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Another week of indecision candles

June 6, 2021

Last week: It was another week of numerous Spinning Top and indecision-style weekly candles reflecting the ongoing choppy price action that, again, resulted in only a few trend line breakout opportunities. Despite this indecision, the four major US stock indices, the S&P500, DJIA, NASDAQ and Russell-2000, managed to scrape through with bullish-coloured weekly candles and the Fear index, VIX, remains below 20. However, the risk-sensitive Emerging Markets ETF (EEM) and Copper closed lower. The monthly US jobs report did little to help boost the US$ but, even still, Gold could not manage to close the week above the key $1,900 level.

 

Next week: There is a Bank holiday next Monday 14th June in Australia and my weekend update that week will be published on Monday, rather than on the usual Sunday.

 

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: The continued choppy price action has not been supportive of momentum-based trend line breakout trades. Updates posted throughout last week can be found through the links here, here, here and here:

 

  • AUD/USD: a TL b/o for 70 pips.
  • AUD/JPY: a TL b/o for 50 pips.
  • NZD/USD: a TL b/o for 75 pips.

 

This Week: (click on images to enlarge):

 

    • DXY: US$ Index: The US$ index closed with a bullish-coloured Spinning Top weekly candle reflecting indecision as price continues to chop sideways near 90 S/R. Friday’s NFP jobs report was somewhat mixed and so did little to boost the US$. Note the triangle within the triangle here:

 

DXY weekly: watch 90 S/R for any new make or break:

 

 

 

    • Central Bank Update: there are two Central Bank Rate updates next week: BoC (CAD) and ECB (EUR).

 

    • XJO / ASX-200: one of the big news charting stories for last week was the breakout to new all-time High for the ASX-200 index. This is a breakout above the pre-GFC High and the pre-Covid High and so is rather significant. The ASX-200 has been quite the laggard here as most other global stock indices are trading well above their pre-GFC Highs. The chart below shows the relative under-performance of the XJO compared to the SPX but note the look of a bullish-reversal Descending Wedge. As an Aussie, I can only hope that this pattern evolves in text book fashion 🙂

 

XJO/SPX monthly: watch for any mean-reversion:

 

 

    • % Stocks above their 200 Day Moving Average Index: The Percentage of stocks above their 200 Day Moving Average is below the 85% 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.

 

% 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: 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 bearish-coloured, almost Inside, weekly candle and back below the all-time High region of circa 4.65. Watch this S/R region for any new make or break:

 

Copper weekly: back below 4.65 BUT keep watch for any new make or break:

 

 

    • Emerging Markets: The Emerging market ETF, EEM, gapped up at market open but closed with a small, bearish weekly candle having a long lower shadow.

 

EEM weekly: watch for any continued Bull Flag breakout:

 

 

    • DJIA: The DJIA closed with a bullish-coloured Spinning Top weekly candle and continues to hold above the 15-month support trend line for the time being but keep watch for any shift.

 

DJIA weekly: holding above a support TL but still pegged by 35,000:

 

 

    • NASDAQ composite: The NASDAQ Composite Index closed with a small bullish weekly candle but continues to chop sideways after breaking below a 15-month support trend line. There still isn’t a lot of supporting bullish momentum on the weekly chart just yet but this sideways action continues shaping up in a potential Bull Flag style pattern.  Watch for any new momentum breakout.

 

NASDAQ weekly: watch for any new Flag breakout:

 

 

    • DAX weekly: The DAX closed with a bullish weekly candle and at a new all-time High.

 

DAX weekly: the trend remains ‘up’:

 

 

    • 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 weekly candle reflecting indecision but up at the upper trend line of a recent wedge pattern. Watch for any new Flag breakout.

 

RUT weekly:  watch for any new momentum based trend line breakout:

 

 

    • 10-yr T-Note Interest rate / TNX: The weekly chart of the 10-yr Treasury Interest rate shows the recent bullish breakout from the triangle congestion pattern remains paused under the weekly 200 EMA region but above the Resistance turned Support region of 15.

 

  • 10-yr T-Note Interest rate:  the sideways consolidation continues:

 

 

    • Bonds / TLT: The Bond ETF, TLT, closed with a bullish weekly candle.

 

TLT weekly: still holding above the 135 level and near the 61.8% Fibonacci:

 

 

    • BTC/USD: I continue to view this latest pullback as a well-due technical correction following the recent rally. I have previously mentioned that the 61.8% Fibonacci, near $30,000, is the line-in-the-sand level to monitor and this remains the case. IMHO: any hold above the 61.8% Fibonacci level would simply further legitimise BTC/USD and any of the other cryptos in the stable that might similarly hold above this support region.

 

BTC/USD: the whole-number $30,000 remains the level to watch:

 

 

    • VIX: the Fear index closed with a bearish-coloured Spinning Top weekly candle and still below the 20 level.

 

VIX weekly: watch the 20 S/R level for any new make or break:

 

 

Calendar: Courtesy of Forex Factory:

 

 

Earnings: Courtesy of Earnings Whispers: winding down:

 

Market Analysis:

 

S&P500:  The S&P500 closed with a small, bullish weekly candle and continues to hold above the 15-month support trend line. However, traders should watch for any new break below this support trend line and, if such a break triggers, then watch for any potential Bull Flag activity.

Trading volume was lower last week but this was likely a function of the holiday Memorial Day Monday.

 

S&P500 ETF: SPY weekly: lower volume last week:

:

The index closed just below the 4,250 level making this the resistance level to monitor for any new make or break.

NB: The second weekly chart shows how the 61.8% Fibonacci extension of the Covid-induced Swing Low is up near 4,150 so watch to see if this region continues to offer support.

Bullish targets: any bullish break above 4,250 would bring 4,300 into focus.

Bearish targets: any bearish 4hr chart trend line breakout would bring 4,200 and the 15-month support trend line 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 4,250 for any new make or break.

 

 

 

 

ASX-200: XJO: I had warned that last week could be a defining one for the XJO, and, that it was. The index closed with a bullish weekly candle and at a new all-time High.

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 new hold above this 7,200 region to see out the month could well mark the beginning of a new trading range for the index and put it in catch-up mode with its peers.

Price closed just below 7,300 so that will be the whole-number resistance to monitor next week.

Trading volume was a bit lower last week and was back below the bear trend line so watch for any new breakout.

 

XJO weekly: keep watch for any new b/o back above the bear trend lines and 200 MA:

 

 

Keep in mind 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 for any new breakout.

Bullish targets: Any bullish 4hr chart trend line breakout above 7,300 would bring 7,400 into focus.

Bearish targets: Any bearish 4hr chart trend line breakout would bring 7,200 and the previous 15-month TL into focus. After that watch 7,100, the pre-2020 High of 6,893.70, the pre-GFC High of 6,851.50 followed by 6,800 and 6,700.

  • Watch 7,300 for any new breakout:

 

 

 

Gold: Gold closed with a bearish-reversal Hanging Man weekly candle and back below the key $1,900 as, once again, this level has been considerable resistance.

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.

The recent weekly chart trend line breakout, aligning with the break of the $1,850 level, marks what could be the start of a weekly chart-based Bull Flag breakout. However, whilst bullish +DMI weekly momentum is above 20, ADX momentum remains below 20 so traders should watch to see if the ADX can rise above 20. The Flag pole here is worth around $900 so this is a chart pattern worth stalking.

Bullish targets: any bullish break back above $1,900 would bring $1,950 and $2,000 into focus.

Bearish targets: any bearish hold below $1,900 would bring a 10-week support trend line into focus. After that, watch $1,850, $1,800 and the $1,670 support level.

  • Watch $1,900 for any new make or break.

 

 

 

EUR/USD: The EUR/USD closed with a bearish-coloured Spinning Top weekly candle and still near the 1.22 level keeping this the level to watch for any new make or break.

NB: Note that the longer-term target for any continued bullish movement following the previous break of the 13-yr trend line is the monthly chart’s 61.8% Fibonacci, near 1.40. This trend line breakout was flagged back in a post on August 2nd 2020. Price at the breakout was around 1.17 and has reached up as far as 1.23, a move of around 600 pips, so this has been a breakout worth monitoring.

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

Bullish targets: Any bullish 4hr chart trend line breakout would bring 1.22 into focus followed by 1.23 and the recent High of 1.235. After that, watch whole-numbers on the way up to a previous weekly chart High, circa 1.26, and for any continued push up to 1.40.

Bearish targets: Any bearish 4hr chart trend line breakout would bring the monthly 200 EMA and 1.21 into focus.

  • Watch 1.22 and the 4hr chart trend lines for any new breakout.

 

 

 

AUD/USD: The Aussie closed with a bullish-coloured Spinning Top weekly candle and managed to scrape back above 0.77 to see out the week keeping this as the level to watch for any new make or break.

NB: The longer-term target for any bullish continuation from the weekly/monthly chart’s Descending Wedge breakout is the weekly 61.8% Fibonacci, near 0.90. This monthly wedge trend line breakout was also flagged back in the post on August 2nd 2020. Price at the breakout was around 0.71 and has reached up as far as 0.80, a move of around 900 pips, so has been another breakout worth monitoring.

Note the revised daily chart trend lines and how this is still giving the chart a Bull Flag appearance.

Bullish targets: Any bullish 4hr chart trend line breakout would bring 0.78, the daily chart’s bear trend line and 0.79 into focus. After that, watch whole-numbers on the way back to the 12-month TL and, then, whole-number levels on the way up to the weekly chart’s Descending Wedge breakout target of 0.90.

Bearish targets: Any bearish break below 0.77 would bring the daily chart’s support trend line and 0.76 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.

  • Watch 0.77 and the 4hr chart trend lines for any new make or break:

 

 

 

AUD/JPY:  Not a lot has changed here this week as the AUD/JPY closed with another bullish-coloured Spinning Top, and almost Doji, weekly candle reflecting indecision as it still holds just below the key 85 level and the 15-month support trend line.

This sideways price action continues to render the look of a potential Bull Flag on the 4hr chart, again with revised trend lines.

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:

 

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

Bullish targets: Any bullish 4hr chart Flag breakout would be a break above 85 S/R and bring the recently broken 15-month TL back into focus followed by whole numbers on the way up to 90 S/R.

Bearish targets: Any bearish 4hr chart Flag breakout would bring 84 into focus. After that, watch whole-numbers on the way down to 76 as this is still near the recently broken 7-yr bear trend line, and then 70 as this is now near the 61.8% Fibonacci of the March 2020 – March 2021 swing High move.

  • Watch for any 4hr chart Flag breakout:

 

 

 

NZD/USD: The Kiwi closed with a bearish-coloured Spinning Top, and almost Inside, weekly candle reflecting indecision but managed to close the week back above the 0.72 level making this the one to watch for any new breakout.

There are revised 4hr chart triangle trend lines to monitor for any new breakout and this is still giving the daily chart a Bull Flag appearance.

Bullish targets: Any bullish 4hr chart triangle breakout would bring the daily chart’s bear trend line, 0.73, 0.74 and 0.75 back into focus.

Bearish targets: Any bearish 4hr chart triangle breakout would bring the daily chart’s support trend line and 0.72 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 March 2020 – Feb 2021 swing High move.

  • Watch 0.72 and for any 4hr chart triangle breakout:

 

 

 

 

GBP/USD: Not a lot changed here either last week as the Cable closed with a bearish-coloured Spinning Top and still under 1.42 keeping this as the next horizontal resistance level to watch for any new make or break. Note how price has been trapped in a 1.41 – 1.42 trading range for much of the last three weeks!

NB: The longer-term target for any bullish continuation above the previously broken 14-yr trend line, noted here in my article on December 20th, is the monthly chart’s 61.8% Fibonacci, near 1.75. Price action at the initial breakout was around 1.35 and has reached up as far as 1.42, a move of 700 pips, so this trend line breakout was a great clue about things to come and the target for this move has not even been reached yet!

Note that the 15-month support trend line has been revised.

Bullish targets: Any bullish breakout above 1.42 would bring the recent High of 1.425 into focus. After that, watch 1.43 and whole-number levels on the way up to 1.50 as the latter is a previous S/R region on the weekly chart. Any bullish continuation after that would bring whole-number levels on the way up to 1.75 into focus.

Bearish targets: Any bearish retreat from 1.42 would bring 1.41 into focus followed by the revised 15-month support trend line. After that, watch 1.40 and 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 1.42 and 1.41 for any new make or break.

 

 

 

USD/JPY:  The USD/JPY closed with a bearish-coloured Spinning Top, and almost Inside, weekly candle reflecting indecision as it closed again below 110 keeping this as the horizontal resistance level to watch for any new make or break.

NB: The bullish weekly-chart descending wedge breakout was first noted in my article of January 31st. Price action at the initial breakout was around 104.5 and has reached up as far as near 111, a move of around 650 pips, so this trend line breakout was a great clue about things to come!

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

Bullish targets: Any bullish break above 110 would bring the 4hr chart triangle trend line and recent High, near 111, into focus. After that, watch whole-numbers on the way up to 115.

Bearish targets: Any bearish 4hr chart trend line breakout would bring 109 and 108 into focus.

  • Watch 110 and for any 4hr chart triangle breakout:

 

 

 

GBP/JPY: The GBP/JPY closed with a bearish-coloured Inside weekly candle reflecting indecision as price action holds just above 155 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 4hr chart trend lines to watch for any new breakout.

Bullish targets: Any bullish hold above 155 and wedge breakout would bring 156 into focus followed by whole-number levels on the way up to the weekly chart’s 61.8% Fibonacci, near 170.

Bearish targets: Any bearish break below 155 and wedge breakout would bring 154 back into focus. After that, watch whole-number levels on the way down to 136 as this is near the 61.8% Fibonacci of the March 2020 – March 2021 swing High move.

  • Watch 155 for any new make or break.