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Reality check ahead of Jackson Hole?

Last weekWe've had a number of weeks of conflicting market signals where some instruments would close risk-on whilst others would close risk-off. However, there was better correlation last week with the majority of instruments aligning for a risk-off, or bearish, weekly close. The S&P500, DJIA, NASDAQ, Russell-2000, DAX, XJO, Copper and EEM all closed with bearish weekly candles and there were flows into the US$ and Yen. Now, as the idiom warns, 'One Swallow does not a Summer Make' but traders would be well advised to look for any bearish follow-through given the lengthy bull market run that has dominated across many stock markets for the last 18 months. Perspective is needed as trends do not travel in straight lines unabated and even long-term Bull markets will experience the ebb and flow of occasional pullbacks. The US$ was another key story last week gaining on the back of both FOMC Taper and Covid Delta fear. There is some irony here given these forces reflect opposing market views but, none the less, both helped to support the US$. Commodity currencies were particularly hard hit by this US$ gain with a number breaking below 18-month support trend lines and delivering some decent opportunities for trend line breakout traders. Gold held relatively steady though suggesting that the fear component, associated with Covid Delta, outweighed any bearish impact from a rising US$. The annual US Federal Reserve Jackson Hole Symposium is this week so watch to see if news from this event triggers any new directional market move.

 

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: Most of the trend line breakout opportunities came from breaks of 18-month support trend lines. The trend line breakout on the GBP/JPY, that started in the previous week, also delivered some decent pips. Articles released during the week can be found here, here, here and here.

 

  • GBP/JPY: a TL b/o from the previous week continued for up to 370 pips; as shown in the following 4hr and 60 min charts:

 

GBP/JPY 4hr: this TL b/o gave up to 340 pips:

 

GBP/JPY 60 min: this TL b/o started on Thursday 12th Aug:

 

  • AUD/JPY: the 18-month TL b/o has given up to 250 pips.
  • NZD/USD: the 18-month TL b/o has given up to 160 pips.
  • AUD/USD: the 18-month TL b/o has given up to 200 pips.
  • GBP/USD: the 18-month TL b/o has given up to 100 pips.

 

This Week: (click on images to enlarge):

 

    • DXY: US$ Index: The DXY closed with a bullish weekly candle and has made a new trend line breakout. The momentum ADX and +DMI are above 20 and rising so watch for any bullish continuation. The US Federal Reserve meet for their annual Jackson Hole Symposium this week so watch to see how any news from this event impacts the US$:

 

DXY weekly: watch for any continued momentum-based TL b/o:

 

 

    • % 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 is interesting to see the decent pullback here now despite the fact that the S&P500 is trading up near an all time High.

 

% of US Stocks above the 200 Day Moving Average: watch for any further reaction at the 92.50% region:

 

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

 

 

    • S&P500: 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 this latest move 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 up near 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:

 

 

    • Copper: Copper is often viewed as one metric of economic health and closed with a large, bearish weekly candle, albeit well of its Low. Bearish momentum is on the rise so watch for any pullback to the 61.8% Fibonacci region, near the whole-number 3 level.

 

Copper weekly: Watch for any push to the 61.8% Fibonacci region:

 

 

    • Emerging Markets: The Emerging market ETF, EEM, closed with a large, bearish weekly candle and looks to be on track to test even lower levels. Watch for any pullback to the 61.8% Fibonacci region, near the whole-number 40 level.

 

EEM weekly: watch for any push down to the 40 region:

 

 

    • DJIA: The DJIA closed with a bearish-reversal Hanging Man-style weekly candle but still above the key 35,000 level and only after testing a new all-time High during the week. Price action is down near the 18-month support trend line so watch for any failure at this key level and, if bearish momentum evolves, watch for any pullback to the weekly 61.8% Fibonacci, near 25,000.

 

DJIA weekly: keep watch of 35,000:

 

 

    • NASDAQ composite: The NASDAQ Composite Index closed with a small, bearish weekly candle after last week's bearish-reversal Hanging Man-style candle. The long lower shadow reflects that buyers stepped in and bought the dip. Price action is down near the 18-month support trend line which will be focus with this week's Jackson Hole Symposium. Watch the whole-number 15,000 level and the support trend line for any new make or break.

 

NASDAQ weekly: watch 15,000 and the support trend line for any new make or break:

 

 

    • DAX weekly: The DAX closed with a small, bearish weekly candle but remains above the 18-month support trend line. Watch for any new momentum breakout: up or down.

 

DAX weekly: watch 16,000 for any new make or break:

 

 

    • Russell-2000: The Russell-2000 is often viewed as the 'Canary in the Coal Mine' for US stocks and the index closed with a bearish weekly candle and below the 18-month support trend line. However, the Flag pattern reveals that price continues to essentially chop sideways for now so watch the bottom trend line for any new breakout.

 

RUT weekly: watch the bottom Flag TL for any new b/o:

 

 

    • 10-yr T-Note Interest rate / TNX: This has closed with a bearish-coloured Spinning Top weekly candle. Watch for any new trend line breakout.

 

  • 10-yr T-Note Interest rate (weekly): watch for any trend line breakout

 

 

    • Bonds / TLT: The Bond ETF, TLT, closed with a bullish weekly candle so watch for any trend line breakout continuation.

 

TLT weekly: watch for any push to the 61.8% Fibonacci:

 

 

    • BTC/USD: The bullish wedge breakout continues, first noted in my update from 4 weeks ago. I had previously mentioned that the 61.8% Fibonacci, near the whole-number $30,000 and, more precisely $27,700, were the two key levels to monitor and this seems to have been spot on advice. Watch for any continued bullish follow-through.

 

BTC/USD: the b/o was signaled by the TL and Volume breakout four weeks ago:

 

 

    • VIX: the Fear index closed with a small, bullish weekly candle but the long upper shadow reveals how sellers sold down the attempted rally.

 

VIX weekly: watch for any push back above 20 S/R:

 

 

Calendar: Courtesy of Forex Factory:

 

 

Earnings: Courtesy of Earnings Whispers: winding down:

 

 

 

Market Analysis:

 

S&P500: The S&P500 closed with a bearish-reversal Hanging Man-style weekly candle but only after touching new Highs during the week and it also still managed to hold above an 18-month support trend line. Traders should monitor this trend line for any bearish break but, if this support does give way, they should also watch for any potential sideways consolidation that might form a Bull Flag.

Trading volume was higher last week and broke above the bear trend line BUT watch for any new break above the 200 MA.

 

S&P500 ETF: SPY weekly: watch for any new 200 MA b/o:

 

:

There are revised 4hr chart trend lines to monitor.

Bullish targets: any bullish 4hr chart trend line breakout would bring 4,450 and 4,500 into focus. After that, watch 4,600 as this is near the 200% Fibonacci retracement of the Covid swing Low and, then, the whole-number 5,000 level (see the second weekly chart).

Bearish targets: any bearish 4hr chart trend line breakout would be a break of the 18-month support trend line and would bring 4,400 back into focus.  After that, watch whole-numbers on the way down to the weekly chart's 61.8% Fibonacci retracement level, near 3,000.

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

 

 

 

 

 

ASX-200: XJO: It seemed to take a single new Covid cases in New Zealand for the reality of Covid Delta to finally impact the XJO. The forward-looking blinkers seemed to fall off following this news, and news of the worsening Covid situation in Australia, and the index closed with a bearish engulfing weekly candle. However, as with the S&P500, the index managed to hold above an 18-month support trend line and traders should monitor this trend line for any bearish break and, if this support does give way, watch for any potential sideways consolidation that might form a Bull Flag.

 

As mentioned over recent weeks:

  • It has taken a long time for the XJO to break and hold above the pre-GFC High region and, in this regard, it has lagged well behind most other global stock indices. However, any continued hold above this 7,200 region could well mark the beginning of a new trading range for the index and put it in catch-up mode with its peers.
  • S&P upgraded the Australian outlook from 'Negative' to 'Stable' recently so watch for any impact this may have on market sentiment for the XJO.

 

Trading volume was a bit higher again last week so watch for any new 200 MA breakout.

 

XJO weekly: keep watch for any new b/o above the 200 MA:

 

Keep in mind, though, that the recent Golden Cross still remains valid. 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:

 

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

 

There are revised 4hr chart trend lines to monitor.

Bullish targets: Any bullish 4hr chart trend line breakout, above 7,500, would bring 7,600 into focus.

Bearish targets: Any bearish 4hr chart trend line breakout would render a break of the 18-month support trend line and bring 7,400 into focus. After that, watch 7,300 followed by 7,200, the previous 2020 High of 7,197.20, 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 7,500 and for any 4hr chart trend line breakout:

 

 

 

Gold: Gold closed with a bullish-coloured Doji weekly candle, reflecting indecision, as price action holds below $1,800 S/R.

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.

Traders need to watch this $1,900 level over the coming sessions especially as the US$ index is still below the recently broken 10-year support trend line:

  • any US$ hold below the multi-year support trend line could help send Gold higher.
  • any US$ move back above this support trend line could keep Gold range-bound. This would help to further develop the Inverse H&S pattern.

The daily chart reveals the importance of the $1,670 level so this continues to be a 'line in the sand' support level to monitor. 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 trend lines to monitor on the 4hr chart.

Bullish targets: any bullish 4hr chart trend line breakout, above $1,800, would bring $1,850 and $1,900 into focus.

Bearish targets: any bearish 4hr chart trend line breakout would bring $1,750 into focus. After that, watch for any push down to the $1,670 support level.

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

 

 

 

EUR/USD: The EUR/USD closed with a bearish weekly candle after, again, breaking down through the 18-month support trend line. Price action closed right near the 1.17 level and, as highlighted last week and on the second weekly chart, this has been an important support region for the EUR/USD over the last two years. There is the look of a bearish-reversal Double Top on this second weekly chart with 1.17 forming up an effective neck line so this is worth keeping in mind.

Despite this bearish view on the weekly chart, there is the look of a bullish-reversal Descending Wedge on the daily chart so traders should keep an open mind in the wait for this week's Jackson Hole Symposium.

There are revised trend lines to monitor on the 4hr chart.

Bullish targets: Any bullish 4hr chart trend line breakout would bring the daily chart's bear wedge trend line and 1.18 into focus. After that, watch the recently broken 18-month support trend line and 1.19 followed by whole-numbers on the way up to the 14-yr bear trend line.

Bearish targets: Any bearish 4hr chart trend line breakout, and break of 1.17, would trigger a potential weekly chart bearish Double Top pattern. After that, watch for any push to the daily chart's 61.8% Fibonacci, near 1.13.

  • Watch 1.17 and for any new 4hr chart trend line breakout; especially with this week's US Federal Reserve Jackson Hole Symposium:

 

 

 

 

AUD/USD: The Aussie closed with a large, bearish weekly candle after breaking down through the 18-month support trend line. This trend line breakout delivered up to 200 pips, as the 60 minute chart below reveals.

 

AUD/USD 60 min: the weakness started on Monday of last week:

 

 

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

Bullish targets: Any bullish 4hr chart trend line breakout would bring 0.72 and 0.73 S/R into focus as the latter is near the 4hr chart's 61.8% Fibonacci. After that, watch the 18-month TL and 0.75 followed by whole numbers on the way up to the 11-yr bear trend line and 0.80 S/R.

Bearish targets: Any bearish 4hr chart trend line breakout would bring 0.71 into focus. After that, watch 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 for any new 4hr chart trend line breakout:

 

 

 

AUD/JPY: The AUD/JPY closed with a large, bearish weekly candle and with a clear breakout below an 18-month support trend line.

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:

 

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

 

The recent divergence on the above chart has me wondering which of the two will yield? Will the S&P500 join the AUD/JPY in tracking lower or with the AUD/JPY recover and move higher to catch up with the S&P500?

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

Bullish targets: Any bullish 4hr chart trend line breakout would bring 79 and 80 S/R into focus as the latter is near the 4hr chart's 61.8% Fibonacci. After that, watch 81 and the recently broken 18-month TL followed by whole numbers on the way up to 85 and 90 S/R.

Bearish targets: Any bearish 4hr chart trend line breakout would bring 78 S/R into focus. After that, watch 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.

  • Watch for any new 4hr chart trend line breakout:

 

 

 

NZD/USD: The Kiwi closed with a bearish engulfing weekly candle after breaking down through the 18-month support trend line. This trend line breakout delivered up to 150 pips, as the following 60 minute chart reveals:

 

NZD/USD 60 min: bearish follow-through after the break of the 18-month TL:

 

Bullish targets: Any bullish hold above 0.68 would bring 0.69 and 0.695 into focus as the latter is near the 4hr chart's 61.8% Fibonacci. After that, watch the recently broken 18-month support trend line and 0.70 and 0.71.

Bearish targets: Any bearish break below 0.68 would bring whole-number levels on the way down to 0.63 as this is near the 61.8% Fibonacci of the March 2020 - Feb 2021 swing High move.

  • Watch 0.68 for any new make or break:

 

 

 

GBP/USD: The Cable closed with a large, bearish weekly candle after breaking down through the 18-month support trend line. Price action closed down near a recent Low at 1.36 so this will be the level to monitor next week.

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

Bullish targets: Any bullish 4hr chart trend line breakout would bring 1.37 and the recently broken 18-month support trend line into focus. After that, watch whole-numbers on the way up to the 15-yr bear trend line.

Bearish targets: Any bearish 4hr chart trend line breakout would bring 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.

  • Watch 1.36 and for any 4hr chart triangle trend line breakout:

 

 

 

USD/JPY:  The USD/JPY closed with a bearish-coloured Spinning Top weekly candle as price holds within a 4hr chart triangle and just below the 110 S/R level.

Bullish targets: Any bullish 4hr chart trend line breakout would bring 110 and 111 into focus followed by whole-numbers on the way up to 115.

Bearish targets: Any bearish 4hr chart trend line breakout would bring 109 S/R into focus followed by whole numbers down to 106 as the latter is near the weekly chart's 61.8% Fibonacci.

  • Watch for any new 4hr chart trend line breakout:

 

 

 

GBP/JPY: The GBP/JPY closed with a large, bearish weekly candle and continued the previous week's trend line breakout to deliver up to 370 pips, as noted at the start of this report.

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 reached up as far as 156, a move of around 1,500 pips, and so is another trend line breakout that has proven to be worthwhile monitoring.

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

Bullish targets: Any bullish 4hr chart trend line breakout would bring 151 and 152 into focus as the latter is near the 4hr chart's 61.8% Fibonacci. After that, watch whole-number levels on the way up to the weekly chart's 61.8% Fibonacci, near 170.

Bearish targets: Any bearish 4hr chart trend line breakout would bring the 18-month support trend line into focus. After that, watch whole-number levels on the way down to 136 as this is near the daily chart's 61.8% Fibonacci of the March 2020 - March 2021 swing High move.

  • Watch for any new 4hr chart trend line breakout: