CLIFF NOTES: trust your indicators.
MONTHLY RSI (blow up) – when I use to teach the capstone CMT Level III course RSI portion I used to say “look for the key transition.” The market will tell you when it’s “shifting a grid,” so to speak. The Monthly RSI is showing us that the BEARISH RESISTANCE zone 55-65 have held every rally attempt…HOWEVER, NOTE THAT THE LOWER END OF THE BEARISH SUPPORT ZONES HAS NEVER BEEN TOUCHED AND WE HAVE HIGHER LOWS. Talk about a mind screw … the resistance zones are clearly showing a BEAR market while the lower end is almost right in between the lower zone of BULLISH support and BEARISH support ON THE RSI. Folks, that’s a triangle for you. One of the other things that I used to teach is the vaunted “RSI M” and note at current levels we have an M formed at the end of a 1.5 year leg. We have to wait for the end of the month to see if it closes below that horizontal blue line, so be patient if you are a longer term swing trader – like me. MONTHLY RSI CONCLUSION: a hint to the downside, but no major grid shift evident (a BEAR or BULL market) evident till we test the RSI support zones.
Weekly RSI: The bearish RSI resistance zone has worked, like the monthly throughout this long, consolidated 5 years. As we dove into lows at the 1.2 level notice we even went to bottom of the RSI bearish support range. BUT THEN A KEY TRANSITION OCCURRED !!! The market came down and bounced off the TOP of the RSI bearish zone (30) and then the next support range bounced right off the lower end (40) of the BULLISH RSI support zone (denoted by the green horizontal line on the RSI) Folks, this is the “grid shift” we discussed and really throws this into a neither BULL or BEAR state of affairs. An, notice the “depth” of the RSI correction in comparison to the move in price … RSI dove for the deck, price corrected buy not “that much” and we found support right on the BULLISH RSI SUPPORT zone. Folks, this is, actually a BULLISH weekly RSI indication. WEEKLY RSI CONCLUSION: oversold finding support on a BULLISH RSI support zone … a continued bounce up in the foreseeable picture?
DAILY RSI: key here is as we were making HIGHER highs from Oct 2013 to present, the RSI was making LOWER LOWS …KEY IS right at the upper end of the bearish RSI zone resistance. Then, as we dove down from the highs made in May ’14, we found SUPPORT in the BEARISH RSI SUPPORT ZONE. The Daily chart is telling us we are working into a bearish break.
Given this look at the longer term RSI’s we now can state that since the highs in 09′ the BEARISH RESISTANCE ZONES have held and that has been marked by LOWER HIGHS. However, the contracting nature of the price action is such that on a Monthly and Weekly basis, the RSI transitioned to finding support in the BULLISH RSI band. In this type of situation a triangle or contracting type of price action is evident and, most everyone, get’s chopped up like the meat grinder in Pink Floyd’s The Wall.
in a triangle, the corresponding waves are supposed to be .618 of each leg the proceeded it … in this case our UP moves are .886 (exactly) and .618 that makes up the “e” leg of this potential scenario. This is important … please see below:
also, note that from the high we traced a 5 wave move down (bold blue lines) that do not break any “counting rules.” So, the ramification is this is 2nd or perhaps B wave triangle completing and we are starting a 3rd of 5 down or a C wave. Time will tell …
So what do we do to position?
1. there is a “minor” pattern completing in/around 1.3620. I don’t like this because the pattern “isn’t complete” w/ regards to C
2. we have a flat completing around 1.3680. that “could do it” but w/ the FED talking a BIG OLE’ BUY program could rip this thing 100-1550 pips easily.
I would expect each of these areas to be resistance zones but …
3. I really like the 1.3800 area due to a LOT of numbers coming together and the “pattern” completing and making sense.
My “hope” is that we do not break thru the lows but RALLY UP into the targeted short zone….guess only time will tell but here is a pretty well thought out gameplan.
Enjoy the ride …