An Ascending Triangle For The Aussie

03/22/07 11:24:09 AM

by Arthur Hill

With a big surge over the last two weeks, the Australian Dollar Index broke resistance levels in two time frames and looks as though it will be heading higher.

Security: $XAD
Position: Accumulate

Let's start with the monthly chart for some long-term perspective (Figure 1). The Australian Dollar Index ($XAD) surged in 2003 and then formed a large ascending triangle over the last three years. There are two reaction highs around 80, a reaction low at 68, and a higher low around 70 (gray arrows). Connecting the dots here gives us a bullish ascending triangle and a breakout at 80 signals a continuation of the 2003 advance. The length of the pattern is added to the breakout point for an upside target around 92.

FIGURE 1: XAD, MONTHLY. This index surged and then formed a large ascending triangle over the last three years.

Graphic provided by: Telechart 2007.

On the daily chart (Figure 2), the index surged from October to December 2006 and then formed a rather unusual consolidation from January to March 2007 (magenta trendlines). The pattern is not a flag or wedge and looks like a megaphone. Despite the unusual pattern, the decline back to 77 looks like a correction because it retraced 50% of the prior advance and has characteristics of a consolidation. The retracement is normal for a correction, and the choppy nature of the decline shows an even-pitched battle between the bulls and bears (a consolidation).

FIGURE 2: XAD, DAILY. The index surged from October to December and then formed a consolidation from January to March 2007 (see trendlines).

Graphic provided by: Telechart 2007.

The surge and breakout at 79.50 broke consolidation resistance and signaled a continuation of the October–December advance. There are now two levels to watch for support. First, broken resistance around 79–79.50 turns into support and a strong security should hold its breakout. A move back below 79 would be negative. Second, the bounces at 77 in late January and early March established key support and a break below this level would reverse the uptrend on the daily chart.

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.

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An Ascending Triangle For The Aussie

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