Monitor Yen Crosses for Breakouts; S&P 500 Monthly Key Reversal

DailyFX

3 month triangles in USDJPY and EURJPY may give way to breakouts although the proximity to the apex in both warns of false moves. A rare monthly key reversal unfolded in the S&P 500 and USDZAR volatility remains favorable for active traders.

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USD/JPY and Nikkei 225

Daily

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Monitor_Yen_Crosses_for_Breakouts_SP_500_Monthly_Key_Reversal_body_usdjpy.png, Monitor Yen Crosses for Breakouts; S&P 500 Monthly Key Reversal

Chart Prepared by Jamie Saettele, CMT using Marketscope 2.0

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- USDJPY trade since 5/22 may take the form of a triangle, a common continuation pattern.

- The apex of the triangle (black lines drawn off of highs/lows and red lines drawn off of closes) occurs 9/26, 91 trading days from the 5/22 top. Today was the 72nd day of consolidation, which is more than 75% of the distance from the top to the apex. The risk of a false breakout increases after the 75% point however (Edwards and Magee, Technical Analysis of Stock Trends).

- At turns, the Nikkei 225 (NK) and USDJPY have diverged (failed to confirm price extremes). Both topped on 5/22. At the June low, the USDJPY low wasn’t confirmed by a new NK low. At the July high, the NK high wasn’t confirmed by a new USDJPY high. At the August low, the NK low wasn’t confirmed by a new USDJPY low.

-The Nikkei decline from the July high may take the form of a wedge (in Elliott, this would be A-B-C with wave C as a diagonal). Such patterns often give way to sharp reversals.

Strategy – Monitor for swing trade breakout above 99. Also, support before the August low is 97.60 and 96.70.

EUR/JPY

Daily

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Monitor_Yen_Crosses_for_Breakouts_SP_500_Monthly_Key_Reversal_body_eurjpy.png, Monitor Yen Crosses for Breakouts; S&P 500 Monthly Key Reversal

Chart Prepared by Jamie Saettele, CMT using Marketscope 2.0

- EURJPY trade since 5/22 may also take the form of a triangle, a common continuation pattern. The risk of a false breakout due to the proximity of the apex applies to EURJPY in the same manner as USDJPY.

-Triangle support crosses 129 early next week. The close of the August low day (8/12) is 128.87 and is also possible support.

-The decline from 132.42 (8/23 high) would divide into Fibonacci proportion at 128.84.

Strategy – Monitor for a breakout / monitor for support just below 129 for long entry. Beware a false break, especially if lower. 127.50 (close of the large range day on 6/13) is possible support below the August low of 127.96.

S&P 500 2009-Present

Daily

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Monitor_Yen_Crosses_for_Breakouts_SP_500_Monthly_Key_Reversal_body_inx.png, Monitor Yen Crosses for Breakouts; S&P 500 Monthly Key Reversal

Chart Prepared by Jamie Saettele, CMT

- The S&P 500 traded to the trendline that extends off of the November 2012 and June 2013 lows. Price has touched the line 2 of the last 4 days.

-8/27 NYSE TRIN at the close was 2.66 (previous instances going back to the 2009 low indicated in red-the chart below plots instances from 2005 to 2009). Extremely high TRIN readings can indicate panic lows or the beginning of larger declines; thus the current juncture is CRITICAL.

-Failure to hold and 1600 (April high at 1597 and 6/6 low at 1598) will be seen in short order.

-Monthly JS Spike (2 charts down…key reversal with range >= 12 month ATR). In the last decade, bearish spikes have led to at least several months of consolidation. The most recent instance was July 2007. That high was revisited in October 2007 before the crisis.

Strategy – Dangerous level to operate. Panic lows, if even as just part of a larger topping process, could come near 1590-1600. If September starts off higher, then will look for a lower high.

S&P 500 2005-2009

Daily

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Monitor_Yen_Crosses_for_Breakouts_SP_500_Monthly_Key_Reversal_body_inx_1.png, Monitor Yen Crosses for Breakouts; S&P 500 Monthly Key Reversal

Chart Prepared by Jamie Saettele, CMT

S&P 500

Monthly

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Monitor_Yen_Crosses_for_Breakouts_SP_500_Monthly_Key_Reversal_body_inx_2.png, Monitor Yen Crosses for Breakouts; S&P 500 Monthly Key Reversal

Chart Prepared by Jamie Saettele, CMT

USD/ZAR

Weekly

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Monitor_Yen_Crosses_for_Breakouts_SP_500_Monthly_Key_Reversal_body_usdzar.png, Monitor Yen Crosses for Breakouts; S&P 500 Monthly Key Reversal

Chart Prepared by Jamie Saettele, CMT using Marketscope 2.0

- USDZAR traded to its highest level since March 2009 this week before closing near the low for the week.

- JS Spikes (see below chart) formed on 8/22 and 8/28. I classify these as key reversals from at least a 20 day price extreme (in this case it was a 4+ year price extreme) with a range at least as great as the 20 day ATR. Previous instances are circled on the chart.

Strategy – Looking for a high next week. 10.31-10.33 is the estimated resistance zone. First big support is probably 10.10. Must keep an open mind here with respect to larger bull trend and be ready to cover and go long on approach into confluence of trendline support (see below).

USD/ZAR

Daily

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Monitor_Yen_Crosses_for_Breakouts_SP_500_Monthly_Key_Reversal_body_usdzar_1.png, Monitor Yen Crosses for Breakouts; S&P 500 Monthly Key Reversal

Chart Prepared by Jamie Saettele, CMT using Marketscope 2.0

--- Written by Jamie Saettele, CMT, Senior Technical Strategist for DailyFX.com

To contact Jamie e-mail jsaettele@dailyfx.com. Follow him on Twitter @JamieSaettele

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Jamie is the author of Sentiment in the Forex Market.

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