Intermarket Action Showing 1st Signs of Concern

The $GBPJPY has a huge wedge on the weekly chart but it has been difficult to catch a move on this currency pair. Shorts at the top of the wedge just above 147.00 level had to contend with choppy price action. After a few weeks price finally broke down lower to the 144.00 support, and former resistance, level. The reason why I don’t think we’ve seen a huge correction is because we have been moving in such a way that allows momentum measured by the RSI to reset. With the measured move lower to the 144.00 support level. When the yen caught any kind of weakness, the $GBPJPY moved as high as 146.76, close to the former highs above 147.00 which are the former lows turned now resistance level. However, I think this one will just continue to grind lower. The price action has stair-stepped all the way down allowing momentum to progress naturally lower in the midst of this very measured move to the downside. Until this week.

GBPJPY WEEKLY CHART

If you look at U.S. equities, the major American stock indices have been making new all-time highs all summer. Equities just keep grinding higher despite the divergence in momentum between price and RSI. The divergence has been recently invalidated with momentum make a new high higher than the previous high. However, the other equity markets in Europe, Great Britain and Japan have all failed to make new highs in tandem with the U.S. markets. In fact, the $DAX has already broken below recent lows and the $NIK has failed to move higher. The weak dollar has clearly supported U.S. equities higher. In converse, the strong euro has been killing European equities as of late. The forex market has certainly been a factor behind the divergence in western stock markets.

DAX WEEKLY CHART

SPX DAILY CHART

And in steps North Korea. The geopolitical tension between North Korea and the United States has been building for months. But this week, the warring ideologies escalated to fighting words. The market closed today below the summer highs for the first time since trump took office this year. This looks to be a first, early signal that the market is starting to crack. Will it be 2007 all over again a decade later? Get ready.

What I Wish I Said

I was honored today to be on @spz_trades’s last show on BFTD.tv with @NicTrades. @NicTrades is a superwoman who chatted markets in the middle of a power outage. She rocks. Some of her key observations for 2014 that I took away:

  • $AUDUSD to 0.9000 off the double bottom
  • $USDJPY to 112
  • USD lower and USD pairs higher
  • $EURUSD to 1.43
  • Correction in $SPX, $DAX and $FTSE
  • Stocks will have to rally on their own merit, not QE

I was clearly the student in the room and now in hindsight there are a number of thing I WISH I could say now. SMH. Face plant. So I’ll say them here.

  • I do see $EURGBP higher to 0.8600. I also still see heading lower in 2014 to 0.8000. It might happen way sooner than I imagined if current price action is any indication.
  • $GBPAUD is due a correction lower. Much lower. But if it were to correct to 1.7670 the 50% Fibonacci level, hold, and rip to new highs at 2.10, it would be the trade of the year.
  • Other great follows right now on Twitter for new traders that I didn’t mention: my traders list

I love that this blog gives me the opportunity to reflect on myself and remain true to who I am. I don’t know if it was nerves (Nic is a rock star!) or because I had company the night before, but I don’t feel like I came off myself today. Hopefully, you all can enjoy listening in on this chat about markets and trading for 2014.