EUR/USD Analysis

EURUSD has not yet recovered from it’s largest downward correction in nearly 10 years. Technically it’s still in an uptrend within a corrective phase. When this part of the corrective rally terminates, Euro dollar value should be between 1.4490-1.4690.

In the meantime there is a continuing to month correction of the rapid rally that began April 22nd and topped out at 1.4338 on June 3rd. This is a sideways and down move that should bottom out not lower than 1.3737. Any decline below this level would jeopardize the continuation of the uptrend.

The current downward move will probably end around mid-August, after which the uptrend should continue. Failure to reach the downside target near 1.3737 will be quite bullish.


Daily EURUSD chart with volume as at 30 July 2009 using NextVIEW Advisor Professional

TECHNICALS

SMA200 – rising at 1.3475
EMA20 – immediately above the market and curling down.
Li’s Sandwich indicator – gives a fairly accurate depiction of resistance and support that agrees with more complex mathematical measurements of the market.
R1 – Significant resistance at 1.4303
R2 – zone of resistance from 1.4490-1.4690.
S1 – a zone of support between 1.3777 – 1.3728
S2 – 1.3610 (not shown on chart).

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Article and Commentary by Don Schellenberg. A trader and trading coach, he is a noted expert on Market Structure, Elliott Wave and Fibonacci. He trades the forex market.

US Dow Jones Industrial Average (DJI) – Market may have bottomed out

The 8,870 points resistance level was broken and the DJI made a new year 2009 high last month and closed at 9.171.61 points end July. Market sentiment continues to be bullish despite mixed views about how the economy is recovering in this world’s largest economy. Despite not performing strongly like the Asian markets, the DJI still managed to climb 724.6 points or 8.6% in one month. So far, the DJI has increased 40% from the low in March this year and retraced about 35% from the end-2007 to early-2009 bear trend.


Daily DJI chart with volume as at 31 July 2009 using NextVIEW Advisor Professional

The strong bullish rally last week has caused the momentum to become strong again. The RSI, ADX and Momentum indicators continue to make new highs since early July. With this strong momentum, there is a high chance that the uptrend rally can be sustained and the next resistance level to test is 9,400 points. The long term inverted head and shoulders pattern is an indication that the market my have bottomed out and can only be confirmed once this resistance level is broken. Support level is at 8,100 points.

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Article contributed by Private Trader, Market Expert, Trading Coach and Chief Market Strategist of Nextview, Mr. Benny Lee. For more articles and commentaries from Benny, click HERE.

Malaysia FBM KLCI: Bullish with improved trading volume expected

The economy seems to be in recovery, the equity market seems to think so, not only in Malaysia but the rest of the world. The US Dow Jones industrial Average made a new year high after going into a sideway correction for about a week amid lower jobless claims. The Dow closed at 9,154.49 points Thursday. The FBM Kuala Lumpur Composite Index did not move much and closed at 1,160.66 points, 7.94 points or 0.7% higher on-week. Our neighbour Singapore’s Straits Times Index rose 151.29 points or 6% at 2,636.19 points on-week. Japan’s Nikkei 225 also made a new year high despite jobless rate increasing to 6-year high in June. The Nikkei closed at 10,165.21 points Thursday.

Confidence in the equity market remains firm. Daily average trading volume in Bursa Malaysia last week was 1 billion shares, the same in the previous two weeks. Despite weaker volume, the equity market continues to climb higher and this simply means that there is no selling pressure. The bulls continue to dominate the market as it is able to stay above the resistance level it broke last week at 1,160 points. The KLCI went as high as 1,179.08 points before closing lower on Thursday at 1,160.66 points.

The uptrend momentum that started from mid-July when the KLCI was at 1,060 points has been really strong. The distance between the KLCI and the long term 90-day average then was 7% and the distance now is 12%. The short term moving averages ranges between 1,040 and 1,100 points. The current uptrend can also be identified in the uptrend channel (see S1 and R1 on the chart). The KLCI is currently at the resistance level (R1) of the channel.

The bulls are clearly dominating the market despite the bears trying to take over last month but have started to weaken a little last week. The 14-day Relative Strength index (RSI) indicator continues to make new highs and is above the 70 level. The MACD indicator continues to be above its 9-day average but some weakness last week. The 14-day Momentum indicator also makes new high but has started to slightly decline last week. There are no sign weaknesses from the 14-day ADX which continues to climb higher and but the PDI and MDI lines have stopped expanding.

The 20-day Bollinger Bands continues to expand with the KLCI hovering at the top band. This shows that there is still strength in the KLCI move upwards with wider trading ranges. The short term volatility indicator, the 3-day Average true Range (ATR) maintains at 16 points. The daily momentum in the market is the same as last week. The firm movement indicates a firm direction and this is healthy in trend.

Last week, I have mentioned that the next resistance for the KLCI is at 1,300 points if the KLCI is able to break and stay above the 1,160 points resistance. The current momentum of the uptrend suggests that there is a high change of KLCI moving further upwards and possibly to 1,300 points with some minor resistance levels in between. The correction last week without moving downwards suggests that market is ready for the uptrend continuation next week with improved trading volume.


Daily KLCI chart with volume as at 30 July 2009 using NextVIEW Advisor Professional

The Ichimoku Cloud indicator has started to slightly widen upwards and a reversal is not going to be expected at least in the next one month. The widening of the Cloud also suggests that support is getting stronger and going to be strong in the next one month. If the KLCI falls below the resistance level which it has just overcame at 1,160 points, we may not see a major fall but a minor correction sideways with a slight downward bias. Support level is at the bottom line of the uptrend channel and is currently at 1,100 points.

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Article contributed by Private Trader, Market Expert, Trading Coach and Chief Market Strategist of Nextview, Mr. Benny Lee. For more articles and commentaries from Benny, click HERE.

Hong Kong Hang Seng Index Analysis

The initial upside target of 20,000 mentioned in the last Hang Seng Index notes has been achieved. The best way to look at the Hang Seng is to use a weekly chart. The long term resistance level is near 21,000. There are no technical barriers to the rise from 15500 although a weekly flag pattern did develop. This is not a clear flag pattern, but it can be used to confirm the upside targets of 21000.



The upside targets were established using the trading band behaviour of the Hang Seng. The width of the trading band is used to calculate potential downside and upside targets. A breakout above 15500 gives an upside target near 20,000. This is near to historical support and resistance near 21,000. The market has moved quickly to these levels so the is a higher probability of a significant retreat once resistance near 20,000 to 21,000 level is achieved.

Traders will look for loss of momentum and consolidation within this resistance band.
A move beyond 21000 has an upside resistance target of 23500. This is based on the upper level of the left hand shoulder pattern that was part of the longer term head and shoulder pattern. This strong trend is underpinned by the growth in the Chinese economy so traders will also watch the Shanghai Index for indications of weakness which will transfer to the Hang Seng.

To read more articles and commentaries from Daryl Guppy, click HERE

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Article contributed by Private Trader, Market Expert, Trading Coach and Best-Selling Author Mr. Daryl Guppy. For more articles and commentaries from Daryl Guppy, click HERE.

ECONOMIC STRATEGY - CHINA and US Markets

The Chinese and the US economies have developed divergent paths. One is a strong vigorous bamboo shoot whilst the other shows green shoots which some people are now describing as withered or yellow shoots. It’s an issue I discussed last week on CNBC Asia with US fund managers and Asia analysts. China GDP due out this week is expected to show a 7.8% annual growth and some analysts are questioning whether this is sustainable. We start with current China market analysis and conclude with US market analysis. The first extract is from my weekly column in the Beijing financial weekly, Hong Zhou Kan, and the second extract is from my weekly column in the Monday edition of Shanghai Security News.

CHINA MARKET

China markets are focussed on the potential end of a prolonged uptrend. The very rapid rise in the Shanghai Index above 3000 was an inevitable invitation to a pullback and retest of the 3000 support level.



The key question is to decide if the pullback is the collapse of a bubble, a major change in trend direction or a temporary retreat in a well established uptrend. The answer has a significant impact on Hong Kong and Taiwan markets which have been increasingly linked to the Chinese recovery. Chart analysis provides the tools to help answer the questions more accurately than the mixed bag of delayed fundamental information that comes out of China in Government reports and anecdotal evidence. The market moves 3 to 6 months ahead of the confirming fundamental information.

The market has avoided a bubble situation. The index has clustered near the upper edges of the short term GMMA and the pullback has tested the lower edge of the short term GMMA. The pullback has restored the normal degree of separation in the short term GMMA. This reduces the probability of a bubble developing.

The most important analysis tools for identifying a major trend change are divergence patterns and chart patterns. The most reliable analysis tool for the Shanghai market is the Relative Strength Indicator (RSI) divergence. This develops when the trend line placed on the RSI moves in the opposite direction to the trend line placed on the Shanghai index. Currently the trend lines both move in the same direction and this is a trend continuation confirmation signal. This suggests there is a low probability of a major change in the direction of the trend.

The behaviour of the index suggests the current market activity is a temporary retreat in the environment of a strong and stable uptrend. The strength of the uptrend is confirmed by the long term GMMA. The lower edge of the long term GMMA is higher than the historical support level near 2700. It is also near to the value of the up trend line. The upper edge of the long term GMMA is near the historical support level of 2900. This combination of support features confirms strong support for any market retreat below 3000. They show a high probability of a rebound and a continuation of the established uptrend.

The 3000 level is a strong historical support and resistance level so the market may develop into a sideways pattern and a broad trading band in the 2900 to 3000 area. This sideways movement will add more stability to the up trend.

Increased trend stability and durability will have a positive impact on the greater China markets. Traders can use this pause as a buying opportunity to add to positions as price declines are more likely to be a temporary retreat rather than a trend change.


US MARKET

The key development in the American DOW Index is the development of a rounding top pattern. The rounding top pattern is a reliable indicator of a significant trend change. This rounding top pattern is shaped like an umbrella. The upper edge of the pattern is located near 8900 and the support level is near 7800. The distance between support and the peak is measured. This value is projected downwards below the support level to give a potential downside target. This is located near 6800.



The pattern is confirmed in two steps. The first pattern confirmation develops when the DOW Index is not able to move above the value of the curved downtrend line. This is currently near 8300.

The second pattern confirmation comes when the DOW index closes below the support level at 7800. When these conditions develop there is a high probability to market will continue to fall and reach the target low near 6800.

The DOW Index also has developed a small head and shoulder chart pattern. The left shoulder is created by the rally in 2009 May. The head is created by the rally in 2009 June. The right shoulder is created by the current rally. Currently this chart pattern is not completely developed. There is enough information to estimate the head and shoulder downside target projection. This is located near 7300.

The rounding top and the potential for the head and shoulder pattern development both confirm the high probability of a continuation of the downtrend in the DOW index. The suggested target for the market fall is between 6800 and 7300.

Too many Western analysts are blinkered by the belief that economic recovery is entirely dependent upon the US and they ignore the market reality shown by the market index activity.

To read more articles and commentaries from Daryl Guppy, click HERE

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Article contributed by Private Trader, Market Expert, Trading Coach and Best-Selling Author Mr. Daryl Guppy. For more articles and commentaries from Daryl Guppy, click HERE.

Kuala Lumpur Composite Index (KLCI): Bullish sentiment expected to continue

The equity market extended its bullish run last week as investors continue to be bullish amid positive developments in the global economy particularly in the Asian region. In the second quarter, the Dow Jones Industrial Average climbed about 11% while Japan’s Nikkei 225 jumped 23, China Shanghai Composite Index rose 25%, and India 53%. The benchmark KLCI rose 43.27 points or 3.9% on week to close at 1,152.15 points. The KLCI tested the 1,160 points resistance level I mentioned in the past two weeks on Wednesday but failed to stay above it. The index already raised 7.15% on-month and 37.8% from the low this year.

The economy in the Asian region has been positive in the past few months. Industrial production increased as demand from major importing countries in the US and China has improved. The question is now whether the short term economic growth can be sustained and analysts’ views are mixed. However, market confidence is still generally strong. Most markets are making new highs for the year in the past few weeks, overcoming technical resistances. Trading volume in Bursa Malaysia last week remains steady with 1 billion shares traded averagely a day, the same as the previous corresponding week.

The bulls were back as I mentioned in my previous article and last week they dominate the market. The uptrend started to become healthy again with the short to long term 30- to 90-day moving averages are moving in the same direction upwards. The moving averages ranges between 1,020 points and 1,080 points. The one month correction which began in mid June has ended last week. The KLCI is now comfortably 13% above the long term 90 day average.

Momentum indicators are showing strong bullish strength. The RSI indicator has gone above the 70 level after being below it for more than one month. The MACD indicator continues to stay above its 9-day average. The momentum reading is currently at 108, a level not seen since April this year when the market was in the beginning of a bullish rally. The ADX indicator continues to increase with the PDI and MDI lines still expanding.

The market volatility continues to expand in the upside after breaking out last week. The Bollinger Bands continue to expand further. The KLCI continues to stick at the top band for the whole of last week. The last time the Bollinger Bands expanded this much was in early April when the KLCI was at 930 points. The shorter term volatility indicator, the 3-day Average True Range has weakened a little from 18 points in the previous week to 16 points this week. This indicates a slightly lower momentum on a daily basis.

With the healthy trend and good bullish momentum, can the KLCI rally higher than the 1,160 resistance level? If you have not read my past articles, the 1,160 points level is a 50% retracement level of last year’s bear trend where the KLCI dropped from 1,524 points to a low of 801 points. Purely based on technical analysis, yes, there is a high chance that the KLCI may be able to break above 1,160 points. Bullish sentiment expected to continue with a greater extent if the 1,160 points resistance level is broken. If it does break this level, then we may look at the next technical resistance level at 1,300 points.


Daily KLCI chart with volume as at 23 July 2009 using NextVIEW Advisor Professional

The leading indicator, the Ichimoku cloud indicator is still thin and this is because of the one month correction on the KLCI in mid-June. If the market continues to be bullish the cloud may start to expand in about two weeks time, providing another good support to the KLCI. The KLCI is also being supported by a linear up trend line from March this year. The immediate support level is this trend line and is currently at 1,100 points. The Stochastic indicator has been overbought since last week and we may expect an immediate pullback, especially when the KLCI is at the current resistance level.

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Article contributed by Private Trader, Market Expert, Trading Coach and Chief Market Strategist of Nextview, Mr. Benny Lee. For more articles and commentaries from Benny, click HERE.