Contributor Since 2009
Thursday 12 January 2012
Finding good trade set-ups is not always easy. It is a matter of
sifting through charts and time frames, looking for a form of synergy.
The Swiss Franc appears to have a great set-up potential. The
Quarterly chart, not shown, caught our attention. The 3rd Qtr 2011
dropped from 141.67 to 109.16, 3,250 pips. The 4th Qtr decline was
from a high of 116.82 to 104.74, 1,200 pips, or one-third the previous
The current 1st Qtr of 2012 is just under way, but there has been
almost no downside follow-through from the above declines. What
makes that significant is where the decline stopped, with shorter .
ranges. [Remember, shorter ranges means there is less selling
pressure and more buying to prevent price from extending lower].
The monthly chart shows greater detail of what was described in the
Quarterly. The monthly bars were progressively smaller during the
decline, as well. Here is the importance of where price stopped.
Back in 2008, price peaked at 104. After a failed swing high in 2009,
price traded right at the 104 area, absorbing sellers for four months
before breaking upside on a strong move bar in December 2010.
That led to the rally to recent highs.
Interference from central bankers forced the Swiss to realign its
currency with the Euro, and price dropped like a proverbial lead
balloon. Two things began to happen, starting in October, 4th bar
from the end. October's range was considerably smaller, and the
net downside low was even smaller. The same held for November,
3rd bar from the end... a small range and hardly lower than the
October low. December's range was smaller yet, and now January.
The January low is 104.31, 31 pips above the 2008 swing high. It
is only 31 pips, but it leaves spacing, however small, telling us
buyers were willing to enter the market without waiting to see if price
would go lower. Quarterly charts are slow in developing and less
sensitive to overall price movement, but it managed to hold 31 pips
above the 2008 swing high, 31 pips being insigniificant in that larger
time frame, much like a flea on an elephant
The trend in the quarterly chart is up, and the trend is also up in the
monthly time frame. Whenever price exceed an important swing high,
rallies, and then comes back to the original breakout area, [104 in the
Swiss], it is one of the BEST buying opportunities! Bear in mind, we
are still in higher time frames, not used for timing, so what do the lower
time frames show?
The weekly does not show spacing, but you can see how price has
been just drifting lower in a labored manner, since the October 2011
high. We draw a contrast between two relatively high volume bars.
The first bar, 5th from the end, is the week of 12 December 2011.
It was the low since the 140 area high. Volume picked up, the
highest in over three months, and the close was just above mid-
range. From that, we can deduce that buyers were stronger than
sellers because price stopped going lower, and the close favored
buyer's effort over sellers when sellers are supposed to be in total
Three weeks later, we see another new low, by just 23 pips, and a
close on the bottom of the range, but volume is less than the 12
December week. We should expect to see lower prices, based on
that bar. It may yet happen, but right now, price is holding and even
staging a small rally. Sellers had an opportunity to drive price lower,
but they failed and failed at what is becoming an important line in the
sand for support.
A horizontal line is drawn from the December low. Price is
vascillating below and above that support, putting price at a "danger
point" for buying; it can still fail to hold. Note how volume has picked
up at these current lows. We could be seeing weak longs getting
stopped out once the December low was exceeded, maybe even
new sellers, but one thing is certain, with the increase in volume,
buyers are showing they are in control.
The highest volume since late December was Thursday. Price
rallied and closed strongly, telling us buyers were in control, and all
of this is occurring above the 2008 swing high. The daily chart acts
well at an important support, also showing as support on the weekly,
monthly and quarterly, a form of synergy converging at a focal price
area over four different time frames.
We opted to go long on a 104.80 buy stop, just above the small
range rally failure on Tuesday, with a stop under the lows, and it
was triggered during Thursday's session.