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Want to Know How This Year Might Close?

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Then Look Back to the Open...

An instrument’s opening price can be an important marker for trend and direction. Furthermore, there are many timeframes whereby the opening mark can offer useful market insights. In futures trading, there is often a priority placed on the daily open, meanwhile in a market like Forex, the weekly and even monthly opening prints can be pivotal. I even know one fund specializing in currency trading that uses each hour’s opening price in their automated strategy.  

In a trending market, the open often works as a significant pivot. For instance, in a rising market, the price should find support at the open (daily, weekly, monthly, etc.). The market’s health can be measured in a bullish market to remain above the initial print or below the open in a bearish market.


 

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The Opening Print is Telling

Every year, on my longer timeframe forex charts, I mark the open for the year. Futures markets have contracts that expire in quarterly (or smaller) periods, making the annual open less relevant because the contract at the front has long expired by the end of the year. However, currency markets have a real opening that remains measurable through the end of the year.

Throughout the year, I look at these yearly opening prints as serious pivots because currency trading tends to be more macro positioned by the large institutions that deal with the highest volume. Therefore, how a currency performs year over year becomes quite vital in gauging the market's health.

End Of Year Targets

October marks the beginning of the final quarter of the year. In this period, I give special attention to these annual opening prices as they often act as either magnets or trend indicators going into the end of the year when institutions offer final valuation and portfolio adjustments. 

2020-10-08-TOS_CHARTSn

For example, last year's performance of the New Zealand dollar vs. the U.S. dollar (NZD/USD) in the final quarter. On the daily chart above, the orange horizontal line marks the open for 2019. At the bottom of this chart, the grey shaded area highlights when the season rolled into October 1st, the beginning of the fourth quarter. You will see that price began to rally, making a series of higher highs and higher lows, eventually trading back at the open finding resistance there. This is the kind of move that benefits longer-term traders, and with a small runner position, targeting the 2019 initial print was proven to be worthwhile.

AUD v JPY

For an example of what may be setting up for this year, above there is a weekly chart of the Australian dollar against the Japanese yen showing the totality of the 2020 price action, again with the orange horizontal line representing the open for the year. 

In June, you can already detect which marked the halfway point of the year, there was apparent resistance at this price. Now, the AUD/JPY is currently hugging the open. I expect this pair to trend in the final quarter, and I am using this opening line as the pivot. Should this market begin to demonstrate higher highs and lows on a daily chart, then I’ll look to buy and target a Fibonacci extension above this year’s high. Should this market instead shower lower highs and lows, then I’d look to target some Fibonacci retracement of that same range.

S&P is an Exception

I have noted that this method can be tricky on futures markets. However, I have found a notable exception with the S&P 500 futures, representing the benchmark equity index. Below is a chart of this market, using daily bars from this year with 2020 open noted in orange. You will see that the first touch of the 2020 open acted as resistance on the rebound into the summer. 

Meanwhile, this market ultimately broke through this barrier on subsequent touches and continued to trend much higher. However, on the recent pullback to the end of the third quarter, the S&P 500 futures tested the open, where it found buyers ready to defend this spot into the fourth quarter. As long as this market holds above the open while volatility is declining, I lean toward buying. However, should this market fall beneath the open on rising volatility, then I will look to be a seller. 

ES Chart 10-08-2020

 Conclusion

Any form of technical analysis has multiple methods of application; likewise, these types of indicators are always most functional when used in combination with other technical and fundamental tools used to gauge the market. Assessing the opening print can help with support and resistance while measuring a market’s direction and health and even offer excellent price target potential. However, this pivot does not inform the trader when to enter the market with precision.   

Trade Well!

 

Posted by Fair Value Trader on October 08, 2020
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