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Price & Time: A Reversal or Downside Acceleration Looming in Stocks?

By , Sr. Currency Strategist
21 June 2013 12:23 GMT

This publication attempts to further explore the concept that mass movements of human psychology, as represented by the financial markets, are subject to the mathematical laws of nature and through the use of various geometric, arithmetic, statistical and cyclical techniques a better understanding of markets and their corresponding movements can be achieved.

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Foreign Exchange Price & Time at a Glance:

EUR/USD:

PT_SPX_body_Picture_4.png, Price & Time: A Reversal or Downside Acceleration Looming in Stocks?

Charts Created using Marketscope – Prepared by Kristian Kerr

-EUR/USD failed just below the 1.3425 6th square root progression of the year-to-date low on Wednesday before coming under heavy downside pressure over the past couple of days

-Our bias is now lower in the Euro with special attention now on the 2nd square root progression of this week’s high in the 1.3185 area

-A close below this level will be further confirmation of a broader top and open the way for a more important decline in the weeks ahead

-Longer-term oriented cycle studies turn negative on the single currency next week

-The 1st square root progression of this week’s high near 1.3300 is immediate resistance, but only traction above 1.3415 undermines the burgeoning technical structure and turns us positive on the Euro

Strategy: Short positions favored in the Euro while below 1.3415

USD/CHF:

PT_SPX_body_Picture_3.png, Price & Time: A Reversal or Downside Acceleration Looming in Stocks?

Charts Created using Marketscope – Prepared by Kristian Kerr

-USD/CHF found support last week at the 7th square root progression of the year-to-date high in the .9145 area

-Strength from there has so far been unimpressive and a close above the 2nd square root progression of last week’s low at .9130 is required to shift our bias to positive

-The .9215 area is immediate support, but clear weakness below .9145 is required to signal the start of a broader downside resumption

-Longer-term cycle studies turn positive next week on the exchange rate, but a shorter-term interpretation suggests weakness over the next day or two

-A close above .9430 is needed to turn the technical outlook more positive

Strategy: Like being flat (if allowed) until the market shows more clarity by breaching .9430 or .9145.

NZD/USD:

PT_SPX_body_Picture_2.png, Price & Time: A Reversal or Downside Acceleration Looming in Stocks?

Charts Created using Marketscope – Prepared by Kristian Kerr

-NZD/USD came under aggressive downside pressure on Thursday and traded to its lowest level in over a year

-Our bias is lower in the Kiwi, but special attention needs to be paid to how the exchange rate reacts around the 61.8% retracement of the advance from the 1Q2011 low to this year’s high in the .7700 area

-Such long-term retracement levels have a greater propensity to spark changes in trend and a close below .7700 is required to alleviate our reversal fears and maintain the immediate downside tack in the rate

-Short-term oriented cycles favor some strength over the next day or two

-The .7940 area is now key resistance and only a close over this level turns us positive on the Bird

Strategy: Small short positions favored while below .7940. A close below .7700 is needed for us to get more excited about the short side in Kiwi.

Focus Chart of the Day: S&P 500

PT_SPX_body_Picture_1.png, Price & Time: A Reversal or Downside Acceleration Looming in Stocks?

As strange as it might seem following yesterday’s break of key support at 1595 the S&P 500 now looks like it could be nearing some sort of cyclical low. A key component of our cyclical methodology is to look for markets clearly trending into a turn window as they are supposed to be more vulnerable to a reversal during that time period. With the S&P 500 breaking 1595 it is now technically trending lower and is thus susceptible to turning higher over the next few days. We had been anticipating a top of some sort during this turn window given how persistent the trend in stocks (and sentiment towards stocks) had been leading into this week, but as has often been case over the past 4 years in the QE era the market threw us a cyclical curve ball. Of course there is a small chance that the equity market may have just peaked a little early and will actually accelerate lower in the next few days. As we have mentioned in prior notes, occasionally these cyclical windows can actually spark an acceleration in the direction of the trend. However, this is very rare and the (much) lower probability scenario. Continued weakness past Tuesday would make us take this scenario much more seriously. A close back over 1605 increases the prospects for a low.

--- Written by Kristian Kerr, Senior Currency Strategist for DailyFX.com

Looking for a way to pinpoint sentiment extremes in the SPX in real time? Try the Speculative Sentiment Index.

To contact Kristian, e-mail kkerr@fxcm.com. Follow me on Twitter @KKerrFX

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21 June 2013 12:23 GMT