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Flat The British Pound - More Time In A Trading Range Likely

Monday  5 October 2009

A picture being worth a thousand words, here is a three thousand+ word 
article.  We have liked the short side of the British Pound for a few months,
and we have made money, liquidating the final portion of the short position
at 159.45 on 25 September, short from 163.77, in our last shorting effort.

Starting with a monthly chart, it shows a high volume sell-off in September,
a sign of selling activity, and it implies a lower low in October, at some point. 
With the high volume sell-off comes a caveat.  The increased volume did
not make much downside progress, pricewise, especially following a Key
Reversal, [KR], which connotes weakness and a correction at a minimum.


BP Mthly 5 Oct 09

The weekly chart reinforces the noted lack of downside progress from the
above monthly chart.  Last week's range was relatively small, but the
volume was the highest in three months.  The market is telling us that
the surge in volume [market energy] did not yield much for sellers.  The
close was in the middle of the range, showing balance between buying
and selling efforts.  But wait!  The close may say a draw between sellers
and buyers, but volume puts a different slant on it.

The reason why the range did not extend lower on the increased volume
is because buyers came into the market and absorbed most all of the
seller's efforts, enough to rally of the lowest low in four months, keep
price from breaking lower when it was most opportune, and close mid-range
on the bar.  This is a win for the buyers, in that regard.  [More than the
devil is in the details; so is important information!]

The activity also keeps intact the trading range that began in late May,
shown by the horizontal line which acts as support, and support price it did,
last week.  The support line is shown as broken to reflect that it is a future
projection of support from the May lows.  It accomplished its objective of
offering support.

The developing market activity keeps providing important insights re intent.

 BP Wkly 5 Oct 09

The daily chart muddles the higher time frames a little.  Note the low of 28
September.  Volume declined, indicating no selling pressure.  Two days later,
volume surges on a rally that produces a low end close, [4th bar from right]. 
This shows that sellers came in, stopped the rally cold overtaking the buyer's
efforts.  Price stopped at the 1 September and 21 September lows, now acting
as resistance.  Yet, two days ago, a retest of the 28 September lows held and
closed high end, an indication of support.

Need more information.

For reasons gleaned from the monthly and weekly time frames, which are
more controlling, we opted out of the short position and continue to await
more development to resolve when the trading range ends.

The market never lies.

BP Daily 5 Oct 09