Looking over the charts this early morning, there was a Gestaltpresenting itself across both the majors and many crosses as well. Anydaily chart on the EURUSD, GBPUSD, AUDUSD, to EURJPY or GBPJPY wouldhave produced an ironic synergy between Western and Eastern tradingsystems. If you were to pull a Fibonacci from the major swing high tolow for any of the pairs mentioned above, you would have found the 50%fibonacci to announce itself as the culprit behind any rejection fromthese pairs. What is more interesting is that all of the above pairsalso had an Ichimoku Kijun line planeted at almost perfectly the samelevels.
Coincidences like this are rare and often lead to strong responses fromthe market, and that is exactly what we got. The Fib levels alone couldhave produced a nice rejection, but combine that with one of the lastlines of defense for Ichimoku traders - the Kijun line (26EMA) and youhave a high probability rally point to sell them.
This trader is not really convinced the Dow’s historic and meteoricbounce yesterday is going to produce a strong follow through. Taking alook at the chart below, notice how the volume is increasing during theparabolic sell off last week (which may invoke pain for several equitiestraders), but on the day of the explosive bounce, volume drops over 40%.This generally means the institutional money is not behind the actualmove and the market is going to need a much more pursuasive play beforethey get behind it. Most likely, the large money was not behind it withthat kind of drop in volume further supports this theory. But noticethe increase in volume as the markets sold off today suggesting theorder flow was more behind this day’s price action the the previousones.
With such a theme in mind, taking a look at some of the aforementionedpairs, we notice how the momentum models are also not behind suchbounces they have undertaken in the last few days. On all the pairs,price action reached either the 38.2 or 50 fib but momentum levels havenot touched either fib, suggesting with the momentum model behind theprice action, its not a healthy bounce as demonstrated by the chartbelow on the NZDUSD.