FTSE 100 Index Forecast August 22, 2012, Technical Analysis

The FTSE 100 Index had a bearish session on Monday as traders took profits in the vicinity of 5850. Looking at the charts, we are running into serious resistance above and it should be said that overall the market sold off in general for the session. This was especially true in America where we saw a late day selloff in the S&P 500 as well as the Dow Jones Industrial Average.

Because of this it looks like the markets are about to pullback in general, and this one shouldn’t be any different. Looking at this chart, we see support down at the 5700 level and are waiting to perhaps retest that before going long. A supportive candle down at that level would have us buying London stocks. Of course, if we get above the 6000 range as well, we would have to buy.

FTSE 100 Index Forecast August 22, 2012, Technical Analysis
FTSE 100 Index Forecast August 22, 2012, Technical Analysis

Dow Jones Industrial Average Forecast August 22, 2012, Technical Analysis

The Dow Jones 30 initially pushed higher during the trading session on Tuesday as the market got bullish once again. Once we broke above the 13,300 level, the markets seem to have run out of steam as we reach the new highs. Because of this, we saw a massive pullback in the later hours of New York trading; and saw the market close down near the 13,200 level. This looks very weak and it should be said that although there is quite a bit of support below, this move was pretty swift.

We still believe that the 13,000 level as very supportive, and are more than willing to buy a supportive candle near that level. Until we get that or a break above the highs from the Tuesday session, we are fairly cool when it comes to the Dow Jones. A pullback seems to be needed, and as such we would welcome it and watch it from the sidelines.

Dow Jones Industrial Average Forecast August 22, 2012, Technical Analysis
Dow Jones Industrial Average Forecast August 22, 2012, Technical Analysis

EUR/USD Forecast August 22, 2012, Technical Analysis

The EUR/USD pair had a very bullish session on Tuesday as more signs of hope entered the marketplace. However, hope typically gets squashed by someone in Europe, and we feel it is only a matter of time before that happens again. The 1.25 level is just above, and did keep prices lower. There is also a ton of resistance all the way up to 1.27, and as such we don’t really like buying the Euro at this point.

In fact, we see this pair is been at the top of the rising wedge roughly, and we could see a selloff from this point. With the Federal Reserve releasing the minutes from the last meeting, a lot of traders will be trying to figure out what the next move by the Americans central bank is going to be. If there is no sign of quantitative easing in that release, there is a good chance this pair sells off. As such, we are selling the first signs of weakness now.

EUR/USD Forecast August 22, 2012, Technical Analysis
EUR/USD Forecast August 22, 2012, Technical Analysis

USD/JPY Forecast August 22, 2012, Technical Analysis

The USD/JPY pair initially had a bullish session on Tuesday, but gave up quite a bit of the gains as the market churned within the 79-80 resistance zone. The area looks ripe for a pullback, and this was of course something that we suggested could happen. Looking at the candlestick for Tuesday, it is a shooting star and does suggest lower prices. We do however see support at roughly the 78.75 level, and would be interested in buying any supportive candles either at that level, or below going down to the 78 handle.

This market tends to mirror the ten-year US Treasury note, and as such today should be a fairly big day for this currency pair. If the Federal Reserve minutes released suggests that quantitative easing is coming in the near term, this should force US rates lower as the Federal Reserve will almost undoubtedly expand its bond buying purchase program if it chooses to ease. The differential between the United States bonds and the Japanese Government Bonds on the ten-year note should narrow at that point, and push this pair down.

However, if the Federal Reserve makes absolutely no comment or suggestion that quantitative easing is coming soon we could see the ten-year notes rising yield, and this would push this market higher. This of course remains to be seen, but it should be something in the back of your mind if you’re going to trade this market.

Either way, the 80 handle looks to be massively resistive and the major hurdle that this market needs to get above in order to go long for any length of time. If this does happen, the 80.60 level is the next serious resistance area, and then of course followed by the 84 handle as there is a nice large “air pocket” between the two.

We do believe in buying this pair at this moment in time. However, we think a pullback is not only coming but welcome at this point. The Bank of Japan is working against the value the Yen, and if the Federal Reserve chooses not to give hints as to more quantitative easing, there should be absolutely no reason this pair doesn’t gain in value.

USD/JPY Forecast August 22, 2012, Technical Analysis
USD/JPY Forecast August 22, 2012, Technical Analysis

GBP/USD Forecast August 22, 2012, Technical Analysis

The GBP/USD pair had an extraordinary day on Tuesday as it finally broke above the recent resistance level. However, the market is resistive all the way to the 1.58 handle, and we did not manage to close above that level. This move during the Tuesday session does suggest that we are getting ready to do so, but in till we get a clearance above this minor cluster overhead; it is difficult to go long at this point.

We certainly wouldn’t sell this market however, and as long as the Federal Reserve minutes come out later today and suggest some type of easing is possible, this pair more than likely will clear this hurdle during the session. If it does not, we see the 1.57 level as support now. On a daily close above this 1.58 handle we are more than willing to go long.

GBP/USD Forecast August 22, 2012, Technical Analysis
GBP/USD Forecast August 22, 2012, Technical Analysis

EUR/GBP Forecast August 22, 2012, Technical Analysis

The EUR/GBP pair had a very bullish session on Tuesday, as it broke through the 0.7850 resistance level. We have now made a higher low, and this does suggest that perhaps momentum is building to the upside. However, it should be noted that we are currently pressing up against a downtrend line, and if this holds we are still going to be bearish.

On a break above the 0.7925 level though, we would have to assume that a bounce to 0.80 was about to happen and buy this market. In the meantime, there are going to be better markets to trade them this one, and as such we aren’t overly enthused in either direction.

EUR/GBP Forecast August 22, 2012, Technical Analysis
EUR/GBP Forecast August 22, 2012, Technical Analysis

EUR/JPY Forecast August 22, 2012, Technical Analysis

The EUR/JPY had a very positive session on Tuesday as the Euro was bid up against many other currencies. There seems to be a consensus that some kind of rescue plan is coming back into play in the European Union, and as such we saw the Euro gain. This is an old story, and one that we have seen several times before. It always ends of the same: In bitter disappointment for the buyers of the Euro.

It should be noted that the pair gave up some of its gains towards the end of the session right at the 99 handle. This is the beginning of serious resistance all the way to 101, and as such we are more than willing to sell this pair on a week candle. We also see this as being at the top of a recent bullish channel. The mix of the two forms of resistance should eventually bring prices back down. We are not buying this market, and in fact are looking for an excuse to short it, perhaps even on shorter time frames.

EUR/JPY Forecast August 22, 2012, Technical Analysis
EUR/JPY Forecast August 22, 2012, Technical Analysis

AUD/USD Forecast August 22, 2012, Technical Analysis

The AUD/USD pair had a bullish session during the Tuesday trading hours, but did manage to fail at the 1.05 level again. This is odd as it was an area that caused massive resistance almost 3 weeks ago. This certainly looks like a market that is trying to find the bottom of the up trending channel, and suddenly looks a bit on the vulnerable side. As its cousin the Kiwi dollar acted the same way, we are a bit confused, and certainly more than a bit cautious.

Because of the actions, we are choosing to stay out of this marketplace at this moment in time. The fact that the Australian dollar, New Zealand dollar, and Canadian dollar all sold off while the Euro seem to gain was a bit of a divergence from normal activity. This being said, something doesn’t look quite right and when that happens – it is best to leave it alone.

AUD/USD Forecast August 22, 2012, Technical Analysis
AUD/USD Forecast August 22, 2012, Technical Analysis

USD/CAD Forecast August 22, 2012, Technical Analysis

The USD/CAD pair fell below the recent lows on Tuesday, but bounced in order to form a hammer just below the 0.99 level. This pair does look like it’s ready for a bounce of sorts, and we think that a run back to parity is very possible. On a break of the highs from the Tuesday hammer we are willing to start going long for a short-term trade against the Canadian dollar.

Obviously, the oil markets will have to be watched but they seem to be a bit consolidative at the current position. Because of this, we think that perhaps a little bit of profit taking could be found in this market, and it could give us about 100 pips to the upside. On a break of the bottom of the hammer, we think the 0.97 is a given at that point.

USD/CAD Forecast August 22, 2012, Technical Analysis
USD/CAD Forecast August 22, 2012, Technical Analysis

NZD/USD Forecast August 22, 2012, Technical Analysis

The NZD/USD pair had a horrible day on Tuesday as it initially surge, only to turn around and form a shooting star. The shooting star is roughly at the same spot that we saw all four other ones formed 2 1/2 weeks ago. This looks rather suspicious, and the 0.81 level is suddenly being actively worked against.

Sometimes, in technical analysis it is very difficult to understand what is going on in the marketplace. This is one of those times, and as a result it is often better to simply stay out of the market. This pair looks very confused and possibly vulnerable at this point, and it doesn’t help that the Australian dollar acted almost completely identical during the Tuesday session. What made even more confusion was the fact that the Euro took off. Normally, all three of these will work in tandem, and we saw some type of divergence on Tuesday that is still trying to be figured out. As a result, we are flat of this market and staying out of it for the next couple of sessions.

NZD/USD Forecast August 22, 2012, Technical Analysis
NZD/USD Forecast August 22, 2012, Technical Analysis

Silver Forecast August 22, 2012, Technical Analysis

The silver markets had another bullish session on Tuesday, to continue the breakout for Monday. We still see the $30 level as a significant resistance area, but it should be said that we have finally broken out of the very tight range we had been in for over six weeks. Now that this is happened, we suspect that the $28 level will act as support.

We believe that silver prices will be much higher as we go into the fall and that there are two different distinct ways to play this market. The first way, which of course is a more aggressive one, is to simply buy silver now. However, if you’re going to do this you need to understand that there could be a lot of choppiness over the next dollar or two. Alternately, if you are a bit more conservative, you may want to wait until the $30 level is broken on a daily close. This would be the last vestiges of this consolidation area and should signal much higher prices.

As for selling silver, we are not keen to do so at this moment in time and would need to see a break down below the $25 level in order to feel comfortable doing so. Because of this, and the unlikely event that will happen, we really do not see selling silver in our future right now. Needless to say, there will be bumps along the road but we feel that this market should continue to thrive.

One of the biggest reasons it will continue to gain is that central banks around the world are engaging in monetary easing. This drives demand for hard currencies such as silver and gold, and we think that’s banks will be easing for the foreseeable future. This is the case; precious metals will do quite well.

We do think that gold will outperform silver however, won a nice balance of both in your portfolio should really begin to help you over the next couple months. Silver does have an industrial component to it, so as economic activity picks up; silver could get a boost there as well.

Silver Forecast August 22, 2012, Technical Analysis
Silver Forecast August 22, 2012, Technical Analysis

Crude Oil Prices August 22, 2012, Technical

Light sweet crude markets had a positive session again on Tuesday, and broke above the highs from the Monday session in order to trigger buy orders. However, by the end of the day we saw this entire market pullback and form a shooting star. This suggests to us that there is some downward pressure, but we think that the $95 level will continue to offer significant support. In other words, it looks like we’re setting out for consolidation.

This of course can change at a moment’s notice based upon headlines. There are reports coming out of Israel that the Israelis are getting ready to preemptively attack the Iranians because of their nuclear program. Whether this is true or not it doesn’t matter, it’s simply put fear into the marketplace which should drive prices higher overall. With this in mind, we are buying supportive action close to the $95 level. As for selling, we aren’t even considering it at this point.

Crude Oil Prices August 22, 2012, Technical
Crude Oil Prices August 22, 2012, Technical

Natural Gas Forecast August 22, 2012, Technical Analysis

Natural gas markets attempted to fall below the $2.70 level again on Tuesday, only to bounce and form a bit of a hammer. This suggests to us that perhaps we are getting ready to bounce again, and as such we are not ready to sell quite yet.

We still see the $3.00 level as an area where the sellers will step in, and as such we are more than willing to sell bearish action up close towards that price. Until we get that or a break down below the 2.70 level on the downside, we are not adding to our already short positions.

Natural Gas Forecast August 22, 2012, Technical Analysis
Natural Gas Forecast August 22, 2012, Technical Analysis

Gold Prices August 22, 2012, Technical

The gold markets had a bullish session on Tuesday, as the market attempted to break out and over the $1640 level. This is the area that we have been wanting for some time now, and would signal a break of the ascending triangle that this market has been forming since June. If this were to happen, we think this market would run all the way to the $1760 level and relative short order.

We are only buying gold at this point in time, and see the candle for the Tuesday session as our signal. On a break of the highs from the Tuesday session, we are more than willing to start buying gold again finally. We have been watching this for some time now, expected gold to rise overall once it was said and done, and now it looks like we’re finally getting that realization. As for selling gold, we would even consider it until we are well below the $1500 level.

Gold Prices August 22, 2012, Technical
Gold Prices August 22, 2012, Technical

EUR/USD Mid-Session Analysis for August 21, 2012

The EUR/USD broke out to the upside of a triangle chart pattern on the daily chart. The chart pattern suggests that the Euro could rally as high as 1.2723 versus the U.S. Dollar over the near-term.

According to the theory of technical analysis of chart patterns, the triangle chart pattern is considered a non-trending pattern. The gradual narrowing of the support and resistance lines typically leads to a sizable breakout on increased volatility because of the compression of the recent trading ranges.

Daily EUR/USD Chart
Daily EUR/USD Chart

At the mid-session, the Euro is showing the results of pent-up demand inside of the triangle based on the size of today’s move and the increased volatility. Besides breaking through the downtrending resistance line, the market has also taken out the recent tops at 1.2385 and 1.2443.

Based on the multi-month range of 1.2747 to 1.2042, a key retracement zone was formed at 1.2394 to 1.2478. Today’s strong combination of short-covering and fresh buying also helped the market regain the 50% price level at 1.2394, setting up the currency pair for a challenge of the 61.8% or Fibonacci price level at 1.2478.

Volatility could increase following a breakout through this upper level since the remaining short traders will be forced to cover.

Today’s strong rally is not a sudden event. This breakout took weeks to form following friendly comments from European Central Bank President Mario Draghi. On July 24, he pledged to do “whatever it takes” to preserve the Euro. For several weeks, the market formed a support base as investors reflected on the actual meaning of Draghi’s comments.

Some wanted to see immediate action by the ECB, but this met criticism. Finally, as European leaders gathered to prepare for another decision regardingGreecelater this week, word leaked that a plan was being worked to begin buying Spanish and Italian bonds. This news helped spike the Euro, setting the tone for today’s expanded range. 

US Dollar Index Forecast August 21, 2012, Technical Analysis

The US dollar had a back-and-forth session on Monday, as denoted buying the Dixie. This contract is currently sitting just above the 82.50 handle, and as such is sitting on top of an uptrend line. We have been trading in the channel for some time, essentially the entire summer, and we think that eventually we will break out of this channel. Of course, the real question is in one direction.

We think that there is quite a bit of support below, and wouldn’t really be interested in selling this market unless we got below the 81.50 level. You have to remember that the Euro is 40% of the contract, and as such it’s difficult to see this contract melting down. However, we never really know what’s going to happen so anything’s possible. On a break above 83, we are willing to go along. On a break below 81.50, we are more than willing to short this contract. Until then, we think there is a lot of noise in this chart and will be sitting on the sidelines.

US Dollar Index Forecast August 21, 2012, Technical Analysis
US Dollar Index Forecast August 21, 2012, Technical Analysis

S&P 500 Index Forecast August 21, 2012, Technical Analysis

The S&P500 Index had a fairly interesting session on Monday, as it initially fell only to turn around and bounce to form a hammer. The hammer of course is pressing the resistance level above which is also considered to be massive in its go. The 1425 level represents the highs from April, and this would in fact be a return trip from that fall if we were to clear it.

The index is currently sitting at the top of an up trending channel, so the fact that this market is continue to press higher really is impressive in that sense. If we manage to break higher, this would be smashing through two separate resistance levels and have us buying S&P 500 futures. This could also be a signal to start buying higher beta companies, perhaps even financials for once.

As for selling this market, we could make a play for that but it would have to be under the 1400 level. Even if that does come to pass, we think that will only reach the bottom of the channel unless something serious happens.

S&P 500 Index Forecast August 21, 2012, Technical Analysis
S&P 500 Index Forecast August 21, 2012, Technical Analysis

FTSE 100 Index Forecast August 21, 2012, Technical Analysis

The FTSE 100 Index had a positive session during the Monday trading day, to continue with the consolidation just above the 5800 level. The market looks like it’s trying to build momentum to breakout above the overhead resistance, which we see as being settled around the 5900 to the 6000 level.

Our suspicion is that the trading world is simply waiting for the volume to come back into the markets, as traders returned from holiday. Also of concern would be the reaction of the European Central Bank to current problems in the European Union. The ECB is expected to begin easing; one has to wonder however whether or not it is going to be enough to make the markets happy.

With this being said, this could be part of the reason why the market is struggling to get above the 6000 level. Once this happens though, we would be very bullish on London stocks in general, and would be buying everything that suggested higher beta returns. Why frankly, even though the Bank of England has suggested recently that monetary policy is about where it needs to be, we suspect that sooner or later the Bank of England will have to consider some type of monetary easing.

As central banks around the world continue to pump liquidity into the system, this will drive people out of fiat currencies and into stock markets. This includes the bond markets as well, as yields will drop due to quantitative easing by the world’s major central banks.

This is of course by design, but it should be pointed out that these monetary policy moves are starting to return less and less with each attempt. In other words, it is a situation where you have “diminishing returns” on each central bank policy action. However, there will certainly be a boost to stocks in the immediate term. If we get above the 6000 level, we suspect that would have something to do with the European Central Bank. It is possible however, that earnings could be coming into play as well as some of the larger British companies have in fact done fairly well recently.

As long as we can get above the 6000 level, we think that the London stocks will be a fairly positive market. As for selling, we would only sell the FTSE if we manage to break below the 5500 level as there is so much support in various places below.

FTSE 100 Index Forecast August 21, 2012, Technical Analysis
FTSE 100 Index Forecast August 21, 2012, Technical Analysis

Dow Jones Industrial Average Forecast August 21, 2012, Technical Analysis

The Dow Jones had a very similar day to the S&P 500, as it fell originally but found support later in the day to form a hammer. This hammer is pressing up against the massive resistance at the 13,300 or so level, and as such we think that a breakout is coming. Certainly, we can see that we are at the top of some type of resistance line, almost a up trending channel but think that the real mark that needs to be overcome is that 13,300 level.

We aren’t interested in selling Dow Jones futures or even the market on the whole currently. We do see the potential for a pullback, but see far too much support at the 13,000 level to think that it will have any significant legs.

Dow Jones Industrial Average Forecast August 21, 2012, Technical Analysis
Dow Jones Industrial Average Forecast August 21, 2012, Technical Analysis

EUR/USD Forecast August 21, 2012, Technical Analysis

The EUR/USD pair had a back-and-forth session during the Monday trading day, to in the session and basically unchanged. The candle is very neutral, and sitting on an uptrend line from the rising wedge that we’ve been talking about. This suggests to us that the 1.23 level is going to act as support, and as such we think the market will continue to rise.

We still see the 1.24 to 1.25 level as massively resistive, and as such we are still looking for candles that are bearish enough to sell. We simply do not have that right now, but we think it’s only a matter of time. Because of this, and all the problems in the European Union, we are flat of this market. For short-term traders, a move to the 1.24 level is very likely.

EUR/USD Forecast August 21, 2012, Technical Analysis
EUR/USD Forecast August 21, 2012, Technical Analysis