An interesting situation is developing in the Australian Dollar, which could lead to a nice trading opportunity. A short-term COT pattern appeared this week, pointing to a possible decline. If we look at other tools, that decline seems possible. Look at the next chart.
We are at a seasonal top. Starting from tomorrow June 22nd till the end of the month the AUD (AUDUSD) is usually going down.
To this, we can add the distribution we see in On Balance Volume. The indicator is weaker than the price.
Now, to the price action. Friday's price was able to break below the first EQ's low, creating a lower short-term high. The breakout was made with a bar which closed as an Outside Long Nose. According to The Talking Chart book, such type of bars (candlesticks) should lead to a down move in 54% of the cases. And if the low is penetrated, with a 62% probability, we can expect the market to close lower.
Although less probable, reaching the opposite side of the Friday's range (the high) will mean higher short-term low, and we should be ready to take long signals.
On Friday S&P500 made a higher short-term low breaking above Thursday's high. Then immediately collapsed and created a lower short-term high. With that, the last trading day of the week took the shape of an Outside Long Tail. See the chart.
Usually, such days do not explicitly point how will the next day close. In other words for Monday, it is 50/50 to expect up or down. Yet there is a tendency Monday to follow the direction of Friday, especially if there was a sell-off. And on some cases Monday augmented that sell-off. So, be aware that the down move might continue.
Also visible on the chart are the seasonal and cycle lows. Both can be expected somewhere around the end of the June or beginning of July (with cycles is hard to tell). That is when we can expect a good buy point.
For now, I am staying on the sidelines and ready to take both longs (proffered) and shorts.
Founder of Piece of Trading
Trades mentioned here are either taken or will be taken by the author if the right conditions appear. They are NOT recommendations nor any of this constitute investment advice. Please read the Risk Disclaimer
Seasonal indicators courtesy of Larry Williams, ireallytrade.com. Charts made with TradeStation®. tradestation.com
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