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HEAD & SHOULDERS

Swiss Franc Cannot Hold Support

11/16/05 08:18:38 AM
by Arthur Hill

The Swiss franc broke support last week and the long-term uptrend is on the verge of a reversal.

Security:   SFC.1
Position:   Sell

On the monthly chart shown (Figure 1), the Swiss franc is on the verge of reversing a multiyear uptrend. The franc declined (1999-2000), bottomed (2001), and started an uptrend with a breakout in 2002. The currency moved higher in 2002, 2003, and 2004, but 2005 has not been as pleasant, as the Swiss franc declined over the last 11 months. This decline broke the trendline extending up from 2001 and is threatening the 2004 low. A move below the 2004 low would forge a lower low and call for a reversal of the long-term uptrend.

FIGURE 1: SWISS FRANC, MONTHLY. Here, the Swiss franc is on the verge of reversing a multiyear uptrend.
Graphic provided by: MetaStock.
Graphic provided by: MS QuoteCenter.
 
The daily chart (Figure 2) sports a bearish continuation pattern, and recent confirmation suggests that the 2004 low will be broken. The Swiss franc declined from January to July and then consolidated with support around 0.77. This consolidation evolved as a head & shoulders pattern and neckline support was based on the July and October lows. With a sharp decline in November, the Swiss franc broke neckline support, and this signals a continuation lower. Based on traditional technical analysis, the downside target is to around 0.72 (blue oval and blue lines). This would break the 2004 low on the monthly chart.

FIGURE 2: SWISS FRANC, DAILY. Here, the chart sports a bearish continuation pattern, and recent confirmation suggests that the 2004 low will be broken.
Graphic provided by: MetaStock.
Graphic provided by: MS QuoteCenter.
 
There are two levels to watch for a bullish revival: A broken neckline support turns into resistance and a move back above 0.77 would be positive. As long as the Swiss franc remains below 0.77, the bears are firmly in control. I am also watching the high of the right shoulder. A recovery above 0.77 and a move above the right shoulder high (0.795) would negate the head & shoulders pattern and call for further strength.


Arthur Hill

Arthur Hill is currently editor of TDTrader.com, a website specializing in trading strategies, sector/industry specific breadth stats and overall technical analysis. He passed the Society of Technical Analysts (STA London) diploma exam with distinction is a Certified Financial Technician (CFTe). Prior to TD Trader, he was the Chief Technical Analyst for Stockcharts.com and the main contributor to the ChartSchool.

Title: Editor
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E-mail address: arthurh@tdtrader.com

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