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US recovery hits a bit of a road bump

Last weekUS stocks closed lower on Friday after the disappointing monthly jobs report but the S&P500, DJIA and NASDAQ still managed to close higher for the week. The NFP report showed upward pressure on wages but a lower than expected number of new jobs added which some attribute to concerns about returning to work in a living-with-Covid environment. President Biden also pointed to Covid as the road bump impacting the US recovery, and this latest jobs report, but emphasised the US trend remains as: jobs up, wages up and unemployment down. There are two stand-out features from today's analysis that I consider worth noting and monitoring. The first is the rise with Treasury yields, despite the indecisive weekly close on the US$ index. The other is the lack of momentum on the daily charts of Gold and a number of Forex pairs. There is a bank holiday on Monday in in the USA for Columbus Day so it may be a slow to start to the week.

 

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 only a few decent trend line breakout opportunities last week. Articles released during the week can be found here, here, here and here.

 

  • AUD/JPY: a TL b/o for 80 pips.
  • GBP/JPY: a b/o above 151 for 180 pips.
  • USD/JPY: a TL b/o for 100 pips.
  • ASX-200: a b/o above 7,200 for 100 points.

 

This Week: (click on images to enlarge):

 

    • DXY: US$ Index: The DXY closed with bearish-coloured Doji weekly candle reflecting indecision after the disappointing US jobs report. Price remains stuck in the weekly Ichimoku Cloud so watch this resistance zone for any new breakout. There is still the look of a bullish-reversal Double Bottom or W Bottom on the weekly chart and I've been rather conservative with the neck line here but watch for any close and hold above 95 to potentially bring the psychological and whole number 100 region back into focus. The 95 region aligns with the top of the weekly Cloud so watch for any resistance from this region of confluence. This week's US Retail Sales might help to offer some clarity in this space.

 

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

 

 

    • US holiday Monday: There is a bank holiday on Monday in the USA for Columbus Day.

 

    • 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 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: still retreating after peaking at 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 bullish-coloured Spinning Top-style weekly candle reflecting indecision. It still looks like Copper is consolidating after its recent bullish run though so watch the Bull Flag trend lines for any new breakout: up or down.

 

Copper weekly: Watch for any new 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. Watch for any Bull Flag activity following the recent break of the 18-month support trend line but, if bearish momentum accelerates, this would bring the weekly 61.8% Fibonacci, near 25,000, into focus.

 

DJIA weekly: keep watch of the 35,000 resistance level and the Flag trend lines:

 

 

    • NASDAQ composite: The NASDAQ Composite Index closed with a bullish-coloured Long Legged Doji-style weekly candle, reflecting significant indecision, and still below the key 15,000 level. The 18-month support trend line remains broken but momentum is still low on the weekly time frame so caution is needed with reading too much into this break just yet. As with the other indices, watch for any potential Bull Flag.

 

NASDAQ weekly: keep an eye on ADX momentum here:

 

 

    • DAX weekly: The DAX closed with a small, bearish weekly candle. Price action remains below the 18-month support trend line but watch for any new Flag breakout: up or down.

 

DAX weekly: watch the Flag trend lines for any new 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 bearish-coloured Doji-style weekly candle reflecting indecision. 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 large and bullish weekly candle and above the key 15 level and has continued up following last week's subtle bullish 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 bearish weekly candle and note the new bearish trend line breakout.

 

TLT weekly: watch for any retreat to the recent low:

 

    • VIX: the Fear index closed with a bearish weekly candle and back 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:

 

 

Market Analysis:

S&P500The S&P500 closed with a bullish-coloured Spinning Top weekly candle, reflecting indecision, as price action continues to shape up within a potential Bull Flag.

Trading volume was a bit lower last week but still above the 200 MA.

 

S&P500 ETF: SPY weekly: watch for any hold above the 200 MA b/o:

 

Keep in mind that a Golden Cross remains valid for the time being but 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. As 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 4hr chart trend line breakout would be a break of the daily charts Bull Flag upper trend line and would bring 4,450 into focus. After that, watch 4,500, 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 4,400 would bring 4,300 into focus. After that, watch the daily charts Bull Flag support trend line followed by whole-numbers on the way down to the weekly chart's 61.8% Fibonacci retracement level, near 3,100.

  • Watch 4,400 and for any new 4hr chart trend line breakout:

 

 

 

ASX-200: XJO: The XJO closed with a bullish-coloured Inside weekly candle, reflecting indecision, as the index holds near 7,300, a decent cushion 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 this old Resistance has evolved into new Support.

As mentioned over recent weeks:

  • despite having ample reasons for bearish follow-through 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 lower last week and is back below the 200 MA:

 

XJO weekly: trading volume back below the 200 MA:

 

Keep in mind that the recent Golden Cross remains valid here as well although the index is trading half way between the 50 SMA and the 200 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. This current Golden Cross proved to be great signal BUT watch for any move BELOW the 200 SMA.

 

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 would bring 7,400 and the daily chart's Bull Flag upper trend line into focus followed by 7,500 and 7,600.

Bearish targets: Any bearish break below 7,300 would bring 7,200 and the previous 2020 High of 7,197.20 into focus. After that, watch a 4hr chart support trend line and 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.  (near the previous 2020 High of 7,197.20),

  • Watch 7,300 and for any 4hr chart trend line breakout.

 

 

 

Gold: Gold closed with a bearish-coloured Spinning Top weekly candle reflecting indecision.

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 many of the Forex pairs, 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 would bring the 4hr chart's 61.8% Fibonacci, 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 for any new 4hr chart trend line breakout:

 

 

 

EUR/USD: The EUR/USD closed with a bearish-coloured Spinning Top weekly candle and, again, just below the 1.16 level. The 4hr chart shows a new bullish-reversal descending wedge has formed so keep an open mind here.

As noted last week:

  • 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. All of this suggests that, at the very least, traders should keep an open mind!

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

Bullish targets: Any bullish 4hr chart trend line breakout would bring the key 1.16 S/R level into focus followed by the weekly 200 EMA and 1.17 S/R. 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 be a break the the daily chart's Bull Flag lower trend line and would bring the 1.15 S/R 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 and above the 0.73 level; a level that has been decent reaction zone over recent weeks.

There are revised 4hr chart trend lines to monitor for any new breakout BUT one significant feature I think worth noting is the lack of momentum on the daily chart, a feature that is also evident on the AUD/JPY, Kiwi, Cable and GBP/JPY. 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 would bring 0.74 into focus. After that, watch the daily 200 EMA followed by 0.75 and 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 the 18-month support trend line and 0.72 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 0.73 and for any 4hr chart trend line breakout.

 

 

AUD/JPY: The AUD/JPY closed with a bullish weekly candle, above the monthly 200 EMA and right on the 82 S/R level which has been a decent resistance zone over the last few months.

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 and, as with the Aussie, Kiwi, Cable and GBP/JPY, there is a lack of momentum on the daily chart which will be worth monitoring for any new ADX 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 would bring 83 S/R into focus followed by 84 and 85 S/R.

Bearish targets: Any break back below 82 would bring a recent support trend line, 81, 80 and the 18-month support TL into focus. After that, watch 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 82 and for any new 4hr chart trend line breakout;

 

 

NZD/USD: The Kiwi closed with a bearish-coloured Spinning Top weekly candle, reflecting indecision, as price action hovered around the 18-month support trend line for much of the week.

There are revised 4hr chart trend lines to monitor for any new breakout and, as with the Aussie, AUD/JPY, Cable and GBP/JPY, there is a lack of momentum on the daily chart which will be worth monitoring for any new ADX 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 recovery above the 18-month support trend line would bring a 4hr chart bear trend line and 0.70 into focus as the latter is near the daily 200 EMA. After that, watch 0.71, the daily chart's bear trend line and for any push up to 0.75.

Bearish targets: Any bearish 4hr chart trend line breakout would bring 0.69 into focus. After that, watch whole-number levels on the way down to 0.63 as this is near the 61.8% Fibonacci of the daily chart's March 2020 - Feb 2021 swing High move.

  • Watch the 18-month support trend line and for any 4hr chart trend line breakout:

 

 

 

GBP/USD: The Cable closed with a bullish-coloured Inside weekly candle reflecting indecision but, quite significantly, managed to close back above the 1.36 region, a level that has been support for most of 2021.

Price action mean-reverted last week on declining momentum generating revised 4hr chart trend lines to monitor for any new momentum breakout and, as with the Aussie, AUD/JPY and GBP/JPY, there is a lack of momentum on the daily chart which will be worth monitoring for any new ADX 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 would bring 1.37 into focus as this lies near the 4hr chart's 200 EMA, 61.8% Fibonacci and daily 200 EMA. After that, watch 1.38 and the 18-month support TL, followed by whole number levels on the way up to the 15-yr bear trend line.

Bearish targets: Any bearish 4hr chart trend line breakout would bring 1.35 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 for any new 4hr chart trend line breakout:

 

 

 

USD/JPY:  The USD/JPY closed with a bullish weekly candle and just below 112.30 making this the level to watch for any new make or break. This seemingly random number has been a reaction zone for the USD/JPY over previous months; as the daily and weekly charts reveal.

Bullish targets: Any bullish break above 112.30 would bring whole-numbers on the way up to 115 into focus.

Bearish targets: Any bearish break back below 112 would bring a recent support trend line and 111 S/R into focus. After that, watch 110 and 109 S/R followed by whole numbers down to 106 as the latter is near the weekly chart's 61.8% Fibonacci.

  • Watch 112.30 for any new make or break.

 

 

 

GBP/JPY: The GBP/JPY closed with a bullish, almost engulfing, weekly candle and back up under 153 making this the level 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 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 and, as with the Aussie, AUD/JPY and Cable, there is a lack of momentum on the daily chart which will be worth monitoring for any new ADX 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 breakout above 153 would bring 154, 155 and 156 into focus with 156 being the most recent High. After that, watch whole-number levels on the way up to the weekly chart's 61.8% Fibonacci, near 170.

Bearish targets: Any bearish hold below 153 would bring 152 and 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 (see daily chart).

  • Watch 153 for any new make or break: