I’ll postpone the third piece of the Hit Your Target Series to Tuesday August 4 2008.

In this blog I’d like to review the AUDUSD to illustrate that the best trades are those at inflection points i.e. at decision junctures in their technical picture.

This analysis begins after I have completed the right-brain brainstorm. The critical question is: will the 13-week up trend (quarterly trend) be likely to continue or end?

We start with the 12-M swing (yearly trend) for perspective. Figure 1 shows that the 12-M AUDUSD is in the 3-swing pattern that is just shy of resistance at .9977 to .9990.

07-31-2008-adus-12m.jpg

FIGURE 1 12-M AUDUSD

It provides little information to aid our quest.

Figure 2 is the 13-W (quarterly trend).

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FIGURE 2 13-W AUDUSD

This chart is more helpful . It shows the Ray Wave count and shows a complex (II) that began on Feb 27 2004 and ended on Aug 17 2007. Keep that thought in mind.

07-31-2008-adus-13w-2.jpg

FIGURE 3 13-W AUDUSD

The story is then taken up in Figure 3 which shows the 13-W since the Aug 17 low. We see acceptance above the maximum extension .9575 following the breakout above .9400. The market is now in the process of a test of the breakout. We have two probabilities:

  1. The test of the .9400 will be successful and a new upleg will resume or
  2. It will be unsuccessful and we then have two more scenarios: either the AUDUSD will form a complex correction (the rectangle shows my preferred support zone for the complex correction to end) or the 13-W uptrend will terminate i.e. we’ll see prices accept below .8512.

Here is the first critical assumption: it is very unlikely that a complex correction that took 3 or so years to complete will be followed by a complex correction of a smaller degree (i.e. more shallow correction). Therefore, this test of .9400 will either be a successful test or we are seeing the end of the 13-W uptrend.

What does this mean for my trader’s timeframe - the 18-day (monthly trend)? Let’s turn to Figure 4.

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FIGURE 4 18-D & 5-D AUDUSD

The breakout above .9400 is probably a complex [2]. If this is correct, we need to see it hold above .9327. This will be a great place for a stop because a breach of this level means the 18-d uptrend ceases (we no longer have higher lows). We have a potential for a 5-day RePo (see Nature of Trends), continuation buy signal with a close above .9480.

The series of complex corrections suggests that should the 18-D trend resume, we’ll see a directional market for many months.

This completes the picture.

  • Acceptance below .9400 will probably mean the end of the 13-W trend.
  • We have a possible continuation buy signal on a close with bullish conviction above .9480, with stops below .9327.
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