Bullish momentum was briefly broken yesterday when price went below the upward trendline. We’re currently approaching the underside of the trendline with Stochastic reading entering into Overbought region. Bulls may be focusing more on the new high current price has forged, but entering into a new position here is certainly risky considering both upside and downside risks. Simply put, the setup doesn’t look bearish enough as price may still be able to climb up higher along the upward trendline while price could bounce lower from the trendline instead of straddling along it higher.
From the weekly chart, Stochastic reading has reached 98.5, highest reading since week of May 27th 2007 (not visible on chart). The last time the Stoch SMA3 (black line) reached similar levels was in 2005 Dec. On various occasions where readings were so extreme, a pullback inadvertently followed within the next 2 weeks. Before the bears get excited, keep in mind that in all the instances since 2005, SGD/JPY continued to climb higher at least for 2-3 months before another pullback happened. This confirmed what we already knew: Pullbacks within a strong uptrend tend not to have good bearish follow through.
What about bulls then? Going long right now when an imminent pullback may happen is certainly not the best way to maximize your trades. Hence the same ol’ message: Buy on dips during uptrend, Sell on rally during downtrends to maximize your probability.
This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.