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.

Now that’s what I’m talking about!

I went long EUR/CHF near the end of August based on several factors that showed it was ready for a nice rally. Since then, market action has unfolded quite nicely, and I am happily sitting in my long position. My original exit conditions remain in play (2 monthly closes below 1.28.

You can see on the monthly chart above that EUR/CHF held at the strong support that I identified in the initial post. In fact, on a monthly basis, EUR/CHF essentially reversed August’s losses. This is a very bullish Piercing Line pattern, and it strengthens my confidence in being long. However, 1.36 should be major resistance, and I am awaiting price to break clearly above this level.

BIDU goes Parabolic

I think the stock market is topping out. Blogger sentiment is extremely bullish and stock market sentiment is relatively very bullish. In the midst of these sentiment extremes, BIDU is going parabolic. I think this stock is a good short bet, though it could have a bit more upward thrust before reversing.

You can see in the daily chart above that since consolidating after it’s split in May, 2010, BIDU has rallied in a parabolic trajectory. The fact that 5-waves can be traced out tells me that this rally is near an end. Furthermore, when sentiment is bullish and individual stocks are going parabolic, I believe it’s a safe bet to short.

Stock Market Near a Peak

Today I’m revisiting my thesis from a few months ago that the stock market is in a bearish formation. Though it has rallied quite strongly over the past month, I think this strength is nearly exhausted. This is confirmed by technicals as well as sentiment.

 

First, check out the SP500 E-mini chart above. I see a very clear 5-wave leading diagonal, followed by a very clear 3-wave upward correction. At a minimum, we need to see a drop below 1,000 to complete this pattern.

Meanwhile, sentiment is very bullish. I have seen many bloggers commenting about the Head and Shoulders formation above, but everyone keeps talking about them and nothing ever follows through. Also, bloggers are very bullish in general, and bullish sentiment is at multi-month highs!

Conditions look ripe for a decline!

Reshorted Gold via DZZ

Reshorted gold circa 1286 by purchasing DZZ. Mental stop @ 1291-92.

Stopped out of my Gold short… will consider trying again soon

Fool’s Gold?

Once again, I’m talking about Gold. A few months ago, I was expecting a sharp drop, which did occur. However, the subsequent bounce has been stronger than I expected. I still believe that gold will weaken soon, and if it does make a marginal new high, it won’t be sustained very long.

In the first chart above, the 3y weekly chart, notice that gold broke a multi-year supporting trendline, and is not in the process of retesting this trendline from below. Second, notice the MACD divergence that has not yet fully resolved. Third, notice that in every other major rally prior to latest one, volume expanded heavily on the upswings. This time, volume is absolutely meager, which indicates that buyers are not nearly as confident as they were in the previous rallies.

Next, take a look at the COT data for Gold. The chart above shows gold’s price in the upper panel, and the 78-week COT commercial trader’s index in the lower panel. When the blue line is at 0, commercial traders are more short than they have been in the past 78 weeks, and vice versa for when the line is near 100. With the recent rally, commercial traders have taken the opportunity to drastically increase their short positions, which is a bearish sign.

Finally, I want to comment on sentiment. Seasonally speaking, August and September are quite bullish for gold. However, because this tendency has been so apparent in the past couple years, there is now a general consensus that gold will continue to rally in the coming weeks and months. Combining this bullish sentiment with the bearish factors mentioned above tells me that the probability of a drop is higher than the probability of a rally, and I am positioning myself accordingly. Good luck!

Flat on EUR/USD

I am currently out of the EUR/USD and plan to avoid trading it for a for weeks/months. I am not sure what it will do going forward, but my bias is slightly bullish. If EUR/USD does happen to rally to 1.35-1.40, I will at that point look to re-initiate a short position.

You can see in the chart above that the EUR/USD did respect the trendline resistance I wrote about at the end of July. However, the selloff was very sharp, and a little too “obvious” in my opinion; i.e. anyone observing would now assume that the downtrend is back in full force. I think it will take some more time to neutralize the bearish EUR sentiment, so it would not surprise me to see a rally to 1.35-1.40. Either way, I have no risk on EUR/USD at the moment, so I don’t whatever happens.

EUR/CHF might be ready to enjoy a rally!

EUR/CHF has been down 12 out of the past 14 months. This is understandable, given the debt problems in Europe, but at some point the decline is over-extended. I think this time is nearing, and I am willing to make a long bet on EUR/CHF. As long as EUR/CHF doesn’t have two monthly closes below 1.28, I’ll stick to my guns.

Take a look at the 20y weekly EUR/CHF chart above. First, notice that price is holding at a very long-term support trendline. While price bounced off this level last month, I think it will take more than just one month to resolve the demand that this trendline should create. Also, notice that RSI is beginning to form divergence with price, so as long as 1.28 holds on a monthly closing basis, this RSI divergence should support prices into the future.

Now take a look at the 5y daily chart. First, I find it interesting that from the Oct 2008 low, price consolidated in a triangle formation. As I’ve posted about many times before, triangles often form before the final move in a trend, and once that move completes, the trend reverses. Second, notice that the decline out of the triangle has been parabolic, in a clear waterfall selloff. Once these patterns terminate, they often mark the end of the move for an extended period as the excesses of the move resolve. Finally, notice that the Oct 07—>Oct 08 move is about the same size as the Jun 09—>Aug 10 move.

These indicators tell me that 1.28 should prove to be strong support, and I expect to see a rally soon commence, with a target of 1.45.

EUR/USD, stop making me look good!

About 6 weeks ago, I pointed out that the EUR/USD looked prime for a sharp counter-trend rally. We have indeed seen a nearly 1200 pip rally! So far it seems like the market is trying as hard as it can to follow my projections, but of course that will end at some point. Either way, now that we’re at resistance, it wouldn’t surprise me to see the EUR/USD drop, and possibly continue the long-term downtrend.