Has the NZDUSD Formed a Top? Lets see how our Top/Bottom Thermometer list stacks up:
On Monday, we wrote
The pair was just correcting as a new high has been registered. The charts below update where we are in the wave structure. We are sitting tight for the moment but watching Kiwi closely. Well be back with updates regarding this opportunity as price action dictates.
Today -
We are back and Kiwi appears to have turned lower, having traced out 5 waves down at a small degree. This indicates that the trend is now down and that rallies should prove corrective. Given the recent extreme sentiment readings (COT and risk reversal rates), there is the possibility that a significant top is in place.
NZDUSD
On Monday, we wrote
The pair was just correcting as a new high has been registered. The charts below update where we are in the wave structure. We are sitting tight for the moment but watching Kiwi closely. Well be back with updates regarding this opportunity as price action dictates.
Today-
We are back and Kiwi appears to have turned lower, having traced out 5 waves down at a small degree. This indicates that the trend is now down and that rallies should prove corrective. Given the recent extreme sentiment readings (COT and risk reversal rates), there is the possibility that a significant top is in place.
240 Minute Chart Makes the Case for a Top
With 5 waves up from .6719, at least a correction is underway. However, given the recent extreme reading in the risk reversal rate, divergnence with oscillators on the daily and weekly charts, and larger wave pattern, we suspect that .7203 is a significant top. JPercentile has declined from the extreme 100% level as well. Coming under .6985 bolsters the longer term bearish prospects.
Monday Chart 15 Minute Chart Turn Is Around the Corner??
When we look at all the smallest subdivisions, it is evident that another high will be registered above .7178 in order to complete the 5th wave rally that began at .7084 (todays low). Rallying above .7178 satisfies minimum expectations but where is the next resistance level?
Monday Risk Reversal Rates Tell an Interesting Story
The December 2005 high at .7197 is the next level of resistance. This chart is the main reason why we are looking for a big turn lower. The risk reversal rate (call price put price) on 1 month 25 delta options is EXTREME. This suggests to us that a reversal is just around the corner.
Today - New 15 minute Chart
The current 15 minute chart shows a clear 5 wave decline from the .7203 high. In Elliott, 5 waves move with the trend and 3 waves move against the trend. The 5 wave decline (although it is small), indicates the start of a downtrend. We are looking for a correction in order to align ourselves with the larger downtrend. .7140 should prove formidable as resistance.
The Percentage likelihood of a top or bottom associated with the Thermometer is calculated based upon weighting the 7 components in the checklist.
JPercentile (20%): Price is valued as a percentile, measured against the last 21 days (roughly 1 month of trading) for intermediate tops and 52 weeks (1 year) for major tops. Probability increases that the pair is nearing a short term top when the JPC indicator reads 100%. A reading of 0% indicates the potential for a bottom. Every top has a reading of 100% but not every reading of 100% is a top. Besides the percent reading we also need to see a turn out of the extreme level (ie. If it reaches 100%, we need to have it pointing downwards and vice versa) to determine whether this is a top or bottom. The box is only checked when we see a turn off of extreme levels in the JPercentile reading.
Elliott Wave (30%): Standard Elliott Wave Theory, the box is checked when we see a possible 5 waves complete or 3 waves complete (correction).
Significant Support or Resistance Levels (20%): The box is checked if we have important monthly pivots, or Fibonacci levels capping gains in topping scenarios or providing a support in bottoming scenarios
Volatility (10%): The box is checked if the currency pair has a volatility level below 8%. If a currency pair has a volatility that is too high, then it has a greater likelihood of experiencing swings that may not be as conducive for top or bottom picking because the potential of spikes could cause stops to be taken out prematurely.
Risk Reversals (20%): At the money 25 delta risk reversal positioning tends to be at extreme right before the market turns. This box is checked if that is the case.