Autochartist - Latest Chart Patterns
Weekly discussion and analysis of chart patterns from our partners at Autochartist.
Weekly Commodities Update: Silver
With 2011 in the rear-view mirror, traders will likely be focused on January as a pivotal month for determining how 2012 may unfold. One major driver of market forces over last year was the very close correlation of diverse investment sectors – be they commodities, currencies, equities, or interest rate products. All classes fell into a see-saw rhythm of reacting to uncertainty by moving in close relationship to one another. Perhaps the most challenging of all to navigate has been the volatile precious metals complex, which has contended with major sea changes in the broader markets by narrowly holding their gains to continue the multi-year bull market.
Silver futures appear to be one of the more well-behaved contracts when viewed by chart analysis alone, holding key support to finish the year. After a tumultuous December that saw heavy liquidation and a return to sub-$30 trade, the price has stabilised to a falling wedge chart pattern. This emerging pattern is identified here on the Autochartist 240-minute timeframe. The low at $26 per ounce appears to be a capitulation low based on the sharp retracement towards resistance at $29 per ounce.
The final trading day of the year witnessed a ‘soft breach’ of the trend line that forms the top of the falling wedge chart pattern. As holiday trading tend to bring light volume and the absence of momentum trading, the start of trading next week will likely cement the move as a definitive breakout or else fail by reversing back into the wedge.
A follow-through of the current rally would lead the price towards the projected target range between $28.53 and $29.14 per ounce. This is a longer-term key resistance level, which also will need to be overcome for a sustained long-term rally. Weaker trade to begin the year may signal a retest of the wedge’s bottom with a bearish return to the $25-per-ounce level.
Weekly Forex Update: USD/ZAR
USD/ZAR has recently completed the clear triangle chart pattern. The overall quality of this chart pattern is measured at the six-bar level as a result of the low initial trend (rated at the two-bar level), significant uniformity (seven bars) and near maximum clarity (eight bars). This chart pattern continues the longer-term downtrend visible on the weekly USD/ZAR charts.
The top of this chart pattern (point A on the chart below) formed when the pair failed to break up above the strong resistance area lying at the intersection of the following technical resistance price levels: round price level 8.5000, 38.2% Fibonacci retracement of the preceding weekly downtrend from October of 2008, daily and weekly upper Bollinger bands – all backed up by the strong bearish divergence on the daily trending indicators (as is shown on the third chart below). The recent downward breakout coincided with the breakout through the longer-term, upward-sloping daily support trend line. The pair is expected to fall further in the direction of the forecast area set between price levels 7.454 and 7.8181.
The above breakout also coincided with the breakout of the following triangle, identified by Autochartist on the four-hour charts, increasing the probability of the follow-through selling of this pair in the coming sessions.
The following daily and weekly USD/ZAR charts demonstrate the technical price levels mentioned above.
Weekly Index Update: E-mini S&P 500 Futures
The e-mini S&P 500 futures contract is showing conflicting chart patterns on the 1440-minute and 240-minute charts. Traders should be alerted to this because of the possibility that the breakout on the 1440-minute chart may initially fail until the 240-minute chart realigns with it. When analysing chart pattern breakouts, it often pays off to take a top-down approach. In this case, the top or main chart is the 1440-minute chart. This chart is showing a bias to the upside because of the breakout through the resistance level. The 240-minute chart, however, is likely to exert some influence on it, but will not necessarily negate the pattern.
Both overall quality indicators are above average, but the higher rating favours the 240-minute chart. The initial trend indicator, which rates the strength of the trend prior to the chart pattern’s formation, is rated the maximum ten bars for the 240-minute chart. The 1440-minute chart is a well-below average three bars. Since the short-term chart was down prior to forming the triangle chart pattern, one has to conclude that market sentiment may be on the downside. The uniformity and clarity ratings favour the longer-term chart. This is expected since a 1440-minute chart is typically a ‘cleaner’ pattern than the 240-minute chart. The longer-term charts usually have less ‘market noise’ while a shorter-term chart is often filled with ‘market gaps’ and ‘market spikes’, as well as disruptive congestion.
With the 240-minute chart pointing lower and the 1440-minute chart indicating an impending rally, longer-term traders have to be ready for a possible short-term correction before the market moves higher. Based on the short-term range of 1243.00 to 1260.50, the market is currently sitting inside the major retracement zone at 1251.75 to 1249.75. It is possible that the market will hold to this zone and reverse back to the upside, but if it fails then longer-term traders have to be ready for a possible break into the Autochartist forecast price zone at 1228.75 to 1196.50.
When trading resumes on Monday, traders should focus on the 240-minute chart first. If pressure builds on this chart, then the market will likely accelerate to the downside. If there is no early sell-off, then look for a support base to be built near 1251.75 to 1249.75. This support base is likely to be sufficient enough to drive the market back through the resistance level on the 1440-minute chart.
Disclaimer: the above comments do not constitute investment advice and IG Index accepts no responsibility for any use that may be made of them.
