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Jun 11

Mixed Messages

With the world waking up to some gorgeous gappage this morning, I thought I’d put it all into some kind of context in the hope of getting a hint as to what the week may bring.

The obvious play here is clearly the gap-close. Everyone ‘knows’ that gaps ‘have’ to close, but in the context it may not be the best play.

The forex markets (I’m looking primarily at USD crosses) have gapped above some pretty significant resistance – notably the EURUSD made new highs, effectively completing a wonky inverse head and shoulders pattern on the 1H chart.  Thanks to this mornings gap, it’s hurdled 1.2610 and seems to be sitting pretty comfortably up there for now.

If this gap sticks and we see a change in polarity here, we could potentially see a rally to 1.290 which would be fun for everyone, really.  Oh, except those that are shorting the gap.  It might not be very fun for them.

EUR/USD 1H

The EURUSD is not alone in gapping up through resistance, a similar pattern can be seen in the Nasdaq and the S&P500 charts.

S&P500 Daily

The only concern I have here is that this lonely candle on the S&P chart is a shooting star / doji.  That’s not particularly comforting, and can sometimes mean a reversal is imminent.

However, when it comes to party poopers us Aussies take the cake. We managed a great gap up, but hardly even attempted to smash our overhead resistance.  Which is typical really, the Aussie market is frustratingly sluggish, as you can see by the general lack of enthusiasm in the ASX 200 chart.

ASX 200 Daily

The Dow adds another piece to the puzzle.  You can see from this chart that while there is a good gap up, it has smacked its head right on the major resistance that will stop the Dow re-testing it’s highs.  For me, the doji-smack combo is a gift of a short signal.

Dow Daily

So What Does It All Mean?

I think the overall picture is bearish – but not overly so.  It wouldn’t surprise me if we settled into a daily range from here for a while.  If the highs created by the gap aren’t broken by new price moves in the next 24 hours I would suggest that the next move is a close of the gaps.  Right now I’m playing for a short-term continuation of the rally – as I write this volatility has dried up in FX so it looks like the overnight session will be the big tell.

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