Cable Near Term Outlook: Negatives Remain

In the Oct 4th email, warned that scope was rising for at least a few weeks of correcting lower, and the market has indeed declined since. Note that lots of negatives remain and continue to argue at least another few weeks of downside ahead. They include an overbought market after the one-way surge from the July 9th low at 1.4280, weak technicals (see sell mode on the daily macd at bottom of daily chart below) and likely completion of the 5 wave upmove from at least the Aug 2nd low at 1.5100. But on a very near term basis, there is some risk for another few days of consolidating/ topping before resuming the bigger picture decline. Nearby support is seen in the 1.5885/10 area (both the recent low and the bullish trendline from July), resistance is seen at the broken bull trendline from Aug (currently at 1.6000/10) and 1.6085/95 (50% from the 1.6260 high).

Strategy/position:
Short from the Oct 9th break of the base of the multi-week bull channel (then 1.6045, closed at 1.5955), and with at least another few weeks of downside favored, would stay with the position. However, given the risk for a few days of a broader topping, use a wide stop on a close above 1.6175, as it would argue more gains back to the 1.6260 high and even above (before a more important top is seen and would be looking to resell higher if taken out). But will also want to switch to a more aggressive, trailing stop on a resumption of the declines and the magnitude/shape of the bigger picture downside is a question (see longer term below).

Long term outlook:
No change as the market remains within the very wide, 1.3505/1.7040 range that has been in place since Jan 2009 (see weekly chart/2nd chart below). Note that the sloppy/messy trade over that time still argues a large correction/consolidation, potentially forming a huge triangle/pennant type pattern (trading in a tighter and tighter range, see weekly chart/2nd chart below), and in turn argues at least another few months of wide ranging ahead. In general, best in this type of market to fade broader extremes as the moves within this range are significant. Currently, the market is down from the Oct 1st high at 1.6260, within the long term 1.6230/1.6330 resistance area (both the bear trendline from Aug 2009 and the bear trendline from Apr 2011), in turn suggests an even more major top may be in place. At this point, there is no confirmation of a high of that magnitude but a nearer term top is seen in place (more major reversal generally begin with smaller ones).

A final note, downside pressure in the broader US$ index is still favored into at least the Nov timeframe (and potentially into the end of the year), and raises the risk that cable may have a more extended period of a longer term ranging/ topping over the next month or 2 (versus a tumble from here). Further support below that 1.5885/10 area is seen at 1.5700/10 (38% retracement from the July low at 1.4280).

Strategy/position:
Also switched the longer term bias to the bearish side on Oct 9th at 1.5955, and with a top for at least another few weeks (and potentially much more) seen in place, would stay with that bias for now.

Current:

Nearer term : short Oct 9th at 1.5955, risk for a few days of a wide topping ahead.

Last :short Sept 20th at 1.6020, stopped Sept 30th above 1.6160 (closed 1.6185).

Longer term : bear bias Oct 9th at 1.5955, potential for more major top.

Last : neutral Sep 30 at 1.6185 from bear May 8 at 1.5580.