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A Few Random Charts and Observations

Most equity markets continue to advance. Individual stocks; there are flyers and duds. Bonds took a hit. Gold and Silver moved toward the lows of their consolidations. Oil is still under pressure, but it could have been worse with the continued strength in the U.S. Dollar. Forex currencies have been the best at trending up or down depending on the pair being traded. There’s something for everyone. Let’s take a look around.

 

Above is a great looking uptrend in Urban Outfitters (URBN). The pullback to the rising 20-MA and price support gave a near perfect entry from the gap up. URBN gapped higher the next day and never violated at prior day’s low until the first red candle formed. URBN gapped lower that day and that’s really not a concern since prices can and do gap lower after a run like the one seen as profits are taken.

After some consolidation or pullback prices typically advance again. That’s what uptrends do. What is a concern – and it’s only a short-term one, but something that typically doesn’t happen in strong trends. It’s the gap lower on Friday from Thursday’s green candle and then no recovery. The trend is clearly up, but Friday could be signally a deeper than normal retracement within this strong trend.

 

Facebook (FB) has been chopping around for what seems to be forever. I’m exaggerating a bit, but I thought that FB would have moved higher already after its pullback into the gap fill area and rising 20-MA. There have been a few false starts and maybe Friday’s green candle that recovered from Wednesday’s red one could be another one. But the price action is suggesting – again – that FB wants to move higher. Friday’s high will be resistance and should prices get above it, Friday’s low will be first support. Pristine Tip: This type of price structure explained – when following through – never comes close to that support.

 

It looks like this relatively new issue GOPRO (GPRO) is getting a lot of love and there’s no sign of it stopping as of Friday. The price action in the middle of the chart is one the trading patterns taught in the Advanced Technical Strategies (ATS) course. This trading pattern rarely fails to deliver the greenbacks.

When prices break out of a shakeout type of a consolidation with a larger range green candle – with increased volume as GRPO did at the end of July, it’s a strong signal of higher prices.  GPRO only did not do that, it gapped below the large green candle and to the bottom of the base. Wow, look out below! Here comes the pain for those long. GPRO did move a bit lower, but then formed a rounding bottom and recovered the loss. This failure of a failure trading pattern is one of many taught in the ATS. Many years of my study, trial, error and what was learned about price patterns is packed into that class.

 

In previous Chart of the Week, I wrote about the Dollar’s strength doing damage. The damage caused by that strength can be a windfall for those that know how to use it to their advantage. Dollar strength is bullish in other ways also for certain currency pairs. But first, we’ll look the chart above of the U.S Dollar ETF symbol UUP and McDonalds (MCD).

The bottom and the following strength in UUP did damage in MCD too. There are other factors that influence MCD’s profits and traders’ bias, but the Dollar’s direction is one often ignored. The next chart will visually make the point very clear why it shouldn’t be. MCD has many more restaurants outside the USA than in.  At most of those locations food is paid for in currencies other than U.S.

When the Dollar is advancing as it has and the EURO is weak, those Euros that MCD collect for burger and fries and then exchanges into Dollars are at a loss. The chart above is saying that the profits on the burgers and fries sold aren’t overcoming that loss in the exchange of currencies.

 

Doesn’t this chart make the decline in MCD crystal clear when you understand the relationship with currencies? The large weekly reversal candle in EUR/USD occurred on the week of 5/4/14. The high day in MCD (not shown) was 5/4/14.

EUR/USD is nearing price support. Considering the extent of the rapid decline to support, it’s reasonable to think a bounce from that level is likely. Odds are that MCD will too.

 

What is interesting about the AUD/USD chart is that it’s not falling. Why should it fall? Well, not that it has to, but when the Dollar has been so strong the currency trading against it is typically weak. But clearly it doesn’t have to be. What that means is that AUD is strong as well, so in a sense it’s a standoff.

Think of it like two strong guys of relatively equal strength pushing against each other. They’re going nowhere; the standoff. Think of a Forex currency pair chart like a relative strength / relative weakness chart. If it is going up the first currency is stronger, if down weaker and sideways they are equal. It’s that’s easy.

 

We know that AUD is strong, but a standoff to USD. So stay out the way of those two and let them battle it out. At some point, one will emerge the winner. Since we know AUD is strong. The next step is to look for what is weak. In the previous chart of the week, which was two weeks ago, I showed you the beginning of the breakout in this currency pair. At the moment, there is no sign of this uptrend being ready to give up a pip. Of course, it will either consolidate or pullback at some point since that is what typically happens within any uptrend, even one as strong as this.

 

Our last chart is of the Silver ETF symbol SLV. Silver and Gold typically have an inverse relationship with the US dollar; however, interest rates also have an effect on these metals. That influence aside, SLV has moved to the bottom of its year-long consolidation that is has bounced from in the past. Based on the simple concept of price support, the odds favor prices stabilizing in the recent downtrend and the possibility of a bounce from these levels. What could add to that possibility of a bounce would be short-term weakness in the US dollar; something to consider keeping an eye on.

Whether you are an investor, swing trader or day trader I hope you’ve enjoyed this Chart of the Week and learned something from these observations of random charts. Some of them as you’ve seen have connections and not so random.

In our After Market Lessons we discussed various trading strategies and concepts similar to those shown in this Chart of the Week. On Thursday at 4:15, I will be covering some of those concepts and charts of interest that I have found. I will also be happy to discuss any markets or stocks that you are interested in. So bring your list and questions and I will talk to you then.

All the best,

Greg Capra
President & CEO
Pristine Capital Holdings, Inc.