What a rally, the RISK is ON – I got two words: SHORT SQUEEZE! As mentioned in previous June analysis that a close above 10288 on Dow will open room for further rally. There is still a 2% to 5% more room for risk to go up, before stopping for a breath and then to reverse. AUD has recently shown very strong correlation to equity markets and it did not stop at its 200DMA to take a breath, just goes to show how strong the squeeze has been on DJI, AUD, SPX, you name the risk and it has been rallying……

Alright, enough of narrative, lets get to the charts.

DOW:

Supply line from Oct 07 to May 08 has now become a declining demand line followed by another demand line from Mar 09 to Jul 10, where both intersected. This new demand line, if we use the technique of forming parallel channel, shows us a short-term supply line from Nov 09 to the topping in Apr 10.  Simple terms, technically the chart is bullish, the only hurdles left are 200MA and channel’s top line resistance, which could also be nice areas to short from overbought.

Short levels/zones therefore are marked on chart with confluence patterns including pivots.

So levels/zones to watch for short opportunities for August 10 are:

11250 – Double top + 61.8% fib level from credit boom highs to recession lows + monthly R2 pivot + 200MA in near vicinity.

11900 – Channel top resistance + monthly R3 pivot.

GOLD:

Gold has been in an uptrend since 2002. Demand line from Sep 05 to Oct 08 will be the ultimate support with 200MA nearby. Since Oct 08 it has gone parabolic for all the right reasons. However, now the parabolic trajectory supported by demand line is broken, and gold may become heavy until the next major support (previous resistance) around 1040.

Therefore levels/zones to watch for gold are:

1040 – Previous support becoming resistance + monthly S3 nearby + 38.20 fib level from parabolic move from Oct 08 to recent high.

Failure of 1040, should see us reach the ultimate demand line in a hurry. That may not happen in August 2010, but I will keep this on my charts.

OIL:

Looks range-bound to me, also shown by MA criss-crossing each other. It must have been a hell for MA cross-over traders. Top around 87 and bottom around 68. Not a lot more to add here really, I was expecting this to capitulate based on the pattern last month. It should not have crossed above 50 and 20MA to maintain bearish bias.

EUR/USD:

The darling of short squeezers! Everyone’s been talking about it, but technically (if fundamentals are forgotten – which is easier said than done), it was beautiful.

Both, the bullish engulfing candle of 14 June and pinbar of 21 June (marked with horizontal line around bear trap in image) around previous support were valid signals to go long. It has got plenty of room to run, even in risk averse environment as EUR/AUD and EUR/CAD shorts unwind during risk-averse days. EUR looks like the new dollar; it maintained its climb during days when Dow and SPX were taking a beating. I don’t see any stopping before reaching 13375 (previous support) and also monthly R1 for long targets.

Short levels/ zones are potentially from 50MA and monthly R2 around 13755. Looking at recent AUD/USD and NZD/USD climbs above 200MA, it won’t surprise me if both cable and Euro also did the same. The only thing that can throw a spanner to the Euro party is if SNB wants to exit their positions (very unlikely – but possible, as they may want to fend off the perception of being losers as per recent headlines for buying Euros).

Please note: Levels and zones are potential pivot areas – For trade entries, the price patterns around these levels/zones should be observed (break below hanging man, pinbar, etc) or pyramid your shorts if you are brave.

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