The Euro Currency Trust (FXE) opened strong on Monday, but moved lower throughout the week and closed near its low for forge an outside reversal. An outside reversal occurs when the high is above the prior high and the low is below the prior low. A close below the prior open reinforces the reversal. While the overall trend remains up, chartists should watch support from the May-July lows for a potential trend reversal. The chart below shows FXE forming a big outside reversal in early May and then stalling the next 3-4 months. The May-July lows mark support at 139. A move below these levels would forge lower lows and break the June 2010 trendline. This would clearly reverse the uptrend.
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The indicator window shows StochRSI with horizontal lines set at .40 and .60. Instead of using crosses above the midpoint (.50) to generate signals, I applied at .10 buffer to bullish and bearish signals. A move above .60 is momentum bullish until there is a counter move below .40. A move below .40 is momentum bearish until there is a counter move above .60. Notice how StochRSI moved below .40 in early May and has yet to produce a counter signal. This indicator is in bear mode until a break above .60. You can read more about StochRSI in our ChartSchool.
