Friday  9 April 2010

 The highest ever monthly volume caught our attention, last week, and what
made it more interesting was the fact that price did not make much downside
progress, given that huge volume effort.  The close of the March bar was about
mid-range.  What this tells us is that there were enough buyers at the lower end
of the decline to prevent further downside gains.  What one has to realize about
demand, or buying, is that it comes from lower levels, and with the Euro under
133, demand was visible in the

[ We are writing this article early in Friday trade development.  By the end of
the trading day, price closed at 134.80 area, about 100 pips higher than when
we started.]

  Once we saw the monthly, we then looked more closely at the lower time
frames, starting with the weekly.

 EUM M 9 Apr 10

 The weekly has been, and continues to be in a down trending channel.  Note
the higher volume level, third bar from the end.  The low was 132.66, and the
close that week was mid-range.  Just as we explained about the mid-range
close on the monthly bar as evidence of buyers coming into the Euro at these
lower levels, the same occurred on the weekly.  What we wanted to see after
the third bar from the end was a retest that exhibited smaller range bars and
lower volume activity…exactly what we see.

 The price development is aligning with the potential of a turning point, and
that would mean a rally. A daily would help with timing.

 EUM W 9 Apr 10A

 What we see on the daily is a perfect type of retest of the previous high
volume low from last month, that which caught our initial attention. 
Yesterday’s bar was almost ideal.  A higher low from 25 March,
and look at the close…high end.  This tells us that buyers were strong
enough to absorb all the selling activity and overwhelm sellers enough to
rally price to near the high of the day.  Now, all we needed to see was upside
follow-through, and we got that this morning.

 Not shown are the intra day charts.  The 240 minute chart had three
consecutive higher highs on Thursday for the first time since the 136.00 highs,
beginning this month.  That was a subtle positive sign.  This morning, the 60
minute chart began confirming the observations for a potential turnaround.

 Because the trend remains down, and price has not clearly broken out of the
down channel, we opted to buy June Euro for a day trade, paying 133.88.  The
stop was 133.63, and the low after entry was 133.66, whereupon the Euro
embarked on a rather robust rally.  To minimize risk exposure, half the
position was liquidated at 134.34 on the first runnup, and the second half
position was sold at 134.55, after price made high at 134.75, and showed
some selling on a 15 minute intraday chart.  As a day trade, it was successful
collecting 47 pips on the first half, and adding another 67 pips on the last half.

 The market did eventually continue to rally, but because the trend was down
and not fully confirmed as being outside of the down channel, that was of no
concern.  The trend comes first, and if it is to turn around and go higher, we
may get another buying opportunity.  This rally could also be a short-covering
rally, and if that is the case, it will not hold, and being long could lead to giving
up potential profits, maybe even turning into a loss.

 The point here is to learn how to identify a potential turning point, as we did
on the monthly, and know that the monthly time frame is not one for timing. 
Also, respect must be given to the trend, which is still down, and not suffer
exposure being long in a down trend.  Understanding that scenario, taking a
long position only for a day trade makes more sense.  We focus on trend as
the primary consideration in all time frame trading, and then putting the
market structure into a context.  What we just described as our trade captures
the essence of that context.

 Take what the market gives, and not what you want or expect.

EUM D 9 Apr 10