$CAD/JPY approaching critical triple top

By @ibtimes on

The CAD/JPY has had an interesting 09′ opening the year around 74.50, dropping about six cents to the lows, while also approaching the 80 handle twice - both producing sell offs.  Its first attempt at the 80 level was in the first week of the new year which was followed with a 1125 pips selloff towards the yearly lows.  After a long march off the lows for 09 (Jan. 21st) it cruised along in a casual saunter towards that 80 handle again and came just shy flirting with it but no kiss.  The pair then dipped to the next round number at 75.00 but then bounced nicely and is making another attempt to take out the big figure at 80.00 again.  Is it going to break or create a triple top?  Take a look at the charts below to get a better idea.

Starting off with the daily chart, we can see for the first time in 7 months the CAD/JPY has broken above the Ichimoku Cloud.  Although the kumo (Cloud) was very thin at the time, this is not too impressive.  Why?  The cloud represents support and resistance in the present and in the future (up to 26 periods ahead to be exact) and the thicker the cloud , the thicker the resistance.  However, in this case the kumo was very thin suggesting it was pretty easy to break through and that there is no clear line of least resistance.  General Ichimoku theory suggests as long as the price action is above the cloud, its in a generic bullish state but the flat and thin moving kumo communicates it has just as much probability of moving up or down with little or no bias.  That being said, the price action and oscillators should offer us more insight as to whether the 80 triple top is a good play or not.

Looking at Momentum first (blue line) we can see some divergence since Oct. last year with price action making new lows (albeit mild) and the Momentum making higher lows with relatively the same highs.  However, as of late the momentum reading has yet to dip below the zero line since late Jan. and is consolidating.  When momentum consolidates, it usually means the pair will continue what its been doing.  Since its been climbing, the pair should continue to climb.  Thus, the vote for momentum is we should attack the recent top at 80.

CCI also tells an interesting tale.  We’ve not had two attacks on the +200 level which is generally an indicator of overextension (particularly on the Daily chart).  Everytime CAD/JPY has hit/attacked the 80 level, its reached 200.  However, what is interesting this time is that how the CCI reads much differently than the last time.  When it first hit +200 and price hit 80, the pair went on a six day sell off and CCI went from +200 to a negative reading in 4 CCI bars.  However, most recently it has only dipped to 97.44 (currently) and no six day selloff followed (only two days) before bouncing.  Even though CCI is divergent to a tune of 50%, the markets response or rejection from the last time is not significant.

Taking a look at the 2hr intraday swing chart gives us some further clues.  Notice how Momentum here is still very high.  This suggests continuation and with price settling above the R3 pivot for the day and never dipping below it, price action is holding here suggesting a mild redistribution of price action.  Thus, the next leg should be up towards the 80 triple top again.  How the oscillators look when it gets there will tell the tale if it breaks, but there are many signs that 80 will be revisited by the end of this week.  One note of caution - an Ides of March if you will for this move.

Taking one last look at the 1hr chart, you can see from the most recent downleg the fib pulled from top to bottom shows how the pair virtually went to the 61.8 fib and got rejected.  If this holds, then we could be seeing a huge downmove towards its extension around 72.50.  That is a great R:R play with over 500 pips profit and only about 200 risk.  Using the 2% rule, that could work out well however we feel it would be more prudent to wait a day, let the pair try and attack the 80 before making a decision.  If the intraday oscillators are turning seriously bearish and the daily Momentum and CCI dive more, then the play seems more favorable shorting just shy of 80 with maybe a 45 pip stop above 80 and targeting 75 and 72.50.  However, at this moment, the portents suggest 80 is going to be under a serious challenge soon and the garrison may not hold .

Chris Capre is the current Fund Manager for White Knight Investments. He specializes in the technical aspects of trading, particularly using Ichimoku, Momentum, Bollinger Band, Pivot and Price Action models to trade the markets. He is considered to be at the cutting edge of Technical Analysis and is well regarded for his Ichimoku Analysis, along with building trading systems and Risk Reduction in trading applications.  He is also the Founder of Second Skies www.2ndskies.com where he teaches traders every day how to trade the markets via private mentoring and weekly webinars.

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