Last week: The four US stock index majors of the S&P500, DJIA, NASDAQ and Russell-2000 closed at new all-time Highs despite the weaker than expected US monthly payroll report and the growing number of US Covid infections. Other risk-sensitive assets such as Copper, the Emerging Markets EEM ETF, the ASX-200, the AUD/USD and NZD/USD all closed higher for the week as well supporting the broader risk-on thesis. The US$ index closed lower but is shaping up in a bullish-reversal weekly chart pattern so watch for any potential mean reversion as this could alter the risk profile of the current landscape. Also, the number of US stocks trading above the 200 Daily Moving Average has crept up to a significant High so some mean-reversion would not be out of place in this space as well. Two of the best trade ideas last week came from the horizontal trend line breakout on the EUR/USD and the Descending Wedge breakout on Gold; Technical Analysis is not a perfect science but it sure would have helped observant traders last week!
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.
- EUR/USD: a TL b/o above 1.20 for around 180 pips:
- Gold: a TL b/o for $30.
- GBP/JPY: a TL b/o for 100 pips.
- AUD/USD: a TL b/o for 50 pips.
- AUD/JPY: a TL b/o for 40 pips.
This Week: (click on images to enlarge):
- DXY: US$ Index: The US$ index closed with another bearish weekly candle and below the recent 91.75 support level. The next major horizontal support level is near the whole-number 88 so watch this region for any new make or break. There is the look of a bullish-reversal Descending Wedge on the weekly chart now though so keep an open mind and watch for any mean-reversion type move. Watch to see how this week's ECB rate update impacts the index:
DXY weekly: a bearish weekly candle BUT watch for any Descending Wedge mean-reversion activity:
- 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.
- Stocks above their 200 Day Moving Average: The percentage of stocks above their 200 Day Moving Average has edged up above the 85% region. The chart below gives a perspective of this current level and shows how there often tends to be some mean-reversion once such lofty levels are reached. Thus, it might be prudent to watch for any pause or pullback with US stocks given their recent bullish run:
% of US Stocks above the 200 Day Moving Average:
- Central Bank updates: there are two Central bank rate updates next week: BoC (CAD) and the ECB (EUR).
- 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: Accumulation, Participation (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 at a new 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 as price action also continues holding above the recently broken 10-year bear trend line. Watch for any push to the weekly 61.8% Fib and, then, the whole-number 4 level:
Copper weekly: watch for any push to the weekly chart's 61.8% Fib level, circa 3.6:
- Emerging Markets: The Emerging market ETF, EEM, closed with a large, bullish weekly candle so watch for any push to the previous High, near 52.
EEM weekly: watch for any push to the 52 level:
- DJIA: The DJIA closed with a small, bullish weekly candle, at a new all-time High and, more importantly, above the key 30,000 level. Watch for any ascending triangle-style breakout move from this psychological 30,000 level.
DJIA weekly: a new weekly close above the psychological 30,000:
- NASDAQ composite: The NASDAQ Composite Index closed with a bullish weekly candle and at a new all-time High.
NASDAQ weekly: a new all-time High:
- DAX weekly: The DAX closed with a bearish-coloured, almost Inside, weekly candle reflecting indecision as it trades under the all-time High. Watch for any ascending triangle-style breakout.
DAX weekly: an indecision style weekly candle:
- 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 candle and at a new all-time High.
RUT weekly: a new all time High:
- Bonds / TLT: The Bond ETF, TLT, closed with a fairly large and bearish weekly candle as risk-appetite continued to remain strong. The Elliott Wave indicator is still suggesting an uptrend from here:
- Fedex: Fedex closed a bullish weekly candle and it looks like the Bull Flag breakout might be getting underway:
Fedex weekly: watch the Bull Flag:
- VIX: the Fear index closed with a bearish weekly candle and still down near the 20 level.
VIX weekly: watch the 30 level for any new make or break:
Calendar: Courtesy of Forex Factory: not a lot of high impact scheduled news this week:
Earnings: Courtesy of Earnings Whispers:
S&P500: The S&P500 closed with a bullish weekly candle and at a new all-time High. However, trading volume remains subdued and below the 200 daily Moving Average and bear trend line so keep watch for any new breakout.
S&P500 ETF: SPY weekly: Volume remains subdued:
There are revised 4hr chart trend lines to monitor for any new breakout.
Bullish targets: any bullish 4hr chart breakout above 3,700 would bring 3,800 into focus.
Bearish targets: any bearish 4hr chart trend line breakout would bring 3,600 and whole-number levels on the way down to 3,200 into focus. The 3,400 level is still near the 4hr chart's 61.8% Fibonacci so that would be a key level to monitor if weakness sets in at all.
- Watch for any 4hr chart trend line breakout:
ASX-200: XJO: The ASX-200 closed with a small, bullish weekly candle and above the 6,600 S/R level following a strong bullish month for November.
The GFC High of 6,851.50 and 2020 High of 6,893.70 loom large and ahead of current price action and will be the resistance levels to negotiate in coming sessions.
Trading volume was a bit higher last week and nudged above the multi-month volume trend line and 200 Moving Average so watch for any developing strength in this space.
XJO weekly: trading volume edged up last week:
Keep in mind that the recent Golden Cross remains valid. 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 so these crosses are worth noting:
XJO daily: the recent Golden Cross remains valid:
There are revised trend lines on the 4hr chart to monitor for any new momentum breakout.
Bullish targets: Any bullish 4hr chart trend line breakout above 6,700 would bring whole-number levels on the way up to the 2020 High of 6,893.70 into focus.
Bearish targets: Any bearish 4hr chart trend line breakdown would bring whole-numbers on the way down to 6,000 into focus. Note how 6,200 is still near the daily chart's 61.8% Fibonacci so that would be in focus as well.
- Watch 6,700 and for any 4hr chart trend line breakout:
Gold: I warned last week to watch for any bullish recovery effort with Gold and that is exactly what we got! Last week's 4hr chart bullish-reversal Descending Wedge played out to a T!
The precious metal ended up closing with a bullish-coloured weekly candle, albeit an Inside candle reflecting some indecision, as price attempted a recovery following the previous week's decent sell-off. However, it remains below $1,900 and this level remains in keen focus as it is one target of the 4hr Descending Wedge breakout; a breakout that remains in play for the coming week. It is also the neck line of the multi-week bullish chart pattern that has been monitored here for some time.
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 below this neckline region!
$1,900 remains the region in focus for any bullish Cup or Inverse H&S breakout:
- Any new move 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 $1,900 level over the coming days / weeks especially as the US$ 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 4hr chart's bullish-reversal Descending Wedge triggered a breakout last week but price stalled at $1,850 S/R making this the region to watch for any new make or break.
The expanded view of the weekly chart below reveals a possible Bull Flag so keep an open mind here.
Bullish targets: any bullish 4hr chart wedge continuation move above $1,850 would bring $1,900 back into focus as this is near the 4hr chart's 61.8% Fibonacci.
Bearish targets: any bearish 4hr chart respect of $1,850 would bring $1,800 and the recent Low, near $1,770, into focus.
- Watch $1,850 for any new make or break:
EUR/USD: The EUR/USD closed with an even larger bullish weekly candle following the recent bullish breakout from the weekly chart's Bull Flag.
Price action closed the week just below 1.22 and near the monthly 200 EMA making this the region to watch for any new make or break.
Bullish targets: Any bullish 4hr chart breakout above the monthly 200 EMA and 1.22 would bring whole-numbers on the way up to a previous weekly chart High, circa 1.26, into focus.
Bearish targets: Any bearish 4hr chart break of the support trend line would bring 1.21, another support trend line, 1.20 and 1.19 back into focus.
- Watch the monthly 200 EMA and 1.22 region for any new make or break; especially with this week's ECB rate update:
AUD/USD: The Aussie closed with a bullish-coloured Spinning Top weekly candle and just below 0.745 making this the region to watch for any new make or break.
There are revised 4hr chart triangle trend lines to monitor for any new momentum-based breakout as price now sits just under 0.745 S/R.
Keep in mind 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 break above 0.745 would bring whole-number levels on the way up to the weekly chart's Descending Wedge breakout target of 0.90 into focus.
Bearish targets: Any bearish 4hr chart trend line breakout would bring 0.74, 0.73, 0.72 and 0.71 into focus.
- Watch 0.745 and for any new 4hr chart trend line breakout;
AUD/JPY: The AUD/JPY closed with a bullish-coloured Spinning Top weekly candle and just above a 7-yr bear trend line making this the region to keep watch for any new make or break.
There are revised 4hr chart trend lines to monitor for any new momentum-based breakout.
Bullish targets: Any bullish 4hr chart trend line breakout above 77.5 would bring 78 and 79 into focus.
Bearish targets: Any bearish 4hr chart trend break below the 7-yr trend line and recent support trend line would bring 77, 76, 75 and 74 S/R into focus.
- Watch 77.5 and for any new 4hr chart trend line breakout;
NZD/USD: The Kiwi closed with a small, bullish weekly candle having a long upper shadow as it negotiates the 0.71 level. Price action is shaping up in a Bull Flag on the 4hr chart so watch these Flag trend lines for any new momentum-based breakout.
Bullish targets: Any bullish 4hr chart Bull Flag breakout above 0.71 would bring whole-number levels on the way up to 0.75 into focus as this is the next major horizontal S/R zone.
Bearish targets: Any bearish 4hr chart Flag breakout would bring 0.70 and 0.69 back into focus.
- Watch the Bull Flag trend lines and 0.71 for any new breakout:
GBP/USD: The Cable closed with a bullish weekly candle and just below the key 1.35 S/R level making this the level to watch for any new make or break. This 1.35 level has been a weekly chart High and resistance zone over the last 12 months AND is also near the 14-year bear trend line so it was not surprising to see price action stall near this resistance zone.
Brexit remains a vexed issue so GBP traders should keep abreast of news updates in this space.
Bullish targets: Any bullish 4hr chart break above 1.35 and the 14-yr bear trend line would bring whole-number levels into focus on the way up to 1.50. The monthly chart shows that 1.50 is a decent S/R reaction zone for the Cable.
Bearish targets: Any bearish 4hr chart break of the recent support trend line would bring 1.34 and 1.33 into focus followed by the 7-month support trend line.
- Watch 1.35 and the 14-yr bear trend line for any new make or break:
USD/JPY: The USD/JPY closed with a bullish-coloured Long-Legged Doji style weekly candle reflecting the large amount of indecision here as price action trades back near 104 S/R. This remains the level to watch in coming sessions for any new make or break.
There are also revised 4hr chart triangle trend lines to monitor for any new momentum-based breakout.
Bullish targets: Any bullish 4hr chart bounce up from 104 would bring 105 into focus as this is now near the 4-month bear trend line.
Bearish targets: Any bearish 4hr chart break below 104 would bring the support trend line followed by recent Low, near 103.25, into focus.
- Watch 104 S/R for any new make or break:
GBP/JPY: The GBP/JPY closed with a bullish weekly candle and has made a subtle breakout above the 40-yr bear trend line. Price action closed just below 140 so this, and the multi-year trend line, will be the region to watch for any new make or break in coming sessions.
There are revised 4hr chart triangle trend lines to monitor for any new momentum-based breakout.
Bullish targets: Any bullish 4hr chart breakout above 140 would bring 141 into focus.
Bearish targets: Any bearish 4hr chart respect of 140 and break of the support trend line would bring 139 into focus followed by the daily 200 EMA which is near the weekly chart's support trend line.
- Watch 140 and for any 4hr chart trend line breakout;