02 May Updated GBP:USD / Cable Analysis And Long Position Entered
The following analysis was intended to be a continuation of that detailed last Week in this post.
Having entered a long position (1.6171) today primarily based on that previous analysis I decided to run the ruler over Cable again, but this time findings are a little more mixed. By the end of this post it’s possible I’ll begin to have doubts about the probability of my long position delivering the result initially envisaged.
Running through almost all time frames, I’ll start with the smallest and work through.
The recent trend has clearly been upwards, the 15 minute chart is a great example of the 200 MA hard at work in support of the trend we’ve seen. As you can see though, it has finally succumbed:
Moving to longer time frames we’ll now need to establish whether this is a mini intraday correction, or whether it shows signs of something deeper to follow.
The hourly chart offers a little more information. Price has broken down from a rising wedge, but only to find support on the Hourly 200 MA which is fairly normal price action in a trend such as this one and does form part of my decision to take the long entry at this level:
The 4 hourly time frame offers a further insight into the reason for my long position. Price broke out from a rising wedge, often a pattern associated with bearishness, but can be exceptionally bullish when price breaks out to the upside. In this instance, price has fallen back to re-test it’s breakout level which again is quite normal price action, but failure of this level to offer support could be a warning signal that all is not well. Furthermore there is a clear negative MACD divergence in place. At this stage I’m not overly concerned about this because MACD can continue to show negative divergence for lengthy periods of time whilst price continues to trend upwards. The concern is when price breaks through major supports alongside that negative MACD divergence. At this early stage, there are no signs of that occurring:
The Daily time frame display’s one of the primary reasons for my long position, but it also suggests caution. The Fibonacci extension shown on this chart is taken from the May 2011 swing high through to the January 2012 swing low. Price has broken and closed above the 61.8% retrace level from that 2011 high. It is natural for price to re-test that level as potential support and this occurred today hence forming my entry price. If price slices through and closes below the 61.8% Fibonacci level, I will have serious doubts about this trade, at least in the short term, and I will most likely stop out the long position. We also have a potential negative divergence forming and this needs to be watched closely for confirmation.
The Weekly chart shows price well above all of the major Moving Averages, but the 1.6280 level has been a previous source of resistance. If I’m still holding this trade next Week, I’ll need to watch the 1.6280 level carefully as failure to gain traction beyond this level is likely to result in a deeper corrective move back down or even a continuation of the macro down trend:
Finally another look at the Quarterly chart. Those converging MA’s at the top of the 3 year triangle and the fact that MACD appears to be very close to crossing upwards allows for an exceptionally bullish outlook. Upside MACD crosses on the Quarterly chart have historically resulted in significant upside gains whilst those MA’s are certainly attractive from a technical view point. However, this is a big chart, and it’s pretty useless if it’s not being supported by shorter time frames as the draw down could be significant before any real attempt is made to achieve those upside “targets”:
So, in conclusion it’s fair to say this post has gone some way in putting me off the trade! That’s the complete opposite of what I was looking for when starting out! At the time of writing the position is showing a 28 point profit, but these charts show good reasons for taking a position in either direction, but I don’t think that’s necessarily a terrbile thing because to me it means the line between bull and bear is tight, and if that ‘line’ breaks I can exit the position for minimal loss and maybe even reverse the position with a clear vision of likely targets, whilst if bulls win this battle, I can run a position that had no draw down whatsoever. The outcome will be interesting.