If a market is below its 200 day moving average, it is likely to experience downward pressure on each high volatility period. When analyzing a chart I try to make sure below conditions are satisfied.

1) Direction on the long-term chart should be clear. If a market is above its 200 day moving average I should trade the bullish breakouts and expect the short-term chart patterns to break upwards. If a market is below its 200 day moving average I should trade the bearish breakdowns and expect short-term chart patterns to resolve on the downside.

2) I always follow volatility and look for chart patterns. Low volatility begets high volatility and vice versa. I combine volatility breakouts with the long-term technical outlook.

On the 23rd of January I’ve posted the long-term chart for COFFEE price. (http://techcharts.wordpress.com/2012/01/23/coffee/)

Long term price chart signaled weakness for COFFEE with stop-loss at 240 levels. Since the last update price moved lower and technical outlook deteriorated. Given that the price has been trading below the long-term moving average the latest volatility breakout on the daily chart signaled additional weakness in the short-term. COFFEE price is in a clear downward trend and with the intermediate/long-term stop-loss standing at 233 levels. Unless price moves above this level we should expect lower prices for COFFEE.

Rebound in Euro and weakness in U.S. dollar has now reached to the targets I’ve mentioned in my previous update on the 22nd of January.

(http://techcharts.wordpress.com/2012/01/22/u-s-dollar-index-eurusd/)

EUR/USD rebounded from 1.26 levels and reached 1.33 levels. U.S. dollar index reversed from 81.60 levels and pulled back towards the support area between 78 and 80 levels. Since the beginning of 2011, EUR/USD is making lower lows and lower highs (downtrend) and US dollar index vice versa (uptrend). U.S. dollar index reached its 200 day moving average over the past 4 week’s correction and RSI (14) got close to 50 levels. Both technical action on RSI and around the long-term moving average suggest that the uptrend is still intact on the dollar index. 4 week-long correction has now reached its lower limits and for the positive trend in dollar to continue we should see the greenback firming at these levels.

For the U.S. dollar index the 200 day moving average is now at 78 levels. Price should stay above 78 to resume its uptrend. EUR/USD found resistance at 1.33 levels and weakened towards 1.3150 on the last day of the week. Price should stay below 1.33 level on a weekly closing basis for the weak technical outlook on EUR/USD to continue.

A break below 78 levels on the U.S. dollar index and a weekly closing above 1.33 levels on the EUR/USD will put the bullish outlook on the dollar index and the bearish outlook on the EUR/USD into question.

Breakouts from consolidation ranges have always been powerful. The longer the time spent in the consolidation range the stronger the breakout is. Lumber is a perfect example of a range breakout where price has been consolidating for almost a year. Price could have breached the lower boundary of the year-long consolidation at 213 and also violate the 3 year-long uptrend but instead we have seen an upward breakout. As I always mention in my updates, it is always better to wait for a confirmation and the confirmation was a weekly closing outside the boundaries of the contracting range. With the RSI breaching 50 levels on the upside and price breaking out of its year-long consolidation range at 260 levels we can call the technical action on Lumber bullish and expect price to trade between 250 and 326 levels in the following months. Both the 200 day moving average at 240 levels the 3 year-long trend support at 250 levels should act as strong support during any pullback.

While Greek debt, spending cuts and their negotiations with European leaders continue to occupy the headlines, I thought an update on Euro Zone government yields would be timely. How bad is it out there? Will Greece default? Are Portugal yields more worrying than the Greek situation? These are the questions investors are trying to answer right now and the clock is ticking for Greek negotiations!

It would be a bold statement to say things are not bad, but compared with my earlier analysis (http://techcharts.wordpress.com/2012/01/12/euro-zone-govt-yields-2/) on Euro zone government yields I have to say that it is relatively better. Wouldn’t the yields on Greek debt be skyrocketing above 42 levels if Greece were to default? Instead 10 year yields on Greek bonds are now testing the major trend support at 33 levels. Spain is also testing a critical support level at 5. While France yields are now below 3 levels. Portugal is still high but off of its high levels at 17. Italy… broke down the trend support at 6.4 levels and eased towards 5.7 levels. Germany is the strongest, trading close to its lower boundary at 1.88 levels.

Yes it is not great out there but it is relatively better when compared with the highest levels Euro zone govt yields have reached.

After strong performance from equity markets and commodities and a positive start for 2012, indices are challenging their minor/major resistance levels. One of those indices is the Dow Jones Industrial Average now testing 12,750 levels, a resistance now being challenged for the third time. Since October 2011, Dow Jones Industrial moved from 10,500 levels to 12,750 levels. It has breached its 200 day moving average which is now standing at 11,925 level. We might see some weakness at this strong resistance area and the index might experience a pullback towards its 200 day moving average. Resilience around 12,750 will signal strength and a possibility to break above the strong resistance. Dow Jones Industrial is on my watch list with these two levels; resistance 12,750 and support 11,925.