Trade Week Analysis for 11/02/13

A quiet start to February
Last week: It was not surprising to me at all to see a quiet week to start February. We had just had two amazing trend trading weeks with hundreds of pips on flow. Trends don’t last forever though and these lasted just 2 weeks. The road blocks I had warned about last week did, indeed, stall ‘risk on’ momentum. These road blocks were the EURX monthly 200 EMA and the USDX neckline of the H&S pattern.  There were a few TS signals across the Yen pairs early in the week but they did very little before reversing. A signal to short the E/U came up late in the week and has given up to 50 pips.
This week: It remains to be seen whether price will keep retreating from these potential breakout levels on the indices in some form of ‘risk off’ mode. Price may also chop around some more before gathering steam to make another attempt at these levels. I will be watching for signs across a number of range instrument to gauge market sentiment. There are a number of scheduled events that could trigger price movement so make sure you check your trading calendar.
  • There is divergence across the Index Ichimoku Cloud charts so I will be wary with trading TS signals off 4hr charts.
  • Chinese New Year means holidays all week for the Chinese markets.
  • Monday is also a holiday for Japan.
  • Tue: President Obama’s State of the Union Address.
  • ECBs Super Mario Draghi speaks again this coming week on Tue night.
  • Thursday: BoJ rate decision and Press Conference.
  • Sat: G20 meetings start.
  • I’ll continue to leave out the A/U and G/U from my ‘risk on’ focus pairs. Both pairs are experiencing various issues at the moment. The A/U usually correlates along with stocks and the S&P500 index as a measure of risk appetite. This has not been the case lately though.
  • There are a few ‘Dark Cloud Cover’ patterns appearing on the weekly charts of some pairs. These are bearish patterns but we will need to see the close of weekly candles for next week to confirm these patterns. This explanation comes from http://www.candlesticker.com: Bearish Dark Cloud Cover Pattern is a two-candlestick pattern signalling a top reversal after an uptrend or, at times, at the top of a congestion band. We see a strong white real body in the first day. The second day opens strongly above the previous day high (it is above the top of the upper shadow). However, market closes near the low of the day and well within the prior day’s white body at the end of the day.
  • Pairs I’m leaving for the time being: I am leaving out the USD/SGD as there has been a lot of noted and documented anomalies with this pair. I’m also leaving the USD/CHF too whilst there is pegging of the CHF to the Euro. I’m leaving the Loonie out too. I’m realising it is better to watch fewer pairs, the ones that are delivering trends, and to watch them well. 
Stocks:
  • Stocks continue to have a good run as shown in weekly S&P500 chart below. I am wondering whether this rally will continue though if the USD keeps marching upwards. There was a 2 month rally between the last two pull backs. We have two months now with this rally and I’m wondering if the pattern (below) might not just repeat itself with a bit of a pause.

  • Stocks have rallied this week but so, too, has the USD. That is not the usual correlation and I’ll be watching to see if this disconnect continues. I am open minded about a dismantling of this usual correlation and the development of a new one. I have studied enough Cognitive Science, along with pure Science, to be more than comfortable with any paradigm shift!
  • There were two great SPY trade opportunities during the US sessions last week. I am finding that this tends to happen when divergence creeps in across the Index charts; as it did during last week. Two such trades can be reviewed on my page called TS Examples @ http://tradespottingthemarkets.blogspot.com.au/p/ts-examples.html. Both of these trades offered huge possible percentage returns for those who can trade that market session.
  • BTW: I have updated my Stocks:Feb page with particular stocks that continue to interest me as well as some trade ideas. Many of my breakout stocks have moved on for excellent gains. Others look poised to follow suite soon BUT that will depend on whether this ‘risk on’ appetite continues. Check out the charts!

Currency Pairs:


E/U: The monthly bullish inverse H&S pattern is still valid. Price has also formed a bullish inverse H&S pattern on the weekly chart!  Price is trading within a symmetrical triangle on the weekly chart and above the weekly 200 EMA. A bull support trend line is in place but I would not be surprised to see price pull back to re-test this level before any further up move. Price is still trading above the Cloud on the daily Ichimoku chart but is below on the 4hr chart which is divergent. So, price action may be choppy whilst a new equilibrium is sought. The weekly candle closed as a large bearish engulfing candle and finished the week just above the weekly and 4hr 200 EMAs. The current monthly candle is printing an inside candle which reflects consolidation and /or indecision. There was a TS signal to SHORT on Friday and this is still open. This signal is currently up around 50 pips.

  • I will look to SHORT the E/U on the new TS signal, a close below the weekly and 4hr 200 EMAs and if ‘risk off’ returns.
  • I will look to LONG the E/U on a new TS signal and if ‘risk on’ remains.

E/J: Price chopped around under the monthly 200 EMA all week.  Price is still trading above the Cloud on the daily and on the 4hr chart which is still bullish. Price had the first bearish week in some time though so I have drawn in a bull support trend line on the daily chart. The weekly candle closed as a bearish candle and looks to be setting up as almost a ‘Dark Cloud Cover’ pattern. These are bearish patterns but I need next week’s candle to confirm. Price did gap up on the weekly BUT not quite above the previous weekly candle’s shadow. The current print of the new monthly candle is a bearish ‘shooting star’ pattern though so this might also be pointing to some possible further reversal ahead here.
  • I will look to LONG the E/J on any new TS signal, if ‘risk on’ returns and if price holds above the 123 level. 
  • I STILL WON’T SHORT the E/J this week given the ongoing stimulus.

A/U: Price trended down most of the week but did not produce a clean TS SHORT signal. The 1.04 psychological whole number level was broken this week and price closed under this for the week. Price is below the Cloud on the daily and 4hr time frame which is bearish. Price is only about 100 pips above the major monthly bull support trend line. I had always thought that the A/U would break up and out of this triangle in a bullish way but, perhaps, the breakout might just be bearish. The weekly candle closed as a bearish candle, as is the current print of the new monthly candle.
  • I will look to SHORT the A/U on any new TS signal, if ‘risk off’ returns and if price closes and holds below the support trend line.
  • I will look to LONG the A/U on any new TS signal and if ‘risk on’ returns. 

A/J: Yen weakness continues to help this pair. Price chopped around between the 96 and 97 level all week. Price is still trading above the Cloud on the daily and on the 4hr chart which is bullish. The weekly candle closed as a bearish candle though and, like the E/J, this pair is printing a possible ‘Dark Cloud Cover’ on the weekly and a ‘Shooting Star’ on the monthly chart. Both of these are bearish patterns. Like the E/J though, there was a gap up on the weekly candle but not above the previous weekly candle’s shadow. Price had the first bearish week in some time though so I have drawn in a bull support trend line on the daily chart.
  • I WON’T SHORT the A/J this week given talk of further BoJ stimulus.
  • I will look to LONG the A/J on any new TS signal, if ‘risk on’ returns and if price closes back above the 96 level and weekly pivot. 

G/U: I really don’t like this pair. Price has chopped around the monthly support trend line and the 1.58 level all week. It looks really lost and as if it is waiting for some direction from the EU summit. It is trading below the Cloud on the daily but has scraped back above the Cloud on the 4hr chart so might be choppy and turning bullish. The weekly candle closed as a bullish engulfing candle.
  • I MIGHT look to the LONG G/U on any new TS signal. 
  • I MIGHT look to the SHORT the G/U on any new TS signal and close below the monthly support trend line. 

Kiwi: NZD/USD: Price tried to hold out and up from the broken upper trend line of the symmetrical triangle on the monthly chart at the start of the week. It failed to hold though and then trended down for most of the week. It is trading above the Cloud on the daily but below on the 4hr chart so might continue to be choppy.  The weekly candle closed as a large bearish candle and right on the safety of the monthly pivot. The weekly candle here is also setting up as a potential ‘Dark Cloud Cover’ pattern. Unlike the E/J and A/J, price on the Kiwi did gap up above the previous weekly candles close and shadow. I need the candle close from next week to confirm though, as I do with the E/J and A/J. The current monthly candle is printing a bearish ‘spinning top’ candle at the moment.
  • I MIGHT look to LONG the Kiwi on any new TS signal and if ‘risk on’ returns.
  • I MIGHT look to the SHORT the Kiwi on any new TS signal and if ‘risk off’ returns.

EUR/AUD: Price has now closed back below the neckline, the 1.3 level, of the bullish ‘inverse Head and Shoulder’ pattern on the weekly chart.  It chopped around this 1.3 level for most of the week. It is now trading above the Cloud on the daily but within the Cloud on the 4hr chart which suggest further choppiness. The weekly candle closed as a bearish ‘inside’ candle. ‘Inside candles’ suggest indecision or consolidation so we will have to wait to see what develops.
  • I will look to LONG the EUR/AUD on any new TS signal.
  • I will look to SHORT the EUR/AUD on any new TS signal and a hold below the 1.3 level.

The Yen: U/J: I’ve started watching this pair again. This pair has traded in a similar pattern for the last few weeks. It trades down in a bullish flag pattern to start the week. Then, price breaks out and trades up for most of the rest of the week. It is still trading above the Cloud on the daily and on the 4hr chart so is bullish.  The weekly candle closed as a long legged Doji candle and this reflects indecision in the market.
  • I won’t trade the USD/JPY

Gold/Silver: The bullish ‘Cup and Handle’ patterns on the weekly charts are still valid for the time being. The ‘handle’ part for both metal charts seems to be forming a bullish broadening ascending wedge pattern though now. The theory is that the breakout target is equivalent to the depth of the cup. The handle patterns can be seen on the daily charts and this is the area where you can see the bullish breakout. Price has chopped along sideways on both pairs throughout the week. Both metals are moving closer to trade near the extreme edge of their ‘handle’ patterns, especially Gold.

Silver weekly

Silver daily 

Gold weekly

Gold daily