BIDU Blow-off Continues

I prematurely posted about BIDU going parabolic a month ago. The rally continues, but keeping an eye on the bigger picture makes me think that the rally will soon run out of steam.

The monthly chart above shows how extreme the rally has been. Notice that after 17-18 months of strong rallying, BIDU has now blasted off in a classic blow-off formation.

The more interesting phenomenon appears on the daily chart. Notice that BIDU has recently consolidated in a triangle formation, and triangles often precede the final move in a trend. Furthermore, there is MACD divergence forming. So I believe that when this up move finishes, BIDU will begin a multi-month downtrend.

First USD/CHF reversal confirmation

A few weeks ago, I switched from long EUR/CHF to long USD/CHF. I still like this position, and today, the first sign of a trend reversal came out.

Notice on the daily chart above that USD/CHF has now clearly had the biggest rally of the entire downtrend. Coupled with clear MACD divergence, I think this indicates that the character of the downtrend has changed, and a new uptrend is potentially forming.

Trading in EUR/CHF for USD/CHF

Today we arrived at two conclusions: 1) EUR/USD looks bearish. 2) we still like EUR/CHF bullish as discussed a few weeks ago. Thus, we wanted to trade both currency pairs. Of course, we quickly realized that EUR/USD short and EUR/CHF long is the same as trading USD/CHF long. So we did some analysis, and we’re now quite confident in trading USD/CHF long. We’ve switched our EUR/CHF long position to USD/CHF long position.

The chart above (EUR/CHF daily chart) identifies why we were happy to switch out of EUR/CHF long. Notice that the pair bounced of 1.28 as expected, with nice MACD divergence. However, it is testing strong resistance, and just broke an ascending trendline, so it may be under pressure for some time.

The next chart (above) shows why we think EUR/USD is bearish. According to the Elliot wave count, the declines from 1.60 have been impulsive (5-waves) and the rallies have been corrective (in three waves). Currently, it looks like EUR/USD is completing a 3-wave rally to correct the drop from 1.50 to 1.18.

Thus, since we generally like EUR/CHF long, and EUR/USD short, we want to go USD/CHF long:

 

The 15-yr monthly chart for USD/CHF (above) looks rather bullish. First, notice that a 5-wave decline is nearly complete, which indicates a strong counter-trend rally ahead (multi-year). Second, you can see that price is holding at a very strong, long-term trendline (we believe this line will hold, so if price closes below this line on two monthly candles, we will exit the position). Third, Wave-3 ended with a parabolic move. Then, the currency pair went on to retest the parabolic low twice, but so far has not broken it substantially. We think this is quite bullish. Fourth, notice the MACD divergence that could be potentially forming.

Zooming in on the USD/CHF chart (3y weekly chart above), you can see that Wave-5 has formed inside a channel that very closely resembles an ending diagonal, which indicates strong reversal ahead.

While the technicals appear strong for USD/CHF long, the COT data also supports this notion:

First, notice that the 78-week index for Commercial traders of USD are nearing the 100 percentile mark, meaning commercial traders are becoming very net long.

Swiss franc commercial traders are very close to the 0 percentile mark, indicating that they are very, very net short.

Overall, it is a bit frightening to go long USD/CHF when it’s in such a clear downtrend. However, the technicals indicate that it is nearing support, and the COT data shows that we’re taking on the same position as the smart money commercial traders.

Our trade plan is to exit at a loss if USD/CHF closes below the monthly trendline described above for two monthly candles. Our initial upside target is 1.05, and then 1.15.

Can’t Help Myself!

UNG must be on investor’s most-hated list, because since the energy bubble peak in 2008, UNG has done nothing but drop. At some point, enough is enough, and I believe that point may be soon here. I’m going long here.

The daily UNG chart above shows a very clear 5-wave decline, with MACD divergence on the recent drop. Time to take a gamble.

Outta NEP

A few months ago, before NEP was halted, I went long based on trendline support. Today, I sold that long position for a small profit. I believe NEP could face continued headwinds for some time to come.

Check out the daily chart above: first, notice that NEP is running into the combination of three trendline resistance levels, around 6.60-7.00. Furthermore, I think it will take additional time to unwind the excesses that were generated in the parabolic run into Jan. 2010. NEP’s business is looking good, but supply and demand of shares always rules. I think enough people got shafted in the $8-12 zone that they will provide nice supply, holding the price lower.