Friday 26 February 2010
Many time a turn in price direction will occur when there is a clustering of closes.
The reasoning is because a cluster of closes reflects an on-going “battle”
between the forces of supply and demand, buyers v sellers. It may not be
ending action for a trend, but it can often be stopping action, for a period of
time.
We talk most frequently about the 50% retracement area of a move to denote
a relative measure of strength or weakness. Here, we have included a Fibonacci
retracement range to show how price is clustering between the 50% level and
a .618 retracement. Just as we mentioned in the British Pound article that
nothing is ever exact, because in the Pound price had marginally broken the
50% level, and in the Euro, 50% was also broken, but .618 is holding. See
British Pound – Reaching Support? , [click on http://bit.ly/91sAOb, 4th paragraph].
[We are writing this article early in the trading day, and price has been rallying
as we write.]
What makes the clustering observation more pertinent is the addition of
volume, noted on the bottom of the chart. It has been increasing while price
has been declining, but the net decline was treading water, in terms of results.
The volume and price activity, at this juncture, reflects a transfer of risk from
longs to shorts, letting let short sellers in…those who “do not want to miss the
move.”
Where we mentioned the British Pound was on a “watch alert,” the Euro is a
more pressing issue. The Euro may be a buy on breaks, as it continues to
exhibit turn-around strength.
