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Over time our charts become cluttered with trend lines and other technical indicators, and the old lines can cloud analysis. » Read More
The Euro Stoxx 50 provides a proxy to the slow moving crisis that is consuming Europe. The result of the weekend Greek elections were a relief and this was reflected in substantial rebounds in most indexes.
The rise in the Dow Jones Industrial Average is limited by a significant resistance feature, which is derived from the dominating chart patterns on the index.
The crisis in the euro zone continues to get worse. The euro has fallen to support near $1.29. A fall below this support level has a new support target near $1.24. The weakness in the euro is counterbalanced by increasing strength in the U.S. dollar index. Analysis of the index suggests a significant increase in the dollar index, and in turn, a significant fall in the euro.
Weak euro/dollar, strong dollar Index and weakening gold price. That’s the new relationship and it’s infuriating some gold bugs. As much as many traders think gold should go up the weekly chart of Comex gold suggests there are some serious barriers to a price rise back to $1,750 an ounce or $1,850.
This time of the year is usually the time to look forward with forecasts for the next year. For us, it’s time to look back. Trading the market is a hazardous business. It’s based on analysis of the market and the assessment of probability outcomes.
One characteristic of the modern market is the high level of volatility. It manifests itself as very fast moves, particularly on the downside and with large intra-day ranges. The result is that pattern projection targets are often achieved very rapidly.
Hong Kong’s Hang Seng Index retains its volatility, but remains in a strong downtrend. This provides short term long side trades, and longer term short side trades. A retest of the 2008 lows cannot be excluded.
The first observation about the Hang Seng is obvious, but still ignored by many. The Hang Seng is not a substitute for trading the Shanghai Index. The behavior is very different. Starting at the end of the first quarter in 2011 the Hang Seng developed a strong and persistent downtrend.
The downtrend line is the dominant feature on the chart. This line is the ultimate cap on every rally in 2011 and it will be the most important rally cap in 2012. This is a well-established resistance level. A breakout above this line will signal a major change in the trend and will be the most important long-side trading signal.
The fall is defined by the trend line, but the limits of the fall are defined by the support and resistance levels. The most significant current support level is near 17,200.
A sustained fall below this level has support near 15,800, which is the level of the small consolidation band following the depths of the 2008 collapse. This is as market well on the way to retesting the 2008 lows.
Traders can enjoy the rallies, but they must keep a close eye on the resistance levels, and the value of the downtrend line. These are reaction points and the points for taking profits from long side trades.
On balance we are bearish on the Hang Seng but we also look for evidence of consolidation and a powerful move above the downtrend line to signal its time to take long side positions.
Daryl Guppy is a trader and author of Trend Trading, The 36 Strategies of the Chinese for Financial Traders –www.guppytraders.com . He is a regular guest on CNBC's Asia Squawk Box. He is a speaker at trading conferences in China, Asia, Australia and Europe.
If you would like Daryl to chart a specific stock, commodity or currency, please write to us at ChartingAsia@cnbc.com . We welcome all questions, comments and requests.
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The Euro Stoxx 50, the leading blue chip index for the euro zone, has seen steep declines so far this year given the region's debt crisis. Based on technical analysis, it seems the index could fall a further 20 percent to test 2008 lows.
The Euro Stoxx 50 chart is dominated by trading bands created by well established support and resistance levels. The upper resistance level is near 3,050. It has acted as an effective cap since late 2009, trapping performance.
Several weeks ago on CNBC Squawk Box we discussed the breaking news that Goldman Sachs had sold more of its stake in the Industrial and Commercial bank of China (ICBC).
A weakening China economy is a further weight on global indexes. The current global fall may have been started by the euro zone collapse but many have looked for resilience in the China economy and China demand to help lift other economies. Some counties like Australia have built an entire economic recovery strategy based on assumptions about continued China growth.