Price Action Says No Trouble Ahead for the JPY. Will the US Stock Market Rise As Well?

Price Action Says No Trouble Ahead for the JPY. Will the US Stock Market Rise As Well?

JAPANESE YEN

It is certainly worth to pay attention to the stronger of two instruments that have the same setups. Such was the situation discussed in the last blog post "Same emotional reaction in Gold, JPY and SP500 Different Price Action Path" where the Japanese Yen was presented as the stronger. 

Here is what happened after that post:

Gold vs JPY

You can clearly see that while Gold stood in a range, the JPY has moved up almost hitting the second target, which was the high of that big down day.

Now, what's next?

Let's look at the chart of the Japanese currency alone.

Japanese Yen analysis

The accumulation measure is very strong (green line on the chart). But that is because six of the last seven days were up days. Should that bother us? Six consecutive up days, won't there be a correction?

When you consider such prolonged streak of consecutive up or down bars (candlesticks) there are a few things you should pay attention to:

  • the size of those consecutive bars
  • the shapes of those consecutive bars
  • breakout of the highs/lows

Below the chart, there is a green histogram, a one-period Average True Range. This indicator is showing how big were those 6 consecutive up bars. As you can see, the histogram inside the orange rectangle is showing that all of those bars can be considered as normal and some even as small. There isn't a single large day. The lack of a big day doesn't mean JPY will go only up, but it indicates that there are no immediate threats to the move.

Shapes of the bars are extremely important, especially when we are looking at the daily chart. The rule is to be careful if you see all bars in the observed period to be of the same shape, especially if this one shape is the Long Body (LB). Here, this is not the case because besides LB there are also LT and 0T shapes.

So far both size and shape don't ring the bell for danger ahead for the up move. That is also confirmed by the breaking of the lows. In this rise, only #6 is breaking the low of the previous day, but #3 was very close. Those were moments when stops were hit, and traders were taken out of the game. That is good for the health of the underlying move.

After the last 0T's bars, the market was ready for a pause, but I think that if Wednesday's high is penetrated we could see 0.9692 reached.

WHEAT

Wheat also looks interesting.

Wheat analysis

With seasonal bottom approaching, short-term COT setup and not bad accumulation (I wish it was better) I'll look to take longs here.

Where would that be? Wheat is trying to make a higher short-term low at the moment. Since the last bar was an inside day, the short-term low will be confirmed if Thursday's high is breached. But let's focus more on the last two bars.

Thursday's move was a Normal Long Body which after the recent lower short-term high pointed to continuation downwards. Friday's was an inside day No Tail Long Nose. The appearance of a No Tail here is strange. The market opened with a gap down and with no tail rose, without crossing the low of the previous day. The low was so close and the lack of any attempt to break it is an indication of no interest in that direction.

Because of all mentioned here, I would prefer longs here. Maybe Friday's high would turn out to be a better level after all.

S&P500, SPY, SPX

I can't add much more to what was mentioned in the last week's post. I am still in the bullish camp. However, the last two days are interesting from a price action perspective. 

S&P500, SPX, SPY analysis

Both are Long Tails, almost equal in size. The only difference is that Friday was an inside day. If you consult The Talking Chart book, you'll be amazed how high is the probability for continuation, after an inside LT bar. 

So according to the last bar, Monday should continue down. But we are approaching one of the best periods, seasonally speaking. Thanksgiving is ahead and the market is usually rising this time of the year. Also, I can't see significant distribution. We can make a higher short-term low if it breaks above Thursday high. An upside breakout of the last two bars would also a very strong combination and I think this would the better choice here.

Now, let's find your missing piece!

Vassil Banov,
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

TAGS: S&P500, SPY, SPX, COT, Commitments of Traders, Gold, Japanese Yen, Price Action Trading, Talking Chart, Wheat

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