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The wait for trending markets continues

Last week: The US$ remains range-bound on low momentum and this is keeping trending markets at bay for the time being. There was a bit of flight to safety movement into the US$ last week on concern about the rate of rising Covid infections across Europe and the USA but Friday's better than expected US Retail Sales data and hope for a Covid vaccine before year end paused this US$ rally. Price action remains range-bound on many trading instruments so watch for any new momentum-based trend line breakouts. This week brings a vote on the US Stimulus Bill and the final US Presidential debate so watch to see if either of these events can get the US$ moving one way or the other. Traders need to keep abreast of Covid news as well as infection rates across the USA and Europe continue to rise.

 

Technical Analysis: As noted over recent months, 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 Coronavirus, 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 summary: There were only a few breakouts last week and these were short-lived. Articles published during the week can be found here, here, here and here:

 

  • S&P500: a TL b/o from for 40 points.
  • ASX200: a TL b/o from for 130 points.
  • EUR/USD: a TL b/o from for 40 pips.
  • AUD/USD: a TL b/o from for 90 pips.
  • AUD/JPY: a TL b/o from for 120 pips.
  • NZD/USD: a TL b/o from for 60 pips.

 

This Week: (click on images to enlarge):

    • DXY: US$ Index: The index closed with a bullish weekly candle but has failed to break out from the consolidation triangle and continues to hold below the recently broken 10-yr support trend line. It is my continued belief that there won't be any return to decent trending Forex markets until there is a decisive breakout on the DXY; up or down:

 

DXY daily: still watching for any momentum-based break of the daily Cloud:

 

 

    • Schedule for weekend Market Update posts: The Weekly Market update has, to date, been posted on a Sunday, Australian time. I am looking to delay the release of this update to a Monday, Australian time, which is still a Sunday in many other parts of the world. My analysis takes a full day to complete and I am attempting to shift this load away from my weekend time.

 

    • Multi-year trend lines: As noted recently and the caution remains valid: multi-year trend lines have been tested / broken on a number of instruments: The FX Indices (DXY and EURX) and the EUR/USD, AUD/USD, NZD/USD, AUD/JPY, GBP/USD and GBP/JPY. Caution is still required here though as trend lines of such duration are often not given up easily so traders should watch for any potential choppiness / consolidation as these levels are negotiated. Many of these levels are still back being tested and some have been tested and recovered.

 

    • S&P500: Keep the bigger picture in perspective with the recent moves:

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 heads back to test the 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 bullish weekly candle, albeit a small one, and is holding above the 3 level. Price action also continues holding above the 10-year bear trend line:

 

Copper weekly: holding above the 3 level;

 

    • Emerging Markets: The Emerging market ETF, EEM, has closed with a bearish-coloured Spinning Top weekly candle but is holding above the 45 level for the time being;

 

EEM weekly: holding above the 45 level:

 

    • DJIA: The DJIA closed with a bearish-coloured Spinning Top weekly candle as price trades just under the key 30,000 resistance level. However, the longer price action hovers near the previous Highs then the more there is the look of a bullish Ascending Triangle:

 

DJIA weekly: watch for any push to 30,000:

 

 

    • NASDAQ composite: The NASDAQ Composite Index closed with a bearish weekly candle and looks to have stalled at the recent High, near 12,000. Watch for an potential Double Top activity:

 

NASDAQ weekly: watch for any Double Top activity:

 

 

    • DAX weekly: The DAX closed with a bearish weekly candle but, here too, the longer price action hovers near these Highs then the more there is the look of a bullish Ascending Triangle:

 

DAX weekly:

 

 

    • Russell-2000: The Russell-2000 is often viewed as the 'Canary in the Coal Mine' for US stocks and closed with a bearish-coloured Spinning Top weekly candle as price reaches up towards the key 1,720 resistance level. Watch for any Ascending Triangle activity here as well:

 

RUT weekly: watch for any push to 1,720:

 

 

    • Bonds / TLT: The Bond ETF, TLT, gapped down and closed with a bullish-coloured Inverted Hammer style weekly candle as price action holds above the 160 S/R level. The Elliott Wave indicator is still suggesting an uptrend from here for the time being:

 

TLT weekly: watch for any hold above the 160 S/R level:

 

 

    • Covid infection rates: this graph, sourced from Action Forex, shows the alarming progress of new Covid infections across Europe and the USA. Traders need to keep abreast of Covid-related news in case this triggers any flight to safety activity:

 

    • VIX: the Fear index closed with a bullish-coloured Spinning Top weekly candle but remains below the key 30 level and within a consolidation triangle. Watch for any new momentum-based trend line breakout.

 

VIX weekly: watch for any new trend line breakout:

 

 

 

Calendar: Courtesy of Forex Factory: Note that the the US Stimulus Bill debate is on Wednesday 21st October and the final Trump / Biden debate is on Thursday 22nd October:

 

 

Earnings: Courtesy of Earnings Whispers: Earnings season ramps up this week:

 

 

 

Market Analysis:

 

S&P500The S&P500 index closed with a bearish-coloured Spinning Top weekly candle as price action consolidates under the recent all time High, circa 3,600.

Trading volume was a little higher last week, and edged above the bear trend line, BUT it remains below the 200 SMA so watch this region for any new breakout:

 

S&P500 ETF: SPY weekly: Watch for any uptick with Volume above the 200 SMA:

 

 

 

Price action on the S&P500 closed just below 3,500 again so that remains the horizontal level in focus for any new make or break. The whole-number 3,600 remains as resistance above the recent all-time High and any failure to break above this S/R level might help to shape up the Double Top that looks to be brewing on the weekly chart.

As noted recently: The weekly S&P500 chart below shows that the 61.8% Fibonacci level of this recent swing-High move (March 2020- September 2020) is down near the 2,700 region. Technical analysts would suggest that a pullback to this 61.8% level would be in order; even if there is to be ultimate bullish continuation. Trends do not travel in straight lines unabated so traders should be aware of this zig-zag potential.

Bullish targets: any bullish 4hr chart break back above 3,500 would bring the whole-number 3,600 level, just above the all-time High, into focus.

Bearish targets: any bearish break of the 4hr chart support trend line would bring 3,400 back into focus followed by whole number levels on the way down to the weekly chart's 61.8% Fibonacci, near 2,700.

  • Watch 3,500 and the 4hr chart's triangle trend lines for any new breakout:

 

 

ASX-200: XJO: The ASX-200 closed with a bullish-coloured Spinning Top-style weekly candle and just under the 6,200 whole-number region that, along with the weekly 61.8% Fibonacci, has been resistance since June 2020.

Trading volume remains below the 200 SMA and a multi-month trend line BUT has broken above a shorter trend line; one covering the last 5 weeks.

 

XJO weekly: trading volume has broken above a 5-week TL but watch the multi-month TL for any new b/o:

 

One other technical feature to note for the ASX-200 is that there has been a new Golden Cross. This 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 as you can see from the chart below so these crosses are worth noting:

 

XJO daily: a new Golden Cross evolved last week:

 

XJO daily: a new Golden Cross: the 50 SMA crossed up through the 200 SMA:

 

Price action broke up through the key 6,200 level during last week but could not hold this level to see out the week. However, this will be the resistance zone in focus this week and the one to watch for any new make or break.

There are revised trend lines on the 4hr chart but the set up here continues to be one of a potential Bull Flag so watch trend lines for any new momentum breakout.

Bullish targets: Any bullish 4hr chart Flag trend line breakout above 6,200 will bring whole number levels on the way back to the previous all time High, circa 7,200, into focus.

Bearish targets: Any bearish 4hr chart Flag trend line breakout would bring 6,100, 6,000 and 5,950 as the latter is near the 4hr chart's 61.8% Fibonacci.

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

 

 

 

 

Gold Gold closed with a bearish-coloured Spinning Top weekly candle, reflecting indecision, but has managed to close the week above the key $1,900 level. However, momentum remains low on the 4hr and daily time frames and is declining on the weekly time frame.

The daily chart's Bull Flag trend lines have been revised given the continued absence of any decent momentum.

As mentioned over recent weeks: 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. Keep watch of $1,900 now that price action is back trading above this neckline region!

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

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

Traders need to watch this $1,900 level over the coming days / weeks especially as the US$ index hovers near 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.

Bullish targets: any bullish 4hr chart trend line breakout would bring $2,000 S/R into focus.

Bearish targets: any bearish 4hr chart trend line breakout would bring the recent Low, near $1,850, into focus.

  • Watch $1,900 S/R and for any 4hr chart trend line breakout:

 

 

EUR/USD: The EUR/USD closed with bearish weekly candle but there is the look of a potential weekly chart Bull Flag as the currency pair also continues to hold above the recently broken 13-year bear trend line.

There are revised 4hr chart triangle trend lines to monitor for any new momentum-based breakout.

As mentioned over recent weeks: I have been warning for weeks that these major trend lines are not given up easily and so traders need to watch this region closely in coming sessions as it looks to be forming up into some decent support.

Bullish targets: Any bullish 4hr chart bounce off the bottom triangle trend line would bring bring the upper 4hr chart triangle trend line into focus followed by 1.18 and, then, whole-number levels on the way up to the previous weekly chart High, circa 1.26.

Bearish targets: Any bearish 4hr chart break of support would bring the 13-year bear trend line back into focus.

  • Watch for any new 4hr chart triangle breakout:

 

 

AUD/USD: The Aussie closed with a bearish weekly candle but there is still the potential of a Bull Flag on the daily chart; although bearish momentum on that time frame appears to be rising.

Momentum is contracting on the 4hr time frame though so watch the revised triangle trend lines for any new momentum-based trend line breakout.

Keep in mind, too, that price action continues to hold above the recently broken upper trend line of the multi-year bullish-reversal Descending Wedge.

Bullish targets: Any bullish 4hr chart bounce off the bottom triangle trend line would bring bring 0.71 into focus followed by the upper 4hr chart triangle trend line and, then, 0.73 and 0.74 S/R.

Bearish targets: Any bearish 4hr chart trend line breakout would bring 0.70 into focus and, then, the recently broken 9-11 year bear trend line into focus.

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

 

 

AUD/JPY:  The AUD/JPY closed with a bearish Engulfing weekly candle but, rather strangely, there is still the look of a Bull Flag on the weekly chart as momentum declines on this weekly time frame.

There are revised 4hr chart triangle trend lines to monitor for any new momentum-based breakout.

Bullish targets: Any bullish 4hr chart bounce off the bottom triangle trend line breakout would bring 75 into focus followed by the upper 4hr chart triangle trend line and, then, the 7-yr trend line.

Bearish targets: Any bearish 4hr chart trend line breakout would bring 74 into focus.

  • Watch 75 S/R and for any new 4hr chart trend line breakout;

 

 

NZD/USD: The Kiwi closed with a bearish-coloured Spinning Top weekly candle reflecting indecision but there is the look of a potential Bull Flag on the weekly chart here as well.

Price action is back near 0.66 but continues to hold above the recently broken 7-yr trend line for now.

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

Bullish targets: Any bullish 4hr hold above 0.66 would bring the upper 4hr chart triangle trend line into focus and, then, 0.67 and 0.68 into focus.

Bearish targets: Any bearish 4hr chart break of the support trend line would bring the 7-yr trend line back into focus.

  • Watch 0.66 and for any 4hr chart trend line breakout:

 

 

GBP/USD: The Cable closed with a bearish weekly candle, back below 1.30 and down near the recent 7-month support trend line.

There are revised 4hr chart triangle trend lines to monitor for any new momentum-based breakout.

Bullish targets: Any bullish 4hr chart break back above 1.30 would bring 1.32 into focus as this is still near the 4hr chart's 61.8% Fibonacci. After that, the recent High, near 1.35, would come back into focus.

Bearish targets: Any bearish 4hr chart break below the 7-month support trend line would bring the recent Low, near 1.267, into focus.

  • Watch for any 4hr chart triangle breakout:

 

 

USD/JPY: The USD/JPY closed with a bearish-coloured Spinning Top weekly candle reflecting indecision as price action continues to consolidate within a 4hr triangle and hold above the 105 S/R level.

Momentum is on the decline on the 4hr chart but there are revised 4hr chart trend lines to monitor for any new breakout.

Bullish targets: Any bullish 4hr chart triangle breakout would bring 106 and 107 into focus followed by whole-number levels on the way up to the recent High, near 110.

Bearish targets: Any bearish 4hr trend line breakout would bring 105 and 104 S/R into focus followed by whole-number levels on the way down to 100 S/R.

  • Watch for any new 4hr chart triangle breakout:

 

 

 

GBP/JPY: The GBP/JPY closed with a bearish, almost 'engulfing', weekly candle and is back near 136 S/R; an area that has been quite a magnet for price action over recent weeks.

There are revised 4hr chart triangle trend lines to monitor for any new momentum-based breakout.

Bullish targets: Any bullish 4hr chart triangle breakout would bring 138 and 139 into focus as the latter is still near the 4hr chart's 61.8% Fibonacci. After that, watch the 140 level and 40-yr trend line region.

Bearish targets: Any bearish 4hr chart break below 136 would bring the bottom 4hr chart trend line into focus followed by 135 and, then, the weekly chart's support trend line followed by 133 and whole-numbers on the way down to 130 S/R into focus.

  • Watch 136 and for any 4hr chart triangle breakout: