June Canadian Dollar In Trend Knock Out Pattern
Each evening we focus on the most interesting aspects for the upcoming trading day. The comments are based on observations of the nightly updates of the Futures and Market Bias pages. They are provided for educational purposes only and are not intended to be direct trading advice. Also, keep in mind that these remarks are made up to 12 hours in advance of the markets opening. Therefore, overnight events may alter the outcome of these observations.
As a general rule of thumb, whenever you have 3 or more indicators on the Market Bias Page pointing in one direction it suggests a large move in the index futures. Tonight, we have 4 of the indicators pointing higher. Therefore, look for buying opportunities in the June S&P [SPM9>SPM9] and June Dow Jones [DJM9>DJM9] futures.
The June Canadian Dollar [CDM9>CDM9], on the Momentum 5 List, is a pattern I call a Trend Knock Out (TKO). This occurs when a strongly trending future sells off and takes out (trades below) the prior two (or more) lows. The theory is that the sell off “knocks out†the weak hands and clears the path for the contract to trade higher. Referring to the chart below, notice that the CD has been in a strong uptrend, then today, it sells off (a), trades below the prior 4 days but recovers to close well (b). Look for a buying opportunity here.
Source: Omega Research.
July Silver [SIN9>SIN9], on the Pullbacks From Highs and Momentum 5 Lists, gapped lower but reversed and closed well today. This may have shaken out the nervous longs and potentially clears the way for the contract to trade higher. Look for a buying opportunity here.
July Cocoa [CCN9>CCN9], on the Implosion 5 List, sold off and closed poorly today. Look for a shorting opportunity here as the long term trend remains down.
On the Pullbacks From Lows List, both the June Dmark[DMM9>DMM9] and the June Swiss Franc [SFM9>SFM9] reversed their recent rallies off their lows and closed poorly today. Look for shorting opportunities here as their longer term trends remains down.
Volatility Watch
The June Japanese Yen [JYM9>JYM9] on the Volatility Explosions- Multiple Days List, formed its second consecutive inside day today, a “mini†triangle if you will. This price action combined with a low volatility reading suggests that a larger than normal move (in either direction) is imminent as volatility reverts back to its mean.
Best of luck with your trading on Monday!
Dave Landry
PS-Reminder: Protective stops on every trade!