Trade Week Analysis for 06/05/13

Last week: Here we go again! We are now into our 4th month now of, yet again, mostly Cloud divergence, choppy markets, few 4hr TS signals yet some good 30 min chart trades during the US session.  Again, there were only a few TS signals but they were choppy A/U = 50, E/U =120, G/U (from previous week) = 160, E/J=80 (from previous week) and Kiwi =20.

I noted last week (and tweeted) about how one professional trader commented that FX has been so choppy this year that he thought he might take up gardening! My suggestion though would be to diversify and take up Stock/Option trading. These two instruments seem to complement each other nicely.

This week: The Ichimoku Charts are still divergent but I’m on the lookout for the next wave of alignment.
The EURX has still failed to break, close and hold above the resistance of the 108.5 level. The failure to do this may prove to be a game changer for any further ‘risk on’ potential. I’m watching the EURX to see which way it heads from this point. I’m surprised it has held up this well and for this long but this is where it is important to trade what you see and not what you think!

It seems that many economies are trying to push down the value of their respective currencies and this is simply making FX trading that much more difficult.

Trading Calendar: some items to watch out for this week:
  • Mon 6th: AUD retail sales, ECB Draghi speaks.
  • Tue 7th: AUD trade balance and interest rate data.
  • Wed 8th: Chinese trade balance data.
  • Thurs 9th: AUD and NZD employment data. Chinese CPI data. GBP manufacturing and interest rate data. USD unemployment claims.
  • Fri 10th: G7 meetings, AUD monetary policy statement, USD Ben Bernanke speaks. JPY current account data.
  • Sat 11th: G7 meetings.
Stocks and broader market sentiment:
The sentiment with stocks often dovetails in with currencies so, I believe, it pays to keep abreast of what is happening in both instrument classes. There has been a much greater ‘risk appetite’ for stocks of late though, compared to that for currencies. I keep wondering which of these instruments is on the eventual new path and if/when they will align again for the longer term.

I had mentioned over recent weeks about various traders warning about a looming major corrections for stocks. The suggestion I had from one professional trader was for the Dow to drop by over 1000 points! I have been stating that I was not seeing any signs of this. One of the key charts I have been posting here, for some time now, is that of the monthly S&P500 chart. I have been noting here how the look of this ‘market top’ appears quite different to that of the previous two market tops from back in 2000 and 2007. I’m not seeing the divergence now that was evident back on those two occasions. Also, the trajectory of the ADX is looking rather different and is actually starting to look quite bullish. The April monthly candle closed just under the 1,600 level. I would consider a candle close for May of 1,600 or over to be a rather bullish signal and, possibly, a new ‘floor’.

The weekly S&P500 chart is also trading differently to the two pull back periods that we’ve had over the last 12 months:

I summarised last week about the 4 main signals I am looking out for to warn me of any possible new market direction and trading sentiment. These included:
  • Ichimoku S&P500 chart: a clear cross of the blue Tenkan-sen line below the pink Kijun-sen line AND 

  • Ichimoku S&P500 chart: price to dip below the Ichimoku Cloud.

  • EURX monthly chart : a break of the monthly support trend line (monthly chart posted yesterday)

  • S&P500 chart: a break of the monthly support trend line (see monthly chart above). A break of this support level would suggest to me of a more severe pull back or correction.

One of these signals evolved in the previous week but has since faded. That was the first mentioned signal: a clear cross of the blue Tenkan-sen line below the pink Kijun-sen line on the Ichimoku S&P500 chart. Such a bearish chart cross had only occurred two times in the last 12 months; last April and October. Both instances were followed by pullbacks or ‘risk off’ momentum across stocks and currencies. This signal faded quickly though and has subsequently been replaced by a stronger signal of a bullish Tenkan/Kijun cross above the Cloud (Kumo)! 
So, I am back to having absolutely no signals warning me that there is a pullback, or major correction, looming. I am not suggesting by this that a stock pullback will not evolve eventually BUT I am merely noting that I don’t have any signals of this AS YET. I am fully aware that trends do not last forever and, also, of the ‘Sell in May and go away’ phenomenon. It is just that I don’t have any signals that the current trend with stocks is changing. I am keeping this current ‘risk appetite’ for stocks in mind whilst I assess what’s happening with currencies.

BTW: I have updated my Stocks:May page with some stocks and Option trades that I’m currently stalking. 

Some key events to watch out for include:

E/U: Price has been up then down this week but has held above the 1.30 level. Price is trading in the Cloud on the daily and above on the 4hr Ichimoku chart which suggests some further choppiness. The weekly candle closed as a bullish candle but has a bit of a ‘shooting star’ bearish reversal look to it. A weekly support trend line is in place and forms up a triangle pattern for this pair. The 1.30 has been a major support level for this pair but, with continuing news suggesting an improving US economy and with the poor economic outlook for the Euro zone, it is hard to see why this pair continues to hold up. This pair would often trade in tandem with stocks so I can only think that this connection is helping to hold this pair up.
  • I’m watching the 1.3 level and for a new TS signal.

E/J: Price chopped around this week again within a symmetrical triangle pattern but broke out and up from this on Friday following NFP. Price stalled just under the key 130 S/R level. Price is trading above the Cloud on the daily and on the 4hr time frame which is bullish. The weekly candle closed as an ‘inside’ candle, albeit a bullish one.
  • I’m watching for a new TS signal and the 130 level. I still see the 140 level as a possible target.

A/U: Price chopped around this week just above a monthly support trend line and the support of the key 1.02 level. It seems to have bounced off these levels for the time being. Price is trading in the Cloud on the daily but above on the 4hr chart which suggests choppiness but with a bullish bias. The weekly candle closed as a bullish engulfing candle. This pair seems a bit conflicted at the moment as its usual stablemate, the S&P500, has been off and running without it. There is a lot of data to impact on the Aussie pairs this coming week. The key data being Interest Rate news on Tuesday. It is widely expected that rates will be cut which, under normal circumstances, would be bearish for the AUD. It remains to be seen whether stocks continue to grind higher though and, if so, whether this might drag the Aussie along with it at all. One would expect that any pullback with stocks would see the A/U fall sharply. 
  • I’m watching for a new TS signal and for any trend line break of the 1.02 level. 
  • I think it would be wisest to wait until after interest rate news to trade Aussie pairs.

A/J: Price has chopped around this week, within a triangle pattern, and either side of the key 100 level. Price broke out and up from this triangle after NFP though and closed above the monthly and weekly pivots. Price is trading above the Cloud on the daily and is now back above the Cloud on the 4hr time frame which is bullish. The weekly candle closed as an ‘inside’ candle, albeit a bullish one. The same issue and news items should apply here as for that noted with the A/U above.
  • This has given a new TS LONG signal on my Sat 3am candle. I’m watching the 103 level.
  • I think it would be wisest to wait until after interest rate news to trade Aussie pairs.

G/U: Price has traded up for the better part of the week. It is still trading within an upwards trend channel.  It is trading above the Cloud on the daily and on the 4hr chart which is bullish. The weekly candle closed as a bullish candle. I was wary with shorting this pair though given that the March candle closed as a pin bar reversal or ‘hammer’ style candle. This suggested a reversal to the upside which seems to have evolved for the time being! The daily chart still has a bit of a ‘Bear Flag’ look to it though! There is interest rate news for this pair on Thursday.
  • NB: Go Market charts have an error for my weekly 200 EMA with the G/U. I have advised them about this.
  • I’m just watching at the moment, especially the trend channel pattern.

Kiwi: NZD/USD: Price chopped around this week either side of the key 0.85 level. Price is now trading above the Cloud on the daily chart and on the 4hr charts which is bullish. The weekly candle closed as a small but bullish candle. I do see one possible bearish signal perhaps. That is, a bearish H&S pattern starting to form up on the 4hr chart. Any continued ‘risk appetite’ with stocks might drag this pair up and along with them though.
  • I’m just watching for a new TS signal and the triangle trend lines.

EUR/AUD: Price simply chopped sideways to start the week but then rallied back to the key 1.28 S/R level. Price fell back down towards the end of the week though. It is trading above the Cloud on the daily and on the 4hr time frame which is bullish. The weekly candle closed as an almost ‘shooting star’ bearish reversal style candle though. 
  • I’m just watching this pair at the moment.
  • I think it would be wisest to wait until after interest rate news to trade Aussie pairs.

The Yen: U/J: Price chopped sideways within an ascending triangle this week. It rallied on Friday after NFP though and gave a new TS signal to LONG on my Saturday 3am candle. Price is trading above the Cloud on the daily and on the 4hr time frame which is bullish. The weekly candle closed as a bullish candle.
  • I’m watching the 100 level.

Metals: Gold and Silver: I’m not seeing much sign that the metals are going to pull back any time soon. In fact, if I look at both silver and gold using the monthly Ichimoku chart then, the picture for both looks quite grim. Both metals have recently given new, bearish signals on these monthly charts:

Gold: this has given a bearish Tenkan/Kijun cross but the Cloud may offer some support:


Silver: this has also given a bearish Tenkan/Kijun cross some time ago but looks like it is struggling to stay above the Cloud:

General notes on Silver: Silver has broken below the long term monthly support triangle trend line. Price simply chopped sideways for most of the week. The weekly candle closed as an indecision style ‘spinning top’ candle. The next major support seems to be down at $15 in the monthly 200 EMA.

General notes on Gold: Gold has also broken down through major monthly triangle support that dates back to early 2008. That was a major break down for the metal. Price chopped sideways this week. The weekly candle closed as an indecision style ‘spinning top’ candle too. The next major support seems to be down at the whole number, $1,000 level and, after that, at $850 in the monthly 200 EMA.

Oil: The positive NFP data might add support for further demand for Oil by way of increased activity and, thus, flow on to support price. There are many other factors that impact Oil though so one would not trade it on this bias alone. It is trading up near a weekly triangle, bear trend line so it is worth watching to see if breaks here or bounces back down: