I was watching the markets in an on again, off again fashion today.  The range in Spoos was around five handles; even a good Chicago PMI report couldn’t break them out of the doldrums.  After the PMI, I pulled up the chart for the March British Pound futures; I wanted to see if yesterday’s break would see follow through.

The daily chart is below.  Coming into today, I was watching to see if they would follow the sideways channel, then break pattern they made earlier this month; the low on 12/9, then a break on 12/17 (I drew a green circle around the period in question.).  Yesterday saw a break below the 12/22 low at 1.5912; would it follow the structure from earlier in the month?

Daily British Pound Futures Chart

click to enlarge

Obviously it did something different; thinking in “Taylor” terms helps to understand and exploit action like today’s.  The key is to think of “excess”.  There were undoubtedly traders who sold the breakout under the 12/22 low.  Lack of downside follow through this morning meant there were4 shorts who were likely about breakeven on their shorts; a rally would put the squeeze on them.  As 1.5912 was the downside breakout level, a move back above there would mean recent sellers were now in losing trades.

The 30 minute chart below shows today’s action.  This is a great pattern to look for as it’s likely to have “positive feedback”, a self-reinforcing move as short covering attracts more buying, then more short covering as it moves higher.  By mid morning it took out the top of the channel at 1.6016.

30 minute British Pound Futures Chart

click to enlarge

Will yesterday’s rally continue?  Holding over the top of the channel at 1.6016 is bullish.  On the daily chart, the upper trend line comes in at 1.6064 tomorrow; a move over there would be bullish

This is a sample of the analysis from my Swing Trader’s Insight advisory service. For information on STI, and to sign up for a free two week trial, visit here.

The information contained here includes information from sources believed to be reliable and accurate, but no guarantee is made as to accuracy, nor do they purport to be complete. Opinions are subject to change without notice. Past performance is not necessarily indicative of future performance. The risk of loss in trading futures contracts or commodity options can be substantial, and therefore investors should understand the risks involved in taking leveraged positions and must assume responsibility for the risks associated with such investments and for their results.

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