Segregation Analysis To Euro's Current Advance
Though Euro sentiment turned overwhelmingly bearish last week, traders are warned that the market is approaching identical price action similar to that of Feb-Jul 2011. (Grey ellipses on chart-5). This will not only constitute wild choppy swings in both directions, that are impossible to short, but if the principle of alternation is to go by, there will be an ultimate cycle breakout higher.
Its true that debt restructuring in Europe, and possibilities of "systematic debt decimation in periphery countries" will continue to take their toll on the Euro - long term. It is also true that Europe is far back in dealing with the debt bubble than the US, which is opting to solve the problem by continual monetizing of debt. But there are two residing factors that continue to cushion the Euro's fall:-
1- So long as QE/4 (the FED's monthly purchasing program) remains in force, the Dollar is systematically being weakened against the Euro on a monthly basis.
2- Monies from the purchasing program, ultimately feed into the Equity markets, propping up risk -on asset classes, which directly correlate with a rising Euro.
These two macro factors account for the Euro's resilience against the Dollar, when compared to the Sterling which has tumbled. Note the Euro, has shown steady fast resilience despite fears generated from Italian elections & a mounting potential for a rate cut by the ECB.
Fundamentally therefore, there are reasons for the current correction in the up cycle, this time round, to support above the up trending advance line (shown in red on chart-5), and ultimately take out the bullish translated neck line (shown in blue on chart-5).
As commented on the Chart, this bias remains strong so long as the positive hidden divergence with momentum holds, and daily momentum does not fall into over sold negative territory. The trader needs to keep this acutely in perspective, so he/she are not caught on the wrong side of the market, if taking short term shorts. And when taking longs, to observe that market does not close for sustained periods below the progressive 1-4 Red line shown.
Profitable Trading
Summerset
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Comment by Peter jcp on March 3, 2013 at 10:05pm -
Hi Summerset - Interesting theory and forecast with a few questions to raise -
1. If you are saying the upcoming price action will be similar to your grey are marked before - then why do you believe price will eventually go higher - when previous it fell ?
2. Before we did not have the hidden bullish divergence to take it higher so if similar price action - why should we have it now?
I can understand your macro reasons and at present whilst still above the 50% fib on the last up rally still favour another try up - but that could still easy end up as a LH at say 3500 below the current 3710 area.
I notice from your profile you favour longer term swing trades and so acknowledge you will have more experience than me behind your forecasting decision. Therefore out of interest what size stops are you planning to work on ?
Regards
Peter
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Comment by Sardar Uddin on March 3, 2013 at 11:10pm -
Seems like some derivative of Wave theory.
currently you chart shows that 1- 5 pattern of wave has been completed and there should be a corrective move and considering you analogs grey area it should be short.
Best
-Sardar
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Comment by Summerset on March 3, 2013 at 11:31pm -
Hello Peter.
1- I expect the price cycle will breakout higher because of:-
a- Alternation with the past price action. i.e:- last time the cycle topped out in a higher degree cycle & broke lower, so this time it will consolidate a higher degree bottom out & breakout higher.
b- The momentum spike you see on the daily, is forecasting a coming wave-3 in price. Note that momentum was very high for the wave-3 in price, and wave-5 was sustained on a lesser momentum cycle amplitude, causing positive hidden divergence. As this positive pent up momentum unfolds in lesser highs, it will cause higher highs to be made in price, until ultimate negative divergence effects between momentum & price. (at least that’s my view).
2- Before there was negative divergence between momentum & price. Meaning higher prices were achieved on the same momentum value.
3- Yes of course, there will be several spikes into the 3500, before fall back again into the 3200-3300 area, and then spikes into the 3680-3710 area before fall back into the 3300-3400 area – very choppy price action. But ultimate breakout > 3710 & into the 1.40 (I think).
4- I would wait for hourly momentum to turn positive, and consider this to mark the ultimate bottom of the correction, and long it. Then I would also mark the top made when hourly momentum turns negative, and consider this the zone to short again. Then I would mark these zones against the week pivots, and swing longs & small shorts using them. I would favor holding on to my longs. This week’s low pivots are <2813-2891>, and the high pivots are <3227-3339>. This month’s low pivot to concentrate an intermediate term position long at is <2780>.
Sincere Regards
Summerset
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