply and demand is in favor of demand (more strong signals). It confirms that we should open a long trade.
- When we see strong signals near the trendline and there is no weak signals behind, we need to be careful and wait until dynamic trend turns from red to green.
- The price touched the up-trendline and moved up. Dynamic trend turned from red to green.
- Open a trade in entry bar (in this case in the down bar when the price didn’t move too far). Stop loss may be placed lower than support line (previous low) or in the place suggested by the Alert System indicator.
- Exit after weak signals.