TRIANGLE APEX- MARKET TIMING TOOL IN FX AS WELL

This report covers 2 topics:

1. Triangle Apex can be used as a market timing tool in FX as well.
2. Update to my EUR/USD July 14, 2009 forecast.

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It should not be of any surprise that the triangle apex can be used as a tool to time major trend changes or reversal in FX as well.


CLICK HERE to view the report that explains how triangle apex can be used to time major trend changes or reversals. This report includes 16 charts proving the potential of triangle apexes as a market timing tool.


As the following chart shows, the EUR USD reversed at precisely the time the triangle apex formed. Again, this is an ideal scenario. The scenario could be far form ideal depending on how the triangle is identified by the analyst. The lesson though is to expect a major trend change or reversal at approximately the time the triangle apex is expected to form. So the analyst should be aware at least 3-5 periods before and after the apex forms.


Although major trend changes may not occur at every apex, if you view the report I prepared on my site, then you will agree that it is worthwhile to identify triangle apexes and be alert during that period.


UPDATE to EUR/USD FORECAST (JULY 14, 2009)


CLICK HERE TO GO TO ORIGINAL FORECAST


Triangle breakout June 20, 2009. I am looking for two daily consecutive closes beyond the upper trend line of the triangle. Since the triangle formed in Wave 4, Wave 5 is likely to be sharp. A type of mania.

Minimum Price Objective: The minimum price objective is from 1.46-1.48. EUR/USD may face resistance at the 61.8% confluence zone ~1.46. Would take some profits off the table and leave a portion of risk capital to partake of further capital appreciation.

Maximum Price Objective: Max price objective is 1.49-1.55.

Corrective A-B-C: Whether EUR/USD reaches 1.49/1.55, we could expect a complete retracement of wave 5. The sharper the rally from here on, the more quick and painful will be the retracement.


Figure 1: Observe the timing of the apex and the M reversal.




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Technical Analysis Base Website at http://www.technicalanalysisbase.com and
Sanjeet Parab Blog at http://sanjeetparab.blogspot.com


Sanjeet Parab
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Triangle Apex- A Tool to Time Major Trend Changes or Reversals

Go to http://www.technicalanalysisbase.com/other-reports/triangle-apex--a-tool-to-time-major-trend-changes-or-reversal to view complete report which includes 16 charts proving the potential of triangle apexes as a market timing tool.


I was reading The Elliott Wave Principle by Frost and Prechter and came across a line that was probably mentioned only once in the entire book. It was something along the lines of ‘the authors observed that the time when the trend lines of the horizontal triangles converge is the time when there is a major change in trend.’ In other words, the analyst should expect a major change in trend when a triangle apex is expected to form.

Although I cannot present any statistical study or academic review that supports the reliability of this observation, the analyst or trader should be proactive and aware of potentially significant moves during the time the apex is expected to form.

Rather than write about this phenomenon, I’ll show it to you.

Also, now that we are on triangle apexes, the level where the triangle apex forms often serves as support/resistance.

Go to http://www.technicalanalysisbase.com/other-reports/triangle-apex--a-tool-to-time-major-trend-changes-or-reversal to view complete report which includes 16 charts proving the potential of triangle apexes as a market timing tool.













Go to http://www.technicalanalysisbase.com/other-reports/triangle-apex--a-tool-to-time-major-trend-changes-or-reversal to view complete report which includes 16 charts proving the potential of triangle apexes as a market timing tool.

Don't forget to visit
Technical Analysis Base Website at http://www.technicalanalysisbase.com and
Sanjeet Parab Blog at http://sanjeetparab.blogspot.com

Sanjeet Parab
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Significance of Long-term Analysis and Inflection Points

Go to http://www.technicalanalysisbase.com/other-reports/significance-of-long-term-analysis-and-inflection-points to see original post on my website.

In this post I will outline how identifying long-term support/resistance levels and major inflection points using Fibonacci confluence zones can prove to be one of the most reliable predictor or the next move.

Significant support and resistance levels are bread and butter for traders. Executing positions around “significant” levels minimizes the likelihood of getting whipsawed, and therefore, often prove profitable. My first step in conducting any analysis is to identify major support and resistance levels on a long-term chart.

Long-term Analysis

The goal is to identify “significant” support and resistance levels by first analyzing long-term charts. The longer the horizon, the better will be the analysis. The significance of a support or resistance level increases with the time the level has remained intact and with the number of times the prices have tested this level and not significantly penetrated* it. Following are the type of charts I begin with.

10-year Monthly Chart
5-year Weekly Chart
2-year Daily Chart

The implications of long-term analysis are straightforward. For instance, if price is at a support level that has been tested 3 times but not penetrated in the last 10 years, then a bounce off of this level will signal a buy opportunity. On the contrary, a penetration below this significant support level will have major bearish implications (ignoring the likelihood of trader’s remorse).

Figure 1


Identify Major Inflection Points

Fibonacci studies are an excellent tool to identify major inflection points. When used in conjunction with trend lines, chart patterns, volume analysis, and technical indicators, an analyst can identify significant inflection points and earn greater risk-adjusted returns. The heuristic in determining the significance/strength of a particular inflection point is as follows:

The inflection point increases in significance/strength with every increasing factor coinciding at the point.
Furthermore, inflection points increase in significance as the periodicity increases. For instance, an inflection point on a monthly chart is more significant than one on a daily chart.

Example:

Inflection Point 1
61.8% Confluence Zone
Down Trend Line
Major Resistance
Overbought Oscillators
Momentum Divergence
Low Volume

Inflection Point 2
61.8% Confluence Zone
Down Trend Line
Major Resistance
Overbought Oscillators

In this case, clearly Inflection point 1 is stronger as it has 6 factors coinciding together as opposed to 4 factors for Inflection Point 2. Observe the circled inflection points in Figure 2 below.

The RED CIRCLE inflection point is when the 61.8% retracement level and the significant support level identified in Figure 1 coincide. Therefore, an analyst who would be aware of the major support level (current resistance- once a support is penetrated, it changes role to being a resistance level) at ~101, would be wary of this major inflection point and of USD/JPY ability to penetrate above this level.

By identifying inflection points, a trader is more likely to execute trades with better risk-reward ratios. As shown in Figure 2, such inflection points are evident on intermediate-term charts as well.

Conclusion

1. Identify major support and resistance levels on long-term charts.
2. Conduct Fibonacci Studies. 61.8% confluence zone is a major level as it is considered to be the Golden Ratio. But be careful around the other levels as well as prices tend to retrace 3/8-4/8 of its previous move.
3. Conduct other technical analysis such as identify chart patterns, trends, and technical indicators.
4. Identify the major inflection points.
5. Determine the strength of inflection points. If a resisting inflection point is significantly strong, then a penetration above this level is on weak grounds. Prepare for shorts. Even if price penetrates above this resisting inflection point, then it may be a whipsaw. That is why, don’t buy the initial penetration. But buy the return move with a tight stop below the resisting level.

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*The two filters to identify a significant penetration of a support/resistance are
2-period Filter: two consecutive closes beyond the support/resistance level. For instance, a valid penetration on a 10-year Monthly (Daily) Chart will be 2 consecutive ‘monthly’ (daily) closes beyond a certain level.
Percentage Filter: A certain percentage point beyond a support/resistance level. Consider your risk tolerance to determine the percentage.


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Technical Analysis Base Website at http://www.technicalanalysisbase.com and Sanjeet Parab Blog at http://sanjeetparab.blogspot.com


Sanjeet Parab

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EUR/USD Forecast

Where is EUR/USD Headed for?

EUR/USD is forming a symmetrical triangle in Wave 4 of Wave III. The next move (Wave 5) will be an upside penetration.

Minimum Price Objective

The minimum price objective of Wave 5 is 1.4601-1.47. Wave 1 and Wave 3 were equal in %. If Wave 5 is extended, then EUR/USD should rally to at least 1.55 to end the impulsive phase of Wave III.

Strategy

Buy Long

Be alert on August 8. (Aug 6-10)

This is my first attempt at implementing technical analysis on FX. Lets see what happens.

Don't forget to visit:
Technical Analysis Base Website at http://www.technicalanalysisbase.com and
Sanjeet Parab Blog at http://sanjeetparab.blogspot.com

Sanjeet Parab
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Upcoming Posts

1. Using Triangles to Forecast the Time of Penetration and Major Trend Changes- In this post I will show how triangle apexes can be used to identify major support and resistance levels and expect major trend changes. Furthermore, I will also show how you can determine the direction of penetration, the expected time of triangle penetration and the minimum price objective of the subsequent price action. This post will incorporate conventional technical analysis principles as well as the Elliott Wave Principle.
2. What stage of the business cycle is the US Economy in?- I will compare the relative strengths of the 9 AMEX SPDRs to determine the stage of the business cycle the US economy is in.
3. Which asset classes and sectors will result in the best performance at this stage of the business cycle?- I will first identify whether to invest in stocks, bonds or commodities. Then, assuming the investment portofilio is comprised completely of equities, by using insights from sector rotation, I will identify the particular sectors that will give investors the greatest earnings potential (high return or limited losses relative to other sectors.

Don't forget to visit

Technical Analysis Base Website at http://www.technicalanalysisbase.com and

Sanjeet Parab Blog at http://sanjeetparab.blogspot.com

Sanjeet Parab

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Bonds Lead Stocks: Watch the Bond Market for Clues on where the Equity Market is Heading

It is fairly obvious that the stock market serves as a leading economic indicator. In the 8 business cycles from 1948 to 1990, the S&P 500 led turns in the business cycle by an average of 7 months, with a nine-month lead at peaks and a five-month lead at troughs. A lead time of 7 months to get ready for a major change in the economy! How about a lead time of 27 months?

For such a lead time, you need to go to the bond markets. In Geoffrey Moore’s Leading Indicators for the 1990s, Victor Zarnowitz writes:

The [Dow Jones Index of Corporate Bonds] led at each of the eight business cycle peaks since 1948 and at each of the eight troughs. Its leads at business cycle peaks were very long and highly variable, ranging form 10 to 58 months, and averaging 27 months. Its leads at troughs were also long relative to the observed distributions of such leads and the durations of business cycle contractions: they ranged from 3 to 13 months and averaged 7 months.

Although the variability of lead times is concerning, by knowing that bond markets give a longer lead time than stock markets, an analyst is better prepared for anticipate changes in the stock market and the economy. Let me make it absolutely simple.

Business Cycle Peak (Trough)

Bonds will tell you 27 (7) months in advance that the economy will peak (bottom)
Stocks will tell you 9 (5) months in advance that the economy will peak (bottom)

So, once the bonds peak, you can expect the stock market to peak as well. You will be aware of overbought conditions, saturations, bubbles, and will be in a better shape to think like contrarians.

October 2007 Peak

As the chart shows, bonds (10-year US Treasuries) peaked in May-June 2006. That gave investors a lead time of 16-17 months before the October 2007 peak in the stock market. Bond yields approached the May-June 2006 peak in June-July 2008. Even this peak gave investors 3-4 months lead time to understand the overbought nature of the stock market. You might not have gotten out at the peak, but after identifying an MA or Head & Shoulders Top, you could have limited your losses.


CAUTION: It is always easy to pick peaks in perfect hindsight. But, with some experience and a lot of practice, you will foresee things that are possibly unbelievable true. It all sounds good in writing, but you need the patience to sit through a number of months before major turns.


Conclusion

I don’t think anybody would claim perfect market timing. Neither do I. But, by understanding the correlation between bond and equity markets, you are better equipped to evaluate the merits of price action and anticipate major trend changes.

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Technical Analysis Base Website at http://www.technicalanalysisbase.com and

Sanjeet Parab Blog at http://sanjeetparab.blogspot.com

Sanjeet Parab

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H&S Top: DJIA Retracing- Update to June 29, 2009 Forecast

CLICK HERE to go to June 29, 2009 DJIA Forecast.

Price Objectives Identified in the June 29, 2009 Forecast

2X Extreme Upper Bound
10,948-11,500
Identified Resistance (Chart 1)-H&S completion level (Chart 4)

Extreme Upper Bound
9,021-9,043
Major Resistance (Chart 2)

Upper Bound
8,900
Chart 3

Current Price
8,529

Lower Bound
7,958
38.2% Confluence Zone (Chart 3)

Extreme Lower Bound
7,449
Charts 1,2,3,4 and 6

2X Extreme Lower Bound
7,193
Major Support (Chart 1)


Update

• In my June 29, 2009 forecast, I identified that the DJIA is correcting using the Elliott Wave Principle
  
• Today (July 9, 2009), 9 trading days later, an MA pattern or a Head & Shoulder top is clearly visible.
  
• The minimum price objective for the H&S Top is about 7,600.
  
• The penetration of the neckline was not on heavy volume. High volume break downs are not required at tops because the market has a tendency to fall on its own weight.
  Furthermore, this H&S pattern is fairly reliable because declining volume is evident on the head and right shoulder.
  
• A return move is in play.
  
• SMA-15 crossover of the SMA-50 triggered a sell signal.

June 29, 2009 Update/DJIA Weekly/Technical Analysis Base Home


Alternate Formation

• An alternative H&S top can be drawn with a brief right shoulder.
  
• In that case, the penetration of the neckline was accompanied with high volume.
  
• The return move to the green neckline also faced resistance.
  
• I wouldn’t classify this alternative H&S as a proper H&S because the right shoulder is more a bear flag than a shoulder.
  
• The bear flag pattern met the minimum price objective when it reached the brown neckline.

June 29, 2009 Update/DJIA Weekly/Technical Analysis Base Home

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Sanjeet Parab
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