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Earnings and data lift sentiment

Last week: It was a slow and choppy start to the week for US stocks but upbeat US bank earnings and Retail Sales data helped to lift sentiment such that the S&P500, DJIA, NASDAQ and Russell-2000 all closed higher, and, the first three of these look to have made Bull Flag-style breakouts. The other significant bullish close was on Copper and this also looks to have made a Bull Flag breakout, likely also helped along by the upbeat earnings for Alcoa (AA). The big test for all of these Bull Flag breakouts will be what happens if price continues up to the previous all-time High region? Will there be a break-through to new highs, or, rejection and a roll over to form a bearish Double Top? I don't think I'll be the only person closely watching these chart patterns to see which they evolve. The US$ continues to struggle under a key resistance level but the big Forex story of the week was the decline in the Yen and this helped to trigger extensive trend line breakout moves on many Yen pairs. Earnings season continues this week so watch for any continued impact on market sentiment.

 

Technical Analysis: It is important to keep in mind that this analysis is Technical and chart-based but that any major Fundamental news items, as recently seen with Covid-19, have the potential to quickly undermine identified chart patterns. This is why it is critical that traders appropriately manage their trade exposure and risk per trade during these volatile market conditions.

 

Trend line breakouts: There were quite a number of decent trend line breakout opportunities last week, especially on the Yen Forex pairs. Articles released during the week can be found here, here, here and here.

 

  • AUD/JPY: a TL b/o for 250 pips:

 

  • GBP/JPY: a b/o above 153 for 400 pips:

 

  • USD/JPY: a TL b/o above 112.30 for 210 pips:

 

  • ASX-200: a b/o above 7,300 for 80 points.
  • Gold: a TL b/o for $30.
  • EUR/USD: a TL b/o for 30 pips.
  • GBP/USD: a TL b/o for 100 pips.
  • SPX500: a TL b/o for 60 points.
  • NZD/USD: a TL b/o for 120 pips.

 

This Week: (click on images to enlarge):

 

    • DXY: US$ Index: The DXY closed with a bearish-coloured Spinning Top weekly candle reflecting indecision despite the improved market sentiment and upbeat economic data. The 10 year Treasury yield also closed lower for the week but I suspect the pause on the DXY is more technical than fundamental as the index struggles under the 95 resistance region. There is still the look of a bullish-reversal Double Bottom or W Bottom on the weekly chart with 95 being the neck line and this also aligns with resistance from the top of the weekly Cloud so monitor this region for any new make or break.

 

DXY weekly: watch for any resistance from the top of the weekly Cloud, circa 95:

 

 

    • S&P500:
      • Roaring '20s on the way? I see some traders suggesting that the US stock market is in for a massive and imminent correction and I can understand this view given the lengthy stock market rally. However, as the major US stock indices continue to hold up relatively well, in spite of the ravages caused by Covid, I wonder if the post-Covid world might just as likely emerge into something akin to a second Roaring '20s? The historic Roaring '20s evolved after the end of the Spanish Flu and WW1 and continued until the market crash of 1929 and Great Depression of the 1930s. It is with some interest then that I note the potential confluence of past and present events with the projected pattern on the multi-year S&500 chart (below). A bit of deja vu there perhaps?  My reason for positing this idea is to remind traders to keep an open mind about the possibility of continued moves higher with the S&P500, as well as other stock indices.

 

      • Perspective: Keep the bigger picture in perspective with the recent moves as this chart suggests there is a lot more room to move with the overall bullish run. However, this does not discount the odd pullback along the way as trends do not travel in straight lines forever; they tend to zig and zag their way along either bullish or bearish paths. Note how the recent Covid dip does not even figure on this chart!

S&P500 yearly: keep the bigger picture in perspective:

 

 

    • Market Phases: It is important to recall the three main types of market phases: AccumulationParticipation (Up and Down) and Distribution. Traders should monitor the chart of the S&P500 chart for any Distribution type activity that might eventually lead to Participation Down; especially as the S&P500 trades just under an all-time High. The chart below shows how the S&P500 evolved in the years leading up to, and during, the Global Financial Crisis (GFC). Note how the Distribution phase evolved over a period of many months and there was a double test of the all-time High region. Keep this in mind with the current market action on the S&P500.

 

S&P500 market phases: Global Financial Crisis 2007-2009:

 

S&P500: keep watch for any Distribution type of activity:

 

 

    • % Stocks above their 200 Day Moving Average Index: The Percentage of stocks above their 200 Day Moving Average continues to trade below the all-time High region. The first chart, below, gives a perspective of this current level and shows the previous peaks near 92.50% and how there often tends to be some mean-reversion once such lofty levels are reached. The second, expanded, chart shows the continued struggle under the 92.50% level. It remains interesting to see the decent pullback here now despite the fact that the S&P500 is still trading up near an all-time High.

 

% of US Stocks above the 200 Day Moving Average: has pulled well back from the 92.50% region:

 

% of US Stocks above the 200 Day Moving Average (expanded): holding below 92.50%:

 

 

    • Copper: Copper is often viewed as one metric of economic health and closed with a large, bullish weekly candle and there is the look of a Bull Flag breakout so watch for any further upside move. The previous all-time high region will come into focus here as traders monitor whether price action breaks through and continues upwards, or, whether it is rejected at this resistance and rolls over in bearish Double Top fashion.

 

Copper weekly: a new Bull Flag-style breakout:

 

 

    • Emerging Markets: The Emerging market ETF, EEM, closed with a bullish weekly candle AND there is still the look of sideways consolidation so watch for any trend line breakout: up or down.

 

EEM weekly: watch for any trend line breakout: up or down:

 

 

    • DJIA: The DJIA closed with a bullish weekly candle and there is the look of a Bull Flag breakout so watch for any further upside move. As with the other Bull Flags in play, the previous all-time high region will come into focus here as traders monitor whether price action breaks through and continues upwards, or, whether it is rejected at this resistance and rolls over in bearish Double Top fashion.

 

DJIA weekly: keep watch of the 35,000 resistance level with this new Flag b/o:

 

 

    • NASDAQ composite: The NASDAQ Composite Index closed with a bullish weekly candle but still below the key 15,000 level. Momentum is still low on the weekly time frame but there is the look of a Bull Flag breakout so watch for any further upside move. As with the other Bull Flags in play, the previous all-time high region will come into focus here as traders monitor whether price action breaks through and continues upwards, or, whether it is rejected at this resistance and rolls over in bearish Double Top fashion.

 

NASDAQ weekly: keep an eye on ADX momentum here:

 

 

    • DAX weekly: The DAX closed with a large, bullish weekly candle and there is the look of a Bull Flag breakout here too so watch for any further upside move. As with the other Bull Flags in play, the previous all-time high region will come into focus here as traders monitor whether price action breaks through and continues upwards, or, whether it is rejected at this resistance and rolls over in bearish Double Top fashion.

 

DAX weekly: a new Flag b/o:

 

 

    • Russell-2000: The Russell-2000 is often viewed as the 'Canary in the Coal Mine' for US stocks and the index closed with a bullish-coloured Spinning Top weekly candle. The index continues to chop sideways within a trading channel so watch for any new breakout: up or down.

 

RUT weekly: watch the channel for any new b/o:

 

 

    • 10-yr T-Note Interest rate / TNX: This has closed with a bearish weekly candle but is holding above the key 15 level following the recent triangle breakout.

 

  • 10-yr T-Note Interest rate (weekly): Watch for any continued push higher after the TL b/o:

 

 

    • Bonds / TLT: The Bond ETF, TLT, closed with a bullish, almost engulfing, weekly candle and note the revised trend lines.

 

TLT weekly: watch for any new TL b/o:

 

 

    • VIX: the Fear index closed with a bearish weekly candle and still below 20 S/R.

 

VIX weekly: watch 20 S/R for any new make or break:

 

 

Calendar: Courtesy of Forex Factory:

 

 

 

Earnings: Courtesy of Earnings Whispers: Earnings season is underway:

 

 

Market Analysis:

S&P500The S&P500 closed with a bullish weekly candle, back above the 50 SMA and has made a Bull Flag breakout, although this is on low volume and on consolidating daily momentum. The previous all time high, just under 4,550, will be the level to watch in coming sessions as any failure would help shape a potentially bearish Double Top.

Trading volume was lower again last week so watch for any move back above the 200 MA and for any bear TL b/o as price edges back to the all-time high region:

 

S&P500 ETF: SPY weekly: watch for any move back above the 200 MA and for any bear TL b/o:

 

Keep in mind that a Golden Cross remains valid for the time being and the index is now back above the 50 SMA. The Golden Cross is a bullish signal where the 50 SMA crosses above the 200 SMA. Such crosses are often, but not always, followed by a decent bullish run so these crosses are worth noting and, ss with the XJO, this Golden Cross was a great signal! I wrote an article recently evaluating the Golden Cross on both the SPX and XJO and this can be found through the following link.

 

SPX daily: the recent Golden Cross remains valid:

 

There are revised 4hr chart trend lines to monitor.

Bullish targets: any bullish breakout above 4,475 would bring 4,500 into focus. After that, watch 4,550, the recently broken 18-month support trend line and 4,600 as the latter is near the 200% Fibonacci retracement of the Covid swing Low (see the second weekly chart). Then watch whole numbers on the way up to the 5,000 level.

Bearish targets: any bearish hold below 4,475 would bring 4,450 into focus. After that, watch the daily charts Bull Flag trend line followed by whole-numbers on the way down to the weekly chart's 61.8% Fibonacci retracement level, near 3,100.

  • Watch 4,475 for any new make or break:

 

 

 

 

ASX-200: XJO: The XJO closed with a bullish weekly candle as the index holds well above the key 7,200 region. Recall that the 7,200 region was resistance prior to 2021 and any hold above this region would be a bullish signal as it would suggest that this old Resistance has evolved into new Support.

Traders will need to watch for any Bull Flag breakout and push to the previous all-time High region of 7,632.8 but, as with the S&P500, any failure at this level would help shape up a potential Double Top.

Things are starting to return to some kind of normal in the two most populated states of Australia, New South Wales and Victoria. Covid restrictions are being eased and I am finally out of a harsh lock down; a rather surreal experience after 4 months of essentially being house bound. I have been out with family today, enjoying the glorious Spring weather, and there was a rather festive atmosphere on display in our many and beautiful harbour-front parks and cafes and restaurants. It will be interesting to see if this positivity flows into the ASX stock market!

 

As mentioned over recent weeks:

  • XJO traders need to remain open minded over the coming weeks and watch for any potential sideways consolidation that might form a Bull Flag.
  • The other metric to keep in mind here over the coming weeks and months is that of iron ore; Australia's single largest export commodity. Price action has been under pressure for the last few months but is currently poised just above the 61.8% Fibonacci of the 2016 - 2021 swing High move. Any recovery from this level may help to underpin the ASX-200:

 

Iron ore monthly: holding above the 61.8% Fibonacci for the time being:

 

Trading volume on the XJO was a bit lower last week and holding below the 200 MA. Note the new bear trend line to monitor:

 

XJO weekly: trading volume still below the 200 MA:

 

Keep in mind that the recent Golden Cross remains valid here as well although the index is trading below the 50 SMA. The Golden Cross is a bullish signal where the 50 SMA crosses above the 200 SMA. Such crosses are often, but not always, followed by a decent bullish run so these crosses are worth noting and this current Golden Cross proved to be great signal.

 

XJO daily: the recent Golden Cross remains valid for the time being:

 

There are revised 4hr chart trend lines to monitor for any new breakout.

Bullish targets: Any 4hr chart trend line breakout above 7,400 would render a break of the daily chart's Bull Flag upper trend line and would bring 7,500 into focus followed by 7,600 and the previous all-time High region of 7,632.8.

Bearish targets: Any retreat from 7,400 and break of a recent support trend line would bring 7,300, 7,200 and the previous 2020 High of 7,197.20 into focus. After that, watch 7,100 followed by the daily chart's Bull Flag support trend line, 7,000, the pre-2020 High of 6,893.70 and the pre-GFC High of 6,851.50. The weekly chart's 61.8% Fibonacci is down near 5,600 so that would be the next support to monitor.

  • Watch 7,400 and for any 4hr chart trend line breakout.

 

 

 

Gold: Gold closed with a small, bullish weekly candle having a long lower shadow after price pulled back on Friday following a test and rejection of the the $1,800 region. The improved risk sentiment on Friday, following upbeat US Earnings and Retail Sales data, likely the reason for the flow out of Gold and into stocks.

The 30 minute chart below shows the decent range-breakout trading opportunity that was available here on Friday for about a 3 R return:

 

Gold 30 min chart from Friday:

 

 

As mentioned over recent months: The activity below $1,900 acts as further evidence in support of the longer-term Inverse H&S thesis that I have been discussing as an option here for many months.

The weekly chart still has the look of a broad Inverse H&S pattern; or some may see this as a broad Cupping style pattern. Both are rather similar though as they are bullish patterns and suggest follow-through to the order of magnitude of the depth of the Cup / height of Head. In this case, that move is of around either $800 - $900. Keep watch of $1,900 now that price action is trading back above this neckline region!

$1,900 remains the region in focus for any bullish Cup or Inverse H&S breakout:

  • Any break back above $1,900 would support the Cup pattern thesis.
  • Any hold below $1,900 would support the Inverse H&S pattern thesis.

The daily chart reveals the importance of the $1,670 level and this continues to be a 'line in the sand' support level. Any new weekly close below the $1,670 level would bring $1,500 into greater focus. The two weekly charts show that $1,500 is:

  • near the 61.8% Fibonacci of the Aug 2018 - Aug 2020 swing High move.
  • forms the lower boundary of the Inverse H&S pattern I have had on my charts for many months.

There are revised 4hr chart trend lines to monitor for any new breakout and, as with the NZD/USD and GBP/USD, it is worth noting that there is still a lack of momentum on the daily chart. This means that the ADX will be worth monitoring for any new move above 20 as it could potentially give a good clue about the next major directional move, whether that be up or down.

Bullish targets: any bullish recovery above $1,770 would bring a 4hr chart bear trend line, daily 200 EMA and $1,800 level into focus. After that, watch $1,850 and $1,900.

Bearish targets: any bearish 4hr chart trend line breakout would bring $1,750 into focus followed by $1,700 and the $1,670 support level.

  • Watch $1,770 and for any new 4hr chart trend line breakout:

 

 

 

EUR/USD: The EUR/USD closed with a bullish-coloured Spinning Top weekly candle and, again, right on 1.16 making this the level to watch for any new make or break. This is significant level for the EUR/USD being the neck line of a potential bearish Double Top region however, in somewhat of a conundrum, any hold and recovery above this level could also shape up a bullish Double Bottom, as shown on the second weekly chart.

As noted recently:

  • The important point to keep in mind here is that the daily chart shows price action has now retraced to near the 50% region of the March 2020 - February 2021 swing High move. Technical theory would suggest that this overall uptrend remains intact until the 61.8% level is broken and there is still around 300 pips until that 1.13 region might be reached.
  • EUR/USD traders also need to keep in mind that the US$ index is approaching a potential resistance zone, at 95 S/R, just as the EUR/USD looks to be shaping up in a bullish-reversal descending wedge on the daily and weekly charts.
  • However, despite this potential bullish chart pattern, and as mentioned over recent weeks: I have included a second weekly chart and this shows the potential for a longer-term bearish Double Top with the neck line at 1.16. Watch to see if the 1.16 level can act as any support as this would be a rather bullish signal and potentially help to shape up a Double Bottom. All of this suggests that, at the very least, traders should keep an open mind!

There are 4hr chart trend lines to monitor for any new breakout.

Bullish targets: Any bullish 4hr chart trend line breakout would bring the weekly 200 EMA and 1.17 S/R into focus. After that, watch the daily chart's Bull Flag upper trend line, the recently broken 18-month support trend line, 1.18, the daily 200 EMA, 1.19 and whole-numbers on the way up to the 14-yr bear trend line.

Bearish targets: Any bearish 4hr chart trend line breakout would bring 1.15 S/R and the daily chart's Bull Flag lower trend line into focus. After that, watch other whole numbers on the way down to the daily chart's 61.8% Fibonacci, near 1.13.

  • Watch 1.16 and for any new 4hr chart trend line breakout.

 

 

 

AUD/USD: The Aussie closed with a bullish weekly candle after breaking above a 6-month bear trend line. Price action ended up just above 0.74 and just below the daily 200 EMA making these the two levels to watch for any new make or break.

There are revised 4hr chart trend lines to monitor for any new breakout and note how momentum has edged higher on the daily chart so watch for any new ADX breakout above 20 to help offer clues about the next move here.

Bullish targets: Any bullish breakout above the daily 200 EMA would bring 0.75 into focus. After that, watch whole numbers on the way up to the 11-yr bear trend line and 0.80 S/R.

Bearish targets: Any bearish break back below 0.74 would bring a recent support trend line into focus. After that, watch the weekly 200 EMA, the 18-month support trend line and 0.72 followed by whole-number levels on the way down to 0.65 as this is near the 61.8% Fibonacci of the March 2020 - Feb 2021 swing High move (see daily chart).

  • Watch 0.74, the daily 200 EMA and for any 4hr chart trend line breakout.

 

 

 

AUD/JPY: The AUD/JPY closed with a large, bullish weekly candle after breaking above a 6-month bear trend line and delivering a great 250 pip trend line breakout trading opportunity. Price action ended up just below 85 making this the level to watch for any new make or break. The 85 is a rather significant S/R value and this can be seen from the weekly and monthly charts.

As noted over recent weeks:

  • The weekly chart reveals that the 85 level has been a significant reaction zone for the AUD/JPY and has been resistance for the last three years; this level was peppered many times throughout 2018 but could not be broken. The next major level above 85 is 90 so watch this target level if 85 is broken.
  • AUD/JPY traders also need to keep an eye on the sentiment with stocks though, especially the S&P500 index, as the two are generally highly aligned; as the chart below reveals. Any pause or serious pullback with stocks might render similar for the AUD/JPY.
  • The recent divergence on the chart below still has me wondering which of the two will yield? Will the S&P500 join the AUD/JPY in tracking lower or will the AUD/JPY recover and move higher to catch up with the S&P500? It still looks to be a bit of both at the moment!

 

AUD/JPY versus S&P500 (gold line): a high degree of positive correlation BUT note the recent divergence!

 

There are revised 4hr chart trend lines to monitor for any new breakout note how ADX momentum has broken above 20 on the daily chart offering a good clue about the bullish shift seen here this week.

Bullish targets: Any bullish breakout above 85 would bring 86 S/R into focus as there hasn't been a weekly chart close above this level since Feb 2018, a period of over 2.5 yrs!  After that, watch whole-number levels up to 90 and the 9-yr bear trend line.

Bearish targets: Any hold below 85, and break of a recent support trend line, would bring 84 and 83 into focus followed by 82 and another recent support trend line. The 4hr chart's 61.8% Fibonacci is next and this lies near 81, the daily 200 EMA and 4hr chart's 200 EMA. After that, watch 80 and 18-month support TL, the weekly 200 EMA and 79 S/R followed by whole-numbers on the way down to 70 as this is near the 61.8% Fibonacci of the March 2020 - March 2021 swing High move (see daily chart).

  • Watch 85 and for any new 4hr chart trend line breakout;

 

 

 

NZD/USD: The Kiwi closed with a bullish weekly candle after chopping around the 18-month support trend line to start the week. Price action eventually shook off this level and edged up towards an 8-month bear trend line making this the region to watch for any new make or break.

There are revised 4hr chart trend lines to monitor for any new breakout and, as with Gold and the GBP/USD, it is worth noting that there is lack of momentum on the daily chart. This  means that the ADX will be worth monitoring for any new move above 20 as it could potentially give a good clue about the next major directional move, whether that be up or down.

Bullish targets: Any break above the 8-month bear trend line and 0.71 would bring 0.72 into focus. After that, watch whole number levels on the way up to 0.75 and the 8-yr bear trend line.

Bearish targets: Any bearish 4hr chart trend line breakout would bring the daily 200 EMA and 0.70 into focus.  After that, watch the 18-month support trend line and whole-number levels on the way down to 0.62 as this is near the 61.8% Fibonacci of the daily chart's March 2020 - Feb 2021 swing High move.

  • Watch the 8-month bear trend line for any new make or break.

 

 

 

 

GBP/USD: The Cable closed with a bullish weekly candle but spent the first half of the week chopping around near 1.36, a level that has been support for most of 2021. Once this level was shaken off, the GBP/USD moved higher to add on over 100 pips for the week and ending up half way between 1.37 and 1.38 making these the levels to watch for any new make or break.

There are revised 4hr chart trend lines to monitor for any new breakout and, as with the NZD/USD and Gold, it is worth noting that there is lack of momentum on the daily chart. This means that the ADX will be worth monitoring for any new move above 20 as it could potentially give a good clue about the next major directional move, whether that be up or down.

Bullish targets: Any bullish 4hr chart trend line breakout above 1.38 would bring 1.39 and the 18-month support TL into focus. After that, watch whole number levels on the way up to the 15-yr bear trend line.

Bearish targets: Any bearish break below 1.37 would bring a 4hr chart support trend line and 1.36 into focus. After that, watch whole-number levels on the way down to 1.25 as this is near the 61.8% Fibonacci of the March 2020 - Feb 2021 swing High move (see daily chart).

  • Watch 1.37, 1.38 and the 4hr chart trend lines for any new breakout:

 

 

USD/JPY:  The USD/JPY closed with a large, bullish weekly candle after breaking above 112.30 and delivering a great 210 pip trend line breakout trading opportunity. Price action ended up just above 114 making this the level to watch for any new make or break.

Bullish targets: Any bullish hold above 114 would bring 115 into focus. After that, watch whole-number levels on the way to 120 S/R.

Bearish targets: Any bearish break back below 114 and a recent support trend line would bring another support trend line and 112.30 S/R into focus. After that, watch 112 followed by whole numbers down to 106 as the latter is near the weekly chart's 61.8% Fibonacci.

  • Watch 114 for any new make or break.

 

 

GBP/JPY: The GBP/JPY closed with a large, bullish weekly candle after breaking above 153 and delivering a great 400 pip trend line breakout trading opportunity. Price action ended up just above 157 and the monthly 200 EMA making this the region to watch for any new make or break.

NB: The longer-term target for any bullish continuation above the previously broken 40-yr trend line, noted in my post of January 3rd, is the weekly chart's 61.8% Fibonacci, near 170. Price action at the time of this breakout was near 141 and has now reached up as far as 157, a move of around 1,600 pips, and so is a trend line breakout that has proven to be worthwhile monitoring.

There are revised 4hr chart trend lines to monitor for any new breakout and note how momentum has edged higher on the daily chart so watch for any new ADX breakout above 20 to help offer clues about the next move here.

Bullish targets: Any bullish hold above 157 and the monthly 200 EMA would bring 158 focus. After that, watch 160 and whole-number levels on the way up to the weekly chart's 61.8% Fibonacci, near 170.

Bearish targets: Any bearish move back below 157 and the monthly 200 EMA would bring 156 into focus followed by whole numbers on the way down to the 18-month support trend line. Note that the 4hr chart's 61.8% Fibonacci lies back down near the recently broken 6-month trend line and 153 region so keep that in sight as well. After that, watch other whole-number levels on the way down to 137 as this is near the daily chart's 61.8% Fibonacci of the March 2020 - current swing High move (see daily chart).

  • Watch 157 and the monthly 200 EMA for any new make or break: