Cable Technical Analysis courtesy of Cantor Index

From 2009 cable has been in a tightening formation, black lines. Retracement lines calculated from the gains posted in 2009 have proved to be of interest in recent years, particularly the 50% level through 2012, red lines. 

RSI over this period has stayed above the 40 level, in bull trends the RSI tends to find support from the 40 area, not the more standard 30 oversold level seen in trading ranges. So the fact that 40 seems to have been a buying area in recent years does give a bullish edge to the longer term outlook. 

However in the nearer term cable has just broken the 38.2% level and the lower trend line, black line, if confirmed ideally with next week’s candle also breaking lower, then yet another retest of the 50% level at 1.5356 seems likely. But as the RSI again seems to be finding support off 40, the green line, we expect traders to stay cautious until there is clearer confirmation. 

In summary then, the long term outlook seems to have a bullish angle to the current tightening range, due to the RSI. But the price has just broken lower and this needs to be confirmed before we turned more outright negative. Even a break lower would ‘only’ open downside targets to the significant support seen at 1.5356.

The daily chart also suggests that cable may just be breaking down to the June lows. The trend from the June lows has recently been breached, black line, and the bearish trend line calculated from the September highs appears to be offering some support at current levels, red diagonal. 

Price action has broken the 61.8% level in the past two days, however yesterday’s price action was a candle Hammer formation, which itself is a reversal pattern. So this counteracts this break somewhat. 

There is RSI divergence on the current moves, where the RSI is not posting lower lows, while the price action has, suggesting that the selling on this latest move has run out of momentum for now.

Also the previous bearish RSI trend has been breached despite the sell-off in price, first red diagonal line on the RSI graph. So the more medium term buyers may attempt to lift the market back into the tightening formation detailed above using this divergence. However the near term traders could stay short using the retracement lines as stop areas. 

In essence then the near term picture has deteriorated a touch in the past couple of days, and this mirrors a break lower in the weekly chart. The downside targets are not considerable but cable does look set for a move down to its June 2012 lows. We see those who are short using the retracement levels highlighted as stop areas, so we do expect stop levels to be set just above the 1.5670 area, and those who are bearish will want to see the RSI break the highlighted divergence as the medium term buying may yet re-emerge which could overpower this near term picture.