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Big week: FOMC, Earnings and a new US administration

January 24, 2021

Last week: It was another relatively quiet week for trend line breakouts and this was likely due to the distraction surrounding the Inauguration of the new US President. The markets seem to have welcomed this transition though as the S&P500, NASDAQ and Russel-2000 closed at new all-time Highs. The Emerging Markets ETF (EEM), Copper and Gold all closed with bullish candles although Gold remains below the $1,900 threshold. Despite all of this, it was another week were a raft of indecision candles were printed across a range of trading instruments reflecting some uncertainty. This week brings the first full week for the new US administration, FOMC and US Earnings season so watch to see how these impact market sentiment and the range-bound DXY. Also monitor the worsening US Covid situation for any impact on this current stock rally.

 

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: Articles published during the week can be found here, here, here and here:

 

  • GBP/JPY: a TL b/o for 60 pips and another for 130 pips.
  • S&P500: a 100 point bounce off last weekend’s focus level of 3,750.
  • Gold 4hr: a TL b/o for $23.

 

This Week: (click on images to enlarge):

    • DXY: US$ Index: The US$ index closed with a bearish weekly candle after stalling at the upper wedge trend line. This week brings FOMC so watch to see how this impacts price action and keep watch for any breakout and for any potential mean-reversion. Note that the DXY is trading within the 4hr Cloud so expect choppiness until the index emerges from this congestion zone.

 

DXY weekly: watch for any Descending Wedge mean-reversion activity:

 

 

    • Indecision-style weekly candles: indecision-style weekly candles were printed on some instruments again last week: the S&P500, ASX-200, Copper, TLT, EEM, Gold, EUR/USD, AUD/USD, AUD/JPY, USD/JPY, USD/CAD and USD/CNY.

 

    • 10-yr T-Note Interest rate: The chart of the 10-yr Treasury Interest rate shows a recent bullish breakout from the triangle congestion pattern. Watch for any push to the 15 S/R region BUT note the resistance ahead from the top of the weekly Cloud:

 

10-yr T-Note Interest rate: a recent bullish breakout:

 

 

    • 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.

 

    • Central Banks updates: there is one Central Bank rate update this week: FOMC (USD).

 

    • Stocks above their 200 Day Moving Average: The percentage of stocks above their 200 Day Moving Average remains above the 85% region. The first 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 keep watch for any pause or pullback with US stocks given their recent bullish run. The second, expanded, chart shows that this rally continues pushing up to the previous High region of circa 92.50.

 

% of US Stocks above the 200 Day Moving Average: 

 

% of US Stocks above the 200 Day Moving Average (expanded): watch for any push to 92.50:

 

 

    • 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 up at 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-coloured Spinning Top weekly candle reflecting indecision and still below the weekly 61.8% Fibonacci. Watch for any push to the whole-number 4 level.

 

Copper weekly: still below the 61.8% Fib BUT watch for any push to the 4 level:

 

 

    • Emerging Markets: The Emerging market ETF, EEM, gapped higher and closed with a bullish-coloured Spinning Top weekly candle reflecting some indecision as it continues to trade just under the previous all time High, near 56.

 

EEM weekly: watch for any push past the 56 level:

 

 

 

    • DJIA: The DJIA closed with a small bullish weekly candle as the index consolidates under 31,000 but keep watch for any ascending triangle-style activity above this psychological 30,000 level.

 

DJIA weekly: consolidating under 31,000:

 

 

 

    • NASDAQ composite: The NASDAQ Composite Index closed with a good sized bullish weekly candle and back above the 13,000 level. Next stop 14,000?

 

NASDAQ weekly: back above 13,000:

 

 

    • DAX weekly: The DAX closed with a small bullish weekly candle and back above the 13,850 level:

 

DAX weekly: back above 13,850:

 

 

    • Commodities: The Commodity ETF, DBC, continues with a bullish breakout from the bullish-reversal Descending Wedge that I had been monitoring for some months but closed with a bearish weekly candle; the first in 10 weeks though! The ADX has broken above the threshold 20 level AND price action is still above the $15 resistance-turned-support level:

 

DBC weekly: a descending wedge b/o continues:

 

 

    • 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 weekly candle and at a new all time High. Note how the 61.8% Fibonacci extension of the Covid-induced Swing Low is up near 2,200 so this would be the target for this continuation move.

 

RUT weekly: almost at 2,200:

 

    • Bonds / TLT: The Bond ETF, TLT, closed with a bullish-coloured Spinning Top weekly candle but still below the recently broken support trend line AND the Elliott Wave indicator is still suggesting an uptrend from here:

 

TLT weekly: 

 

 

    • USD/CAD and USD/CNY: keep an eye on these two weekly chart Descending Wedge patterns for any new trend line breakout. Also, note how both closed with weekly Doji candles:

 

USD/CAD weekly:

 

USD/CNY weekly:

 

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

 

VIX weekly: watch the 30 level for any new make or break:

 

 

Calendar: Courtesy of Forex Factory:

 

 

Earnings: Courtesy of Earnings Whispers: Earnings season continues this week:

 

 

Market Analysis:

 

S&P500: The S&P500 closed at a new all-time High but with a bullish-coloured Spinning Top weekly candle reflecting some indecision as the markets adjust to a new US administration and a worsening Covid situation.

Trading volume was even lower last week SO watch for any new volume breakout above the trend line and the 200 MA.

 

S&P500 ETF: SPY weekly: Volume was even lower last week so watch for any Volume pop back above the TL & 200 MA:

 

As with some other trading instruments, the trend remains UP here for the time being though with the print of higher Highs and higher Lows. However, this trend has been in play for 12 weeks now and so a pause or pullback would not be out of order. As I always remind traders, trends do not travel in straight lines unabated; they zig and zag.

The index closed the week just below 3,850 making this the level to watch for any new make or break and there are revised 4hr chart trend lines to monitor for any new breakout.

Note, on the weekly chart, how the 61.8% Fibonacci extension of the Covid-induced Swing Low is up near 4,150. This would be one target for any bullish continuation move.

Bullish targets: any bullish 4hr chart triangle breakout above 3,850 would bring 3,900 into focus.

Bearish targets: any bearish 4hr chart triangle breakout would bring the 12-week support trend line into focus followed by whole-number levels on the way down to 3,500 as this still lies near the 4hr chart’s 61.8% Fibonacci.

  • Watch 3,850 and for any 4hr chart trend line breakout:

 

 

ASX-200: XJO: The ASX-200 closed with a bullish-coloured Spinning Top weekly candle and just above 6,800 making this the level to watch in coming sessions for any new make or break.

As mentioned over recent weeks: The GFC High of 6,851.50 and 2020 High of 6,893.70 loom large and ahead of current price action and will also be resistance levels to negotiate in coming sessions.

Trading volume remains subdued so watch for any new breakout:

XJO weekly: watch for any new TL b/o:

 

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 4hr chart to monitor for any new momentum breakout. Note how ADX momentum remains low on the daily chart BUT is now edging upwards so watch for any new breakout over 20.

Bullish targets: Any bullish 4hr chart triangle breakout would bring the pre-GFC High of 6,851.50 followed by the 2020 High of 6,893.70 into focus.

Bearish targets: Any bearish 4hr chart triangle breakout would bring 6,700 and 6,600 into focus.

  • Watch 6,800 and for any 4hr chart triangle breakout:

 

 

 

Gold:  Gold closed near $1,850 and with a bullish-coloured Spinning Top weekly candle reflecting indecision BUT still below the all-important $1,900 level.

As mentioned over recent 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. Keep watch of $1,900 now that price action is trading below 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 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 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.

 

Keep in mind that ADX momentum still remains low on the weekly time frame though so keep an eye on this metric for any new uptick to give clues about the next momentum move; either up or down!

NB: The expanded view of the weekly chart below still shows a possible Bull Flag.

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

Bullish targets: any bullish 4hr chart trend line breakout would bring $1,900 into focus as this is near the 4hr chart’s 61.8% Fibonacci.

Bearish targets: any bearish 4hr chart trend line breakout would bring $1,800 and, then, the recent Low, near $1,770, into focus.

  • Watch $1,850 and for any new 4hr chart trend line breakout:

 

 

EUR/USD: The EUR/USD closed with a bullish-coloured, essentially Inside, weekly candle reflecting indecision.

There is still the look of a potential 4hr chart Bull Flag and price has broken above the monthly 200 EMA lending some support to this latest bullish bias.

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. However, a test of the 4hr chart’s 61.8% Fibonacci, near 1.19, would still fit within an overall bullish continuation thesis and move.

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

Bearish targets: Any bearish 4hr chart Flag breakdown would bring 1.21, 1.20 and 1.19 into focus and the latter 1.19 is still near the 4hr chart’s 61.8% Fibonacci.

  • Watch for any new Bull Flag breakout:

 

 

AUD/USD: The Aussie closed with a bullish-coloured Spinning Top weekly candle reflecting indecision as price action just managed to hold above a 12-week support trend line.

As mentioned over recent weeks: The trend remains UP here for the time being though with the print of higher Highs and higher Lows BUT this trend has been in play for 12 weeks now and so a pause or pullback would not be out of order. As I always remind traders, trends do not travel in straight lines unabated; they zig and zag. So some caution is needed here at the moment, especially given the US$ index remains in a bullish-reversal descending wedge on the weekly time frame.

There are revised 4hr chart trend lines to monitor for any new momentum-based breakout as price closed the week just above 0.77 again making this the support level to keep 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 61.8% Fibonacci, near 0.90.

Bullish targets: Any bullish 4hr chart triangle breakout would bring 0.78, 0.79 and 0.80 into focus followed by whole-number levels on the way up to the weekly chart’s Descending Wedge breakout target of 0.90.

Bearish targets: Any bearish 4hr chart triangle breakout below 0.77 and the 12-week support trend line would bring whole numbers on the way down to 0.73 into focus as this still lies near the 4hr chart’s 61.8% Fibonacci.

  • Watch 0.77 and for any new 4hr chart triangle breakout;

 

 

AUD/JPY:  The AUD/JPY closed with a bullish-coloured Spinning Top weekly candle reflecting indecision as price action managed, yet again, to just hold above a 12-week support trend line here as well.

As mentioned over recent weeks: The trend remains UP here for the time being though with the print of higher Highs and higher Lows BUT this trend has been in play for 12 weeks now and so a pause or pullback would not be out of order. As I always remind traders, trends do not travel in straight lines unabated; they zig and zag. So some caution is needed here at the moment, especially given the US$ index remains in a bullish-reversal descending wedge on the weekly time frame.

The other point of note for AUD/JPY traders is to keep an eye on the sentiment with stocks, especially the S&P500 index, as the two are generally highly aligned; as the chart below reveals. Any pause or pullback with stocks might render similar for the AUD/JPY:

 

AUD/JPY versus S&P500 (gold line): a higher degree of positive correlation:

 

 

There are 4hr chart trend lines to monitor for any new breakout as price closed again near 80 S/R making this support level to keep watch for any new make or break.

Bullish targets: Any bullish 4hr chart triangle breakout would bring 81 and 82 S/R into focus.

Bearish targets: Any bearish 4hr chart break below 80 S/R and the 12-week support trend line would bring 79, 78, and, then, 77 and the 7-yr trend line region into focus.

  • Watch 80 S/R and for any new 4hr chart momentum-based trend line breakout;

 

 

NZD/USD: The Kiwi closed with a bullish weekly candle and note the revision of the 12-week support trend line.

As mentioned over recent weeks: The trend is back to holding UP here for the time being with the print of higher Lows so watch to see if the Kiwi can resume the higher Highs. The trend has been in play for 12 weeks now though and so a pause or deeper pullback would not be out of order. As I always remind traders, trends do not travel in straight lines unabated; they zig and zag. So some caution is needed here at the moment, especially given the US$ index remains in a bullish-reversal descending wedge on the weekly time frame.

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

Bullish targets: Any bullish 4hr chart trend line breakout would bring 0.73 into focus. After that, watch 0.74 and 0.75 as the latter is the next major horizontal S/R zone (see weekly chart).

Bearish targets: Any bearish 4hr chart trend line breakout would bring 0.71, 0.70 and 0.69 into focus with the latter still being near the 4hr chart’s 61.8% Fibonacci.

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

 

 

GBP/USD: The Cable closed with a bullish weekly candle after price action, yet again, rejected the 1.37 level and, then, chopped sideways under 1.365.

NB: The longer-term target for any bullish continuation above the previously broken 14-yr trend line is the monthly chart’s 61.8% Fibonacci, near 1.75. However, a test of this major breakout region would not surprise.

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

Bullish targets: Any bullish 4hr chart triangle breakout above 1.37 would bring whole-number levels into focus on the way up to 1.50, 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 4hr chart triangle breakout would bring 1.35 into focus followed by a 7-month support trend line, as this lies near the 4hr chart’s 61.8% Fibonacci, followed by the previously broken 14-year bear trend line.

  • Watch 1.37 and for any 4hr chart triangle breakout:

 

 

USD/JPY:  The USD/JPY closed with a bullish-coloured Doji weekly candle reflecting indecision as it holds just under 104 S/R keeping this the level to watch in coming sessions for any new make or break.

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

NB: There is still the the look of a bullish-reversal Descending Wedge on the weekly chart.

Bullish targets: Any bullish 4hr chart trend line breakout would, effectively, trigger the weekly chart’s Bull Flag breakout and then bring 105 into focus.

Bearish targets: Any bearish 4hr chart trend line breakout would bring 103 back into focus.

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

 

 

GBP/JPY: The GBP/JPY closed with a bullish weekly candle but is still pegged by the weekly 200 EMA making this the resistance to monitor for any new make or break.

NB: The longer-term target for any bullish continuation above the previously broken 40-yr trend line is the weekly chart’s 61.8% Fibonacci, near 170.

Bullish targets: Any bullish 4hr chart breakout above the weekly 200 EMA would bring whole-number levels into focus on the way up to the weekly chart’s 61.8% Fibonacci, near 170.

Bearish targets: Any bearish 4hr chart hold below the weekly 200 EMA would bring a support trend line into focus followed by 141, 140 and 139 as the latter is still near the recently broken 40-yr trend line and 4hr chart 61.8% Fibonacci.

  • Watch the monthly 200 EMA and for any new trend line breakout.