As you are probably well aware – trading isn’t hard, it’s just not easy!
Over the past weeks we’ve posted twice looking for a counter trend rally in the EURO vs USD:
Did a bounce occur at the levels we were looking at? Yes.
Was it a meaningful bounce? Yes and No.
Yes: levels were respected and a bounce occurred.
No: levels were defeated within a couple days of the bounce.
So, where is the Euro at now?
- RSI (weekly) at the lowest level since the inception of the EURO with bullish divergence.
- Sentiment against the EURO is an all-time high.
- A “clear” 5 wave down count is visible.
- We are due for a very strong countertrend bounce.
If you follow Elliott wave then you are aware that a “bounce” will target wave 4 of a lesser degree. That’s approximately 800 pips up from the downside target that I’ll show or 600 from current levels.
What’s that mean?
- If you are thinking of blindly “shorting” then there is risk potential to be underwater for a while.
- If you’re looking to take advantage of a countertrend move and then put all of the capital gained to risk to get with the trend after the bounce then read below…
The equal octave scale of music plays (pardon the pun) a very important part within the context of liquid securities. The square root nature of music is responsible for EVERY pivot in the market. (Email me if you want an explanation) As a review, the ebb and flow of the musical markets is based on two principles:
- The frequency of a string is directly proportional to the square root of it’s tension.
- The frequency of a string is inversely proportional to the square root of it’s weight (length)
- If you read some other financial sites you’ll see technicians refer to, say, the .786 retracement as a Fibonacci level. Folks – it isn’t.
- 1.618
- Square root: 1.27
- 1/1.27 = .786
- Where does the Fibonacci series talk about square roots and the inverse of square roots? It doesn’t…
So, if we are to pull the trigger on MUSIC (trust me, it sure isn’t based on the fundamentals of the EURO-zone) then we need to see if a musical level is/was respected before.
As you can see from the chart below – the .9438 retracement level has been respected. You can see where the .9438 comes from on the chart below.
Thus far, every swing low, on a weekly basis, has respected this level. With the signals above as a backdrop and the fact that every swing in the Euro has stopped at .9438…what do you think? Also, note the blue measured move arrows that go into the levels shown. They are the same move down into the .9438 retracement level.
Below you’ll see the daily chart. Note the blue shaded box. Unfortunately, that entire area is a target. Why unfortunate? Well, it’s a 150 pip range. So, be patient and watch these levels – closely.
Follow Bart on Twitter: @BartsCharts
No position in any of the mentioned securities at the time of publication. Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.
