$/Swiss, Time to Short is Close.....

$/swiss is chopping from yesterday's 6 month high at 1.1085, but there lots of negatives emerging. They include a quick turn lower from yesterday's high (no follow through), a test of longer term resistance at yesterday's high (see longer term below), a market that's overbought after the sharp gains since mid July (see macd near new sell signal at bottom of daily chart below), and potentially forming a rising wedge/topping pattern over the last few weeks (common after sharp moves as experienced since July). These all suggest that risk is rising sharply for at least a few weeks of consolidating and minimum 400 tick retracement (and possibly much more, see longer term). On a very near term basis however, there is scope for more chopping and even slight new highs within the wedge pattern first (see “ideal” scenario in red on daily chart below). So for now, would short an approach/slight break of the 1.1085 high or on a clear break below the base (currently at 1.0910/20). Note, these patterns resolve sharply so would sell on an intraday break of the base (versus waiting for the close). Support below there is seen at the previously broken ceiling of the bullish channel since March (currently at 1.0850/60).

Longer term, with no confirmation that a major bottom is in place, at least so far (no 5 waves up from the March low at .9730), there is some potential that the gains over the last 5 months are a large correction, and with eventual new lows below .9730 after (though confidence is not currently very high). Note too that the market is chopping near long term resistance at 1.1050/00 (both the ceiling of the bearish channel and a 38% retracement from Nov 2005 high at 1.3280) and the market is nearer term overbought (see shorter term above). Clearly not the time to be chasing the market higher for the longer term (even if bullish) and suspect that the pattern of the nearer term pullback will give greater insight into the significance of the March low. One of those situations where the longer term view is somewhat unclear but positionally, want to be looking to get short as at least some downside is likely nearing (see shorter term). Note too that is much better to assess a position and options from strength (assuming if the market does turn lower over the near term, and are short with at least some profits).

David Solin
Foreign Exchange Analytics
http://www.fxa.com

Disclaimer: The opinions expressed herein are those of the author and not a recommendation to buy or sell specific securities.