The 240 minute chart is in trading mode and while I am fine with the longer term intraday swing set ups (I have NOT been momentum trading these time frames throughout Summer because of the lack of follow through out of consolidation/congestion) this one is heading right into a ceiling.

Trending patterns being what they are, typically my first reaction is to follow the direction of the trend which in this case is UP to SLIGHTLY NEUTRAL.  I would consider this more a distribution cycle than a mark up.  As with any trending pattern, there is always the chance that the current direction will reverse and waiting for the short set up is probably a good decision unless prices breakout above the potential triple, if not quadruple top, that has formed.

Here’s what I am watching for:  Since the top line of the Rising Wedge pattern is sitting at approximately 0.8492, I will wait for the 0.8500 major psychological level to be broken to the upside.  A failure to do so is an opportunity to play an aggressive “inside-the-range” (ITR) short off the 0.8492 ceiling.  In fact, the breakout trade will likely be triggered by a failure of the more aggressive ITR set up which means prices would rally up through 0.8505, stopping out the short ITR and triggering a breakout.

If prices do not reach the top line of the wedge (green line), then focus on the support (blue line) for a potential trend follow swing buy at 0.8450 or if broken a reversal short down through the 0.8340 level.

I know a lot you probably looked at this afternoon’s U.S. Dollar sell-off, crude rally, and EUR/USD blast off and said:  “yeah right, Summer trading…”.  Frankly, you’re not only.  No only do I NOT trade after London closes but I won’t look to enter a trade until at very least Sydney opens.  So that means the afternoon hours here on the east coast are purely a trade management proposition for me.  (and ofcourse that’s why there’s a lunch time tee off!)

I am not one to chase a market.  If the trend or momentum is up I would hope that I have a correction to buy into some short term weakness in an overall uptrend or that there was a break out of consolidation or congestion to capitalize on.

For those of you who do trade actively during the post-London hours then you probably saw the congestion the market was in through the late morning to early afternoon:

With a wishy-washy MACD-H this was a tricky entry to take before the breakout in either direction…

But as I said, it doesn’t matter to me at all what the pre-breakout set up may have looked like, these simply are not entry hours for me.

So now I am sitting here like many of you aksing myself whether trading these last couple days of August is 1) worth it and 2) a mirage!

I think there are some low risk opportunities to play this move going into the Asian and European sessions on short term intraday timeframes like the 15, 30 (below), and 60 minute charts.

The blast off shifted the market cycle into an uptrend from the congestion is was bouncing around in.

With the uptrend come trending patterns that we can use to identify the support of the uptrend:

This pattern alert from Autochartist does indicate a weakening trend on the 15 minute chart.  The Wave on the 15 minute timeframe is stronger however than the Initial Trend reading would imply use caution but the trend is still intact and prices are trading above the 34 ema high and the Wave is pointing up in a twelve to two o’clock angle (blue arrow) which is a mark up market cycle.

The play would be to enter long off uptrend line support like on the Continuation Channel Up pattern or off the 34ema high which is currently at 1.4343.  The major psychological level at 1.4350 could be used as well.  Again these are swing or corrective buys that take advantage of short term weakness in an overall trend on the timeframe:  In this scenario the 15 minute chart.

And that’s if you even want to trade the end of August, going into a Friday, duriong the doldrums of Summer...

When you look at a chart realize it’s a representation of psychology.  That’s it!

So a ceiling if fear or a lack of greed and a floor is greed or a lack of fear…risk appetite and risk aversion.  The toughest part if finding where these level are on a chart.  Ofcourse that means price action.  There are certain levels like psychological levels (the “00″, “50″, “20″, and “80″) that will usually have some of this psychology built into the level because of the common way most traders places their orders.  Buy orders are support and sell orders are resistance.  That’s paragraph pretty much sums up why price is so important.  Without it there is no way to measure fear and greed.

Using chart patterns, support, and resistance means that we can isolate the potential levels of fear and greed…where traders will make decisions about what they would like to do next:  Buy a break of a ceiling or fade?  Follow the trend or try and find where the trend will exhaust?  I think the decision levels we watch are pretty much the same from trader to trader…some levels are more obvious than others.  What makes the market “tick” is what we individually decide to do at those levels.

Make sense?

On to the AUD/USD.  There is selling pressure that can be identified by the downtrend line resistance of the Continuation Channel Down pattern.  The trend of the market is a weak distribution cycle when looking at what the Wave is showing in term of the two to four clock angle.  A distibution cycle is one of wide ranges and exhaustion at the top and bottom of the range.  The 0.8400 level is a psyshcological ceiling.  Add all that together with a downtrending pattern which is trying to find a downtrending market (not quote there yet on the 240 minute time frame) and you have what could be an interesting set up as we enter the Asian session tonight.

I have to mention that the weakness has already triggered a short from this area earlier today so many of you may be short the aussie and the MT4 chart shows the Fibo retracement levels I am watching.  The 38.2% level is showing that there will be considerable support there.

The cable is is congesting within an ascending triangle pattern as the Wave is showing a distribution market cycle.

A distribution cycle is not unusual for a triangle pattern and as prices squeeze into the “narrows” of the pattern the cycle typically transitions to an accumulation cycle.  This pattern offers a few unique opportunities because of the relatively flat ceiling that could be a exhaustion level.  If the distribution cycle DOES NOT transition to a flatter accumulation cycle then the play will be a short off the 1.6593 to 1.6608 area.

Add some Fibos to the 60 minute chart and the retracement support levels show where prices are likely to bounce from if prices to want to take another ride up to the 1.6600 area.

Prices are sitting at the shallow 23.6/25.0% retracement level and notice that the 78.6 level was where prices were able to set a foundation for the current rally.

The Wave on the 60 minute USD/JPY says that “yup!” the trend is transitioning to a sideways market cycle and that the channel down pattern may no longer be confirmed.  Since any channel pattern is a TRENDING pattern, a sideways, three o’clock Wave just doesn’t confirm the pattern alert.  However do not dismiss it right away!  The downtrend line resistance of the pattern is a useful line if prices are indeed beginning to congest/consolidate on this chart.  Watch this line for a potential breakout if the MACD Histogram goes above the zero line and prices pierce the resistance of the pattern.  The Initial Trend reading on the Autochartist is also indicating a slowing trend and this confirms the Wave reading.

With the Dow closing up 82 points the Asian session could get a slight boost from the upward correction of Monday’s sell of however remember that an uptrend on the dollar-yen is a sign of RISK APPETITE and the after hours Dow futures are down slightly at -15.  The market is poised for a breakout/breakdown as traders decide whether they want to continue to buy into the Summer rally or take profits as September approaches.  The momentum set up on the 60 is a perfect look at that indecision.

Let me start by saying that what a lot chartist might call a channel — if it is short and wide –I will consider a “flag”.  So refer to the Wave to determine which it will be.  If the pattern is a confirmed channel it will be occurring in a downtrend which is a four to six clock direction on the Wave.  We don’t have that so the channel confirmation is out.  That leaves us with a potential bull flag.  I don’t automatically consider an unconfirmed channel a flag but the channel is relatively short and wide and that opens the door to a flag.  Since the market cycle is more of a sideways distribution cycle:  Hello flag pattern!

Trading flags and channels are pretty similar so the plan is to watch the downtrend line resistance for a potential exhaustion play (short the ceiling) or a breakout if this level is broken to the upside.  The distinguishing characteristic of a downward angling flag is that it is widely interpreted as a reversal pattern so many traders will be watching for a breakout through the resistance level.

Add to the analysis a low Initial Trend from the Autochartist alert and the market is signaling that the current downtrend may be taking a breather.

Playing trends when you have a pattern alert like the wedge or channel makes for pretty straight-forward decision levels.  Basically I’ve got uptrend line support (blue) and downtrending line resistance (red) off which I can gauge corrections and breakouts.

Anyone following my thinking on trends knows that I would much rather play a buy in an uptrend off a correction so that means focusing on the uptrend line support of the rising wedge and/or the 34ema high which is the top line of my Wave.

Here the uptrend is sitting on the lower line (support) of the wedge with excellent confirmation that this line is indeed support.  This offers a more aggressive entry long for the buy, a swing buy.  The lower chart of MT4 shows where the Wave and Fibonacci retracement levels are waiting.  I typically do not like the shallow 23.6/25% Fibo levels and would prefer to see a deeper correction like a 38.2.  The top line of the Wave (34ema high) is sitting in between these levels and would offer an excellent opportunity to get long with a more conservative entry.

Neither is right or wrong.  Instead think of the choice being between aggressive and conservative.  Aggressive traders will be more willing and emotionally wired to take the risk of an earlier and more shallow corrective buy entry while conservative traders may miss the trade altogether unless the pullback is deeper but the risk is less and on the bounce the reward is greater.

One thing to note and this can be seen on both charts and that is the short term consolidation we’re seeing here.  This is a short term time frame that is smack dab in the middle of the NYC afternoon doldrums and certainly some of the consolidation is effecting the short term strength of the trend, but heads up (!) this could signal some weakness, which means a deeper downside and maybe even a reversal.

Playing the pullback on the EUR/USD is something I’ve been eyeballing since the U.S> Dollar took off last Friday during NFP.  Now that doesn’t mean I won’t wait for a set up but I know what I want to see and that’s a swing play.  With the U.S. Dollar Index above 79.00 I know the swing buy on the EUR/USD will have to wait for that major psychological level to break down.

In the channel alert I am not so much interested in the pattern as I am the support of the pattern since the uptrend line is a logical place for support and the daily chart that I am looking to play is sinking into Wave support.  I’m trying to get an idea of what the decision level will be as far as where buyers will be enticed to act because after all that’s what’s going to set up the follow-through I am expecting.

I’m certainly not ignoring the downtrend on the 240 and now that the Wave there will be yet another hurdle for the the potential upside of the daily chart.

And then again it’s Summer and the month of August to make matters worse and I have to be ready to accept that all of this may end badly…so my position is relatively small and my stop is five pips below the 34ema low.

I realize that many of you 1) may not trade short term intraday charts like a 15 or 2) may find this update too late but here’s what I hope you take away from this update:  All swings set up the same way.  First, identity the trend and second, identify the correction.  In an uptrend — like this example — the Wave is “twelve to two o’clock” and in a mark up cycle.  Look for the pullbacks to either the top line of the Wave (34ema high) or perhaps for your Fibonacci fans, find a correction to the 38.2 or 50 percent level.  (By the way I am not ignoring the 23.6/25% Fibo levels but usually this level is not as deep a correction as I would like to set up a swing play…)

The 15 minute chart here has a Continuation Channel Up alert from Autochartist and this trending chart pattern could be the first clue to a potential swing set up and alternatively a potential reversal breakdown…it all depends upon the reaction at support.  The support is still intact as prices are far away from the uptrend line support line and the current chart shows that prices are bouncing from the top and middle lines of my Wave.  (The 34ema on the high, low, and close.)