The $AUD

The Australian Dollar is probably my favorite leading indicator among the currencies. One of the main reasons is that the $AUD is a carry trade currency, when it's being bought the carry trade is on and you can expect a market rally, when it is being old, the carry trade is being closed and you can expect an ugly market. Here's an example of how the $AUD was one of the tools we used is setting up shorts at the March through May 1 highs.

 You probably recall the rally in the SPX that carried over in to the new year, at the March highs just looking at price alone would have you believing that the up trend was still in effect, this is where we started selling short and had a number of successful shorter swing trades on the volatility of this topping pattern. Add the $AUD (Orange) and you can see the carry trade was being closed out, thus the rally was near its end, you wouldn't have gained anything by staying long after the $AUD diverged in March, only lost or had months of opportunity cost to get out close to the same level as months earlier. We used this time to set up shorts, but as you can see, the $AUD clearly called this top.

The $AUD works on a number of timeframes and trends.

Recently the $AUD diverged from the SPX pretty badly after having stuck very close to it since the June 4 lows.

 Here's the $AUD/SPX divergence, while I wouldn't use any one indicator alone to make a call (you need as many pieces of the puzzle as possible), this is still a key indicator.

So I decided to take a closer look at the $AUD, if there was confirmation or even worse, positive divergences, then I'd be nervous about my market positioning, if the $AUD looks like it's being sold and is going to roll over more, then I feel more comfortable with my market positioning (bearish).

 The cleanest chart here is the 4 hour showing a price surge in October that 3C did not confirm and price went up parabolically and came back down in the same fashion, otherwise, the uptrend was confirmed until it went negative around February. Next the downtrend was confirmed by 3C as was the reversal and new uptrend from the early June lows, it is now leading negative again at this turning point.

Now I want to confirm this chart and see if there are more details...


 The hourly chart shows a positive divergence in to the June bottom, it's not on the 4 hour chart because the divergence wasn't big/strong enough to make it that far, there's confirmation and then it goes negative at this recent top like the 4 hour chart. The faster charts will show more detail and stronger divergences as well as more of them.

 The 15 min chart is key because it is a strong timeframe and it moves quickly to show divergences that are serious in nature quickly, we have a new leading negative low in the $AUD here after a positive divergence at the June lows.

The 5 min chart shows the same nasty leading negative divergence, anything shorter than 5 mins is too spotty, you can see the 5 min chart getting gappy. In any case, I feel comfortable the $AUD will continue to sell off, that's not good news for the market at all.