Morning Audibles 3.22.10 - No you didn't wake up in a TIME WARP

You're not waking up in a time warp. I'm simply RE-POSTING my thread from February 27, 2010 here so one might see it upon reflection. At the time, I was calling for a little mini bounce in the Euro (to backtest some levels). I wasn't sure to what degree it might bounce but I offered some hints (and a timeline). I also suggested that the dollar and equities were going to be caught in the vortex of this movement, & that vortex would likely extend through March 16th, and OPEX Friday. Below, you'll see that I'd suggested a level of 137.65 to be "backtested" by March 16th. In fact, 137.53 was the level that FXE hit on 3/16/10. A failure to break through that level led to 3 straight RED CANDLES. As such, the Euro is now likely headed down towards the 129.22 level (by my estimation, by May, as indicated).


Unless you live on another planet, you probably know what this means with regards to the dollar, and equities in the process. Of course, if you watch television, they'll make up different reasons for what and why is happening. If you choose to believe them, be my guest. Meanwhile, my REPUBLISH of my February 27, 2010 thread.


--- FEBRUARY 27,2010 - WEEKEND EDITION ---


Not much in the way of sports this weekend except for the BIG GAME between the US & CANADA for the Gold Medal in Mens Ice Hockey in the Olympics.

Also, the NFL combines have started so its time for football fans to get a sneak preview at the April draft prospects, and how their beloved teams may re-shape themselves during the offseason.

Next week, the first "spring training" games start in the Citrus & Grapefruit Leagues, and, of course, the selection committee, next Sunday, will set the field for March Madness after the completion of the conference tourneys (which begin next week).

I thought I'd stick a little to business this weekend (or, UNFINISHED business, as the case may be). The UNFINISHED business has to do with the timeline needed to backtest some levels in all markets, and if indeed the rally from the March '09 lows is complete and re-testing, OR, if markets have another "leg up".

I thought I'd start a little with the EURO here (because it has recently been the center of attention with regards to the debt problem in Greece and other Euro zone countries). The Euro has been hammered recently, but the question is, is it positioned for a "technical bounce" here? If so, how high is that likely to extend, and how much does that effectively PUT ON HOLD moves in other markets?

I'm going to apologize in advance the "graphics" & annotations on the chart I'm using. It's really the only chart I use that does a good job of "locking on" to price levels and other geometric stuff like that. First, the chart, afterwards, I'll narrate a little further my annotations into a story line.

I started out all the way back at the October '08 lows (a period when everyone remembers the rush to the "safety" of the dollar during the credit debacle). I like to use PIVOTAL moments like that because I think they tend to reflect raw sentiment. The "sentiment" or "strength" indicators (like RSI & MACD) are usually good reflections of that. The first thing you notice from that time line is that the UNWIND (back IN to the Euro) happened rather quickly thereafter. Even though the Euro made many subsequent waves both up and down, the December '08 OPEX period was where the main thrust part of the move ended. As the market continued to show nervousness through the March '09 lows, the Euro reflected that yet again. Then, as it bottomed, together with equities, it was as if it was decided in that moment that the dollar would act as the "currency du jour" for the carry trade all through '09. 

That idea showed signs of being tired in the June '09 time period, and again in the September '09 time period (3P&ADH maybe? - just prior to the dome). But it was if the market said, in September, "hell yeah! lets just ride this baby out a little farther!. Finally that upper trend line (from December '08) was taken out to the downside as equities were weak in the latter part of January '10, but I believe the Euro is still responding to the levels which were established clear back in the fall of '08. On the chart, I've made those wedge patterns BOLD.

Oftentimes one can use WEDGES such as this as "time" indicators. Time expires when the wedge expires, and the price level at the expiration dictates as to whether or not it's currently OVERSOLD or UNDERSOLD. Against all odds, many times the price will magically revert to those prices so as to complete the picture.

It should be as clear as day (in looking at the FXE chart) what I expect the Euro to do and more importantly WHEN I expect it to do it by. After that, it's a matter of looking for the NEXT POSSIBLE gravity point. Using FIBONACCI levels (from the high of FXE @151.27), it has already taken out the lesser FIBOS to the downside. the current two levels in question are:

.09 = 137.65 (which has already been taken out, but hasn't been backtested)

.1457 = 129.22 (which has yet to be reached, often DOES when a previous level is taken out)

Therefore, the "latter" number is my target. It should be clear on the chart that I anticipate that level could be reached on or about the first week of May 2010. (You can see the "price channels" I've drawn to reflect that possibility)... But the question is... "A little backtest first?"  (perhaps back up to around the 139 level, which would complete the longest existing wedge pattern AND cover the February 4th chart gap in the process). Place your bets!

VERY IMPORTANT NOTE: In drawing your own conclusions, note also the lines which are not bolded. They represent destination & resistance points as well. As of Friday, FXE appeared to be poised to break out of the most recent declining wedge. That is often done with a very sharp and decisive move. But it could do that and simply "wither" thereafter. 137.65 is also an important FIBO number and it corresponds with the next declining wedge price channel. That could be reached as early as next Tuesday or Wednesday. In the end, FXE may never stretch as high as the 139 lever OR fill that 2/4 gap. Failure to extend much past 137.65 without extending further will likely mean that everyone will just have to sit around and drum their fingers until the "gravity switch" from the BOLD WEDGE expires. What I like though is how the subsequent wedge lines seem to point to a 129.22 conclusion in May... For those of you who have been following some of my other charts & conclusions, that idea corresponds with some levels in the dollar, and in gold that I've discussed before.

The broader picture, immediately, of course, is that any STRENGTH in the Euro in the next week or two will likely be reflected, at minimum, in a failure to muster a rally in the dollar. It also probably means that equities may remain buoyant until this plays out. I want to be clear that I don't expect this to happen in a straight line. In fact trading might be very choppy here (because to those focusing on "shorter term" patterns it might all seem confusing). 

Remember the MACRO picture as well. Greece has until March 16th to come up with its deficit proposal. If you believe in "market manipulation" theories, it would be easy to conjure up a scenario where Euro shorts are SQUEEZED OUT OF TOWN here on rumors that Germany is going to take a "hardline" approach to this. I expect to see a bunch of headlines on Germans grumbling about Greeks and Greek "austerity" measures.

It's all a show, and don't worry, CNBC will do their best to tell you what happened AFTER it happened, and fit the news story to the price movements.