image007-712024

LSE:AFR – Breakaway Gap Confirmed

Quite a few bullish candles have formed across the FTSE today on high volume which confirms the Breakaway Gap on Afren.
This leaves 2 options on how to handle this stock
– Enter live at market tomorrow with a stop beneath today’s low, or beneath the gap (in case the gap may still be filled)
– Wait for a retracement towards the gap to achieve a better reward/risk – however your order may not get filled.
The thing to remember about breakaway gaps is they tend to mark the beginning of a large trend, so you could even use a simple buy and hold strategy with a wider stop. Seeing as mining stocks have a large impact on the FTSE then it also provides an insight into how the FTSE (and correlated markets such as US Indices, AUDUSD) may behave. I’ve also included a couple of other mining stocks below that may be of interest.

Read More

image002-747794

GOLD – Point & Figure

– Gold has retraced to its intermediate P&F trendline.
– This leaves potential for a bullish retracement so I’ll be monitoring this chart to see if a bottoming pattern forms.
– A close below 1550 is bearish.

Read More

image001-713042

ALOCOA vs ALUMINIUM

With Alcoa being a leading producer of Aluminium it shouldn’t come as too much of a surprise that the company has a well formed relationship with Aluminium prices.
– Last two primary tops of Alcoa provided a 1-3 month lead for Aluminium top
– Aluminium bottomed 1 month before Alcoa to provide a buy signal
– Both markets are within a downtrend so look out for either to provide the lead for a buy signal in 2012
– Relative strength should provide a clue here if it breaks its current downtrend line
– They currently correlate very closely (0.8 out of 1) so expect the correlation to drop once either Alcoa or Aluminium take the lead (historically Aluminium has bottom first)

image001-768729

FTSE SECTOR – GENERAL INDUSTRIALS (NMX7570)

– Recently broke its Relative Strength descending trendline against the FTSE
– Both markets are currently consolidating, but General Industrials is potentially a market to watch for longs next year
– I’m looking for a close above 2750 to confirm a bullish move within this sector
– Generally correlates with FTSE
– Stocks to monitor: REX, RPC, SMDS

image001-748050

RIO TINTO PLC vs NICKEL

The primary uptrend from ‘09 produced some interesting signals once compared with Nickel.
– Whilst both were in a steady uptrend, the Ratio Line between the two would have quickly shown which market was most favourable to buy.
– Rio topped prior to Nickel on each occasion.
– Nickel broke its own trendline 3 months prior to Rio providing a very early warning that Rio’s trend may change – although in that time Rio also produced a lower high.
– The last two times Nickel topped the correlation between the two were near zero.
So there seems no clear leading signal – but the 2 markets do seem to work in harmony with each other which in itself is of use (ie Dow Theory). However, because both markets are currently in a downtrend the ratio line signals will be of no use as this is primarily a bullish tool. But should either market break their descending primary trendline then it may provide an earlier warning that the other market will also change its trend – and then the ratio line may be of use again to provide such signals.
These signals may never happen again… but I’ll certainly be monitoring these two markets next year.

image001-710440

AUDNZD vs Copper

Comparing Copper ETF to AUDNZD suggests Copper could be a viable leading indicator for this Commodity FX pair on a longer-term basis (weeks or months). The lead time varies between 1-3 months but so far has produced 3 reliable signals, warning of a trend reversal or continuation on AUDNZD. Also interesting to note is the correlation between Copper and AUDNZD as being generally low (between 0 and 0.4) so these 2 markets could even be traded alongside each other without worrying too much about the markets mirroring each other on a longer-term basis.

image001-778644

USDCAD vs OIL

In 2012 I intend to study inter-market relationships to help invest longer-term trades, so here is just a quick post to get the ball rolling where I’m studying the relationships between FX and Commodities.
1st Chart – USDCAD Daily
2nd Chart – Brent Oil Daily (violet)
                   USDCAD Relative to Brent Oil
3rd Chart – 20 and 60 day correlation between USDCAD and Brent Oil
Interestingly the relative strength between the two instruments broke its own trendline, providing a 7 day lead for USDCAD to also break its own trendline. By the time USDCAD has achieved a higher high to confirm the change in trend you’d have had 3 months warning that a new trend may be taking place.
Conclusion
– USDCAD and the USDCAD/Brent Ratio Line are both in a steady uptrend – so it may be worth taking a longer-term long position on USDCAD. (Also note the symmetrical triangle forming on USDCAD)
– However if the Ratio Line were to break the trendline then this may provide an earlier warning that the uptrend in USDCAD may be nearing an end, or provide a lead to invest in oil.

image001-794525

TRADE: AUDNZD

By monitoring 3 crosses you can start to build up a game plan
AUDNZD has been forming a pennant/flag for a few weeks now which once confirmed is a continuation pattern.
For extra confluences we can look at other AUD/NZD crosses…
– GBPAUD has hit a resistance level –  if this hold then this confirms weakness on GBP and strength to AUD
– GBPNZD I’m still long on this after taking partial profit to let the trade ride. However a retracement is likely after an extended daily bar which also hints at GBP weakness (short-term) but overall NZD is weaker than AUD and NZD. This provides a clue to take AUDNZD long if it confirms the pennant.

image001-759227

LSE: HOME

  • Evening Reversal pattern formed near resistance at 100 (50% retracement level)
  • Shorting below 91
  • Targeting 73: Swing low and heavier volume on Volume Profile

***

“Trade what you see, not what you think…”

Follow @cLeverEdge

image001-762122

LSE:NXT

  • Potential head & shoulders pattern forming
  • Today saw a heavy sell-off to test the trendline but closed upon it.
  • A close beneath prior swing low confirms the patterns and projects a target to around 22.46
  • This target also meets the potential rising trendline from March 2011
  • Ratio line trend has broken showing change in relative strength between FTSE100 and Next Plc
  •  Volume profile (2nd pic) shows active trading around 25 – if this level breaks then volume profile has been very thin until around 22-23, and these thin areas of volume can act as vacuumes and provide little support for a decline

***

“Trade what you see, not what you think…”

Follow @cLeverEdge