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A bit of a wild week

September 26, 2021

Last week: It was a bit of a wild ride last week with sharp falls across stocks at the start of the week, triggered by the Evergrande situation, followed by some recovery on Wednesday and Thursday after FOMC and then rather flat activity on Friday. The four major US stock indices, the S&P500, DJIA, NASDAQ and Russell-2000, all managed to close higher for the week as did risk-sensitive Copper and even the Emerging markets EEM, which gapped lower to start the week, managed a bullish close. The US$ closed a bit higher which kept some pressure on Gold and commodity currencies although the Kiwi still stands out as holding up comparatively well. One of the big movers for the week was the 10 Year Treasury Yield so keep an eye on this metric for any new breakout. Next Thursday marks the end of month and end of quarter so watch to see how monthly candles close.

 

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 few breakouts last week with the best one being the descending wedge breakout on the GBP/JPY and this is profiled below. Articles released during the week can be found here, here, here and here.

 

  • GBP/JPY: a TL b/o for 120 pips and another descending wedge b/o for up to 160 pips:

 

GBP/JPY 4hr: the descending wedge as posted on Thursday 23rd September and on Twitter:

 

GBP/JPY 4hr: the descending wedge b/o after reaching the 61.8% Fibonacci:

 

GBP/JPY 30 min: the descending wedge b/o gave a great Asian range b/o as well:

 

  • S&P500: a TL b/o for 90 points.
  • ASX-200: a TL b/o for 240 points.
  • GBP/USD: a TL b/o for 85 pips.
  • Gold: a TL b/o for $25.
  • AUD/USD: a TL b/o for over 50 pips.
  • AUD/JPY: a TL b/o for over 70 pips.
  • GBP/USD: a TL b/o for over 70 pips.
  • NZD/USD: a TL b/o for over 60 pips.
  • USD/JPY: a TL b/o for 60 pips and note how this pair gave four lots of great Asian-range breakout opportunities during the week:

 

 

This Week: (click on images to enlarge):

 

    • DXY: US$ Index: The DXY closed with a bullish-coloured Spinning Top weekly candle, reflecting some indecision, but it has managed to break out of the weekly triangle. Price remains stuck in the weekly Ichimoku Cloud though so watch this resistance zone for any new breakout.

 

DXY weekly: a recent 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: still retreating after peaking 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: 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 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 bullish weekly candle. It still looks like Copper is consolidating after its recent bullish run 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, gapped lower to start the week but ended up closing 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 small bullish weekly candle having a long lower shadow reflecting the buying recovery after the sell-off from earlier in the week. Watch for any Bull Flag activity following the recent break of the 18-month support trend line but any failure at this key level, if bearish momentum accelerates, would bring the weekly 61.8% Fibonacci, near 25,000, into focus.

 

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

 

 

    • NASDAQ composite: The NASDAQ Composite Index gapped lower to start the week but ended up closing with a bullish weekly candle and managed to hold above the key 15,000 level. The 18-month support trend line was broken though but momentum remains low on this time frame so caution is needed with reading too much into this break. 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 bullish weekly candle ahead of this weekend’s German elections and as the index expanded from 30 to 40 companies. Price action remains below the 18-month support trend line but momentum remains low so 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 bullish-coloured Spinning Top-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. 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 large and bearish weekly candle but keep watch for any new breakout.

 

TLT weekly: watch for any new trend line b/o:

 

    • 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&P500: The S&P500 closed with a bullish weekly candle having a long lower shadow reflecting that buyers stepped up after the early week Evergrande-inspired sell-off. Traders should monitor the recently broken 18-month support trend line for any potential sideways consolidation that might form a Bull Flag.

Trading volume was higher last week and has now edged above the 200 MA so watch for any continued activity.

 

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 and the index scraped back above the 50 SMA following the dip at the start of last week. 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 bring 4,500 into focus. After that, watch the recently broken 18-month support trend line, 4,550 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 4hr chart trend line breakout would bring 4,400, 4,350 and 4,300 into focus. After that, whole-numbers on the way down to the weekly chart’s 61.8% Fibonacci retracement level, now near 3,100.

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

 

 

 

ASX-200: XJO: The XJO closed with a small, bearish-coloured weekly candle having a long lower shadow reflecting that buyers stepped up to recover some of the Evergrande inspired sell-off that triggered earlier in the week.

Covid lock downs continue for much of the population in three of the most populated states of Australia and I’m up to week 17 here and mighty sick of it. However, vaccination rates continue to rise across the country and the dialogue now centers, more optimistically, on the road map for re-opening of the states rather than the picking over of details for each of the different lock downs.

As mentioned last week, 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. It is worth noting, though, that the monthly candle, which doesn’t close until next Thursday, is currently shaping up with a bearish-reversal Hanging Man candle and this is the first bearish coloured candle in twelve months and so a pause here would not be a surprise.

The other metric to keep in mind here as the month ends next Thursday 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: watch for any support from the 61.8% Fibonacci:

 

Trading volume on the XJO was lower last week and is back near the 200 MA so watch this for any new make or break:

 

XJO weekly: trading volume back near the 200 MA:

 

Keep in mind that the recent Golden Cross remains valid here as well although the index is holding 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. This current Golden Cross proved to be great signal BUT watch for any move down to 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 bullish 4hr chart trend line breakout would bring 7,500 into focus. After that, watch 7,600 and the recently broken 18-month support trend line.

Bearish targets: Any bearish 4hr chart trend line breakout would bring 7,300 into focus. After that watch 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 for any 4hr chart trend line breakout.

 

 

 

Gold: Gold closed with a bearish-coloured Spinning Top weekly candle reflecting indecision and back near $1,750 keeping this region to watch for any new make or break.

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

Bullish targets: any bullish 4hr chart trend line breakout would bring $1,800 into focus as this is near the 4hr chart’s 61.8% Fibonacci and daily 200 EMA. After that, watch $1,850 and $1,900.

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

  • Watch $1,750 and for any new 4hr chart trend line breakout:

 

 

 

EUR/USD: The EUR/USD closed with a bearish-coloured Spinning Top-style weekly candle, reflecting indecision, and back down near the revised 18-month support trend line and 1.17 key S/R level. The 1.17 level has been a significant region over recent months so watch to see where the monthly candle closes on Thursday with this respect to this major support.

As mentioned over recent weeks: I have included a second weekly chart and this shows the potential for a longer-term bearish Double Top pattern but, if the 1.17 continues to hold, then this would be a rather bullish signal. All of this suggests that, at the very least, traders should keep an open mind!

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

Bullish targets: Any bullish 4hr chart trend line breakout would bring 1.18 S/R and a recent bear trend line into focus. After that, watch the 4hr chart’s 61.8% Fibonacci, 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 and hold below the 18-month support trend line would bring the key 1.17 S/R back into focus. After that, watch 1.16 and other whole numbers on the way down to the daily chart’s 61.8% Fibonacci, near 1.13.

  • Watch 1.17 and for any new 4hr chart trend line breakout.

 

 

AUD/USD: The Aussie closed with a bearish-coloured Doji weekly candle reflecting indecision and back down near the 18-month support trend line.

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

Bullish targets: Any bullish 4hr chart trend line breakout would bring the 4hr chart’s 61.8% Fibonacci and another bear trend line into focus. After that, watch 0.74 and 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 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 4hr chart trend line breakout.

 

 

 

AUD/JPY: The AUD/JPY closed with a bullish-coloured Spinning Top-style weekly candle, reflecting indecision, and scraped back to hold the week above 80 S/R keeping this the level to watch for any new make or break.

 

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?

 

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.

Bullish targets: Any bullish 4hr chart trend line breakout would bring 81 S/R and another bear trend line into focus. After that, watch the monthly 200 EMA and 82 S/R.

Bearish targets: Any bearish 4hr chart trend line breakout would bring 80 S/R and the weekly 200 EMA into focus as the latter is near the 4hr chart’s 61.8% Fibonacci. After that, watch the revised 18-month TL 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 for any new 4hr chart trend line breakout;

 

 

NZD/USD: The Kiwi closed with a bearish-coloured Spinning Top weekly candle, reflecting indecision, and back down near the daily 200 EMA and 0.70 keeping this region to watch for any new make or break. Despite the bearish close, this currency pair continues to hold up rather well, considering recent US strength, and so this divergence is worth keeping in mind. 

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

Bullish targets: Any bullish 4hr chart trend line breakout would bring 0.71 and another recent bear trend line into focus. After that, watch for any push up to 0.75.

Bearish targets: Any bearish 4hr chart trend line breakout would bring the 4hr chart’s 61.8% Fibonacci region, near the monthly 200 EMA and 18-month support trend line, into focus. After that, watch 0.69 and 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 for any new 4hr chart trend line breakout;

 

 

 

GBP/USD: The Cable closed with a bearish weekly candle and back below 1.37 and the daily 200 EMA. Price action dropped sharply at the start of the week and broke below the revised 18-month support trend line and, whilst there was a recovery attempt later in the week, this support could not be reclaimed.  The point worth noting here though is that momentum remains very low, with the ADX below 20 on both the daily and weekly charts, so this multi-month support trend line may need further revision.

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

Bullish targets: Any bullish 4hr chart trend line breakout would bring the 18-month support TL, 1.38 and the 4hr chart’s 61.8% Fibonacci into focus. After that, watch 1.39 and 1.40 and other 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 1.36 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 for any new 4hr chart trend line breakout:

 

 

 

USD/JPY:  The USD/JPY closed with a bullish weekly candle and back up near the 111 S/R level. ADX momentum remains low on the daily and weekly time frame though so keep an eye on the ADX for clues as price navigates towards 111 S/R.

Bullish targets: Any bullish break above 111 would bring whole-numbers on the way up to 115 into focus.

Bearish targets: Any bearish 4hr chart trend line breakout would bring 110 and 109 S/R back into 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 bullish-coloured Spinning Top-style weekly candle, reflecting indecision, but scraped back above 151 S/R keeping this the level to watch for any new make or break.  Price dipped early in the week with the risk-off shift triggered by the Evergrande situation but then recovered and, hence, the long lower shadow on the candle.

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 152 and a long-term bear trend line into focus. 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 render a break of 151 and the 18-month support trend line. 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 151 and for any new 4hr chart trend line breakout: