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Bonds and Rates in focus

February 28, 2021

Last week: I mentioned last week that technical signals were pointing to caution being needed and that proved to be spot on! The Bond rout, and commensurate rise with US Treasury yields, dominated the markets last week and triggered a risk-off shift with all four of the US stock index majors closing lower, so too Emerging markets, and with movement into the US$. There was still no Flight to Safety move into Gold though as the precious metal seems to be primarily reacting to the stronger US$. Commodity currencies also pulled back sharply at the end of the week in reaction to the stronger US$ and souring risk sentiment. Copper was a bit of a standout again as it managed to close green, albeit only just. It has been odd to see both US stocks index majors and Bonds trading in tandem BUT the 10 Year Bond ETF, TLT, bounced higher on Friday so watch for any recovery in this sector of the market. I continue to warn that this most recent stock rally, off the Covid-inspired March 2020 Lows, has run for around 12 months now and trends do not travel in straight lines forever. It is my belief that a pullback would be a healthier way to underpin any eventual bullish continuation. There were some great trend line breakouts that triggered early in the week, from levels forecast in last weeks post, so keep an open mind and watch profiled trend lines and S/R levels for any new momentum-based breakouts. Watch for any sentiment impact from US Stimulus weekend news and this week’s US NFP jobs report.

 

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:  There were some great breakout trades that triggered early in the week. Updates posted throughout last week can be found through the links here, here and here:

 

  • GBP/JPY: a TL b/o for 230 pips.
  • AUD/JPY: a TL b/o for 200 pips.
  • GBP/USD: a TL b/o for 200 pips.
  • SPX: a TL b/o for 80 points.
  • NZD/USD: a TL b/o for 150 pips.
  • Gold: a TL b/o after Wednesday’s chart update for around $65:

 

 

  • This Week: (click on images to enlarge):
    • DXY: US$ Index: The US$ index closed with a bullish weekly candle but remains within the bearish-reversal descending wedge. Price action continues to struggle in the daily Ichimoku Cloud so watch for any momentum-based breakout from this resistance zone. It is NFP this week so watch to see if this news gets the Index moving:

 

DXY weekly: watch for any new Descending Wedge b/o:

 

DXY daily: Price remains stuck in the daily Cloud:

 

 

    • 10-yr T-Note Interest rate: The chart of the 10-yr Treasury Interest rate shows the recent bullish breakout from the triangle congestion pattern is moving along. Watch the 15 S/R region for any new make or break and for any continuation move up to the weekly 61.8% Fibonacci, near 21.50:

 

  • 10-yr T-Note Interest rate:  the bullish breakout continues but watch the 15 region for any potential resistance:

 

 

    • Financials ETF: XLF weekly:  Financial stocks often fare well in an environment of rising yields so this ETF might be worth considering given the monthly close above the previous all time High region of $31. Watch for any test of this $31 region before potential continuation:

 

Financials ETF: XLF weekly: a new monthly b/o above $31:

 

 

    • % Stocks above their 200 Day Moving Average Index: 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 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 index is struggling under the 92.50% level. The next few weeks could be very interesting!

 

% 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): struggling under 92.50%; 

 

 

    • Central Bank update: there is one Central Bank rate update this week: RBA (AUD).

 

    • 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:

 

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 small, bullish weekly candle having a long upper shadow that formed after the sharp risk-off shift that evolved at the end of last week.

 

Copper weekly: holding above the whole-number 4 level:

 

 

 

    • Emerging Markets: The Emerging market ETF, EEM, gapped lower and closed with a bearish weekly candle following the heads-up from the previous week’s bearish-reversal Hanging Man weekly candle. Keep watch for any deeper pullback after this lengthy 12-month rally.

 

EEM weekly: watch the 12-month TL:

 

 

    • DJIA: The DJIA closed with a bearish weekly candle having a long upper shadow reflecting reflecting the selling that took hold after the new all-time High at 32,000 was reached. Watch the 12-month support trend line for any new make or break. Any serious sell-off following a break of this support trend line would bring the weekly chart’s 61.8% Fibonacci, circa 23,350, into focus.

 

DJIA weekly: watch the 12-month support trend line for any new make or break.

 

 

    • NASDAQ composite: The NASDAQ Composite Index gapped lower and closed with a bearish weekly candle and down near the 12-month support TL so watch this for any new make or break. Any serious sell off following a break of this support trend line would bring the weekly chart’s 61.8% Fibonacci, circa 9,500, into focus.

 

NASDAQ weekly: watch the 12-month support TL:

 

 

    • DAX weekly: The DAX closed with a bearish-coloured Spinning Top weekly candle and back below the 13,850 level. Any serious sell-off following a break of this support trend line would bring the weekly chart’s 61.8% Fibonacci, circa 10,350, into focus.

 

DAX weekly: watch the 12-month support TL:

 

 

    • Commodities: The Commodity ETF, DBC, continues with a bullish breakout from the bullish-reversal Descending Wedge that I had been monitoring for some months and closed with a a small bullish weekly candle. The ADX remains above the threshold 20 level AND price action continues higher above the $15 resistance-turned-support level.

 

DBC weekly: managed to close with a bullish-coloured weekly candle; albeit with a long upper shadow:

 

 

    • 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 weekly candle after the heads-up from last week’s bearish-reversal Hanging Man weekly candle. The index continues to hold above the 61.8% Fibonacci extension of the Covid-induced Swing Low, for the time being, BUT watch for any pause following this lengthy rally.

 

RUT weekly: watch for any pause:

 

 

    • Bonds / TLT: The Bond ETF, TLT, closed with a bullish-coloured Doji weekly candle but this has a bullish-reversal Hammer look to it given it formed at the Support from the weekly chart’s 61.8% Fibonacci. The daily chart shows how price action bounced up from this 61.8% Fibonacci region on Friday. The Elliott Wave indicator is still suggesting an uptrend from here though so watch the 61.8% Fibonacci for any potential ongoing support:

 

TLT weekly: holding above the 61.8% Fibonacci so watch for any bounce here:

 

TLT daily: note the bounce on Friday off this 61.8% Fibonacci:

 

 

 

    • USD/CAD and USD/CNY: keep an eye on these two weekly chart Descending Wedge patterns for any new trend line breakout.

 

USD/CAD weekly:

 

 

USD/CNY weekly: a TL b/o BUT watch 6.50 for any new break:

 

 

    • VIX: the Fear index gapped higher and closed with a bullish weekly candle following the heads-up from the previous week’s bullish-reversal Railway Track pattern. Watch for any new break above 30:

 

VIX weekly: note the bullish follow-through after the Railway Track pattern:

 

Calendar: Courtesy of Forex Factory:

 

 

 

Earnings: Courtesy of Earnings Whispers: still a busy week for Earnings:

 

 

Market Analysis:

 

S&P500: The S&P500 closed with a bearish weekly candle and down near a 12-month support trend line so watch this for any new make or break. A pause or pullback here would not surprise, even if there is to be eventual bullish continuation. Any serious sell-off following a break of this support trend line would bring the weekly chart’s 61.8% Fibonacci, circa 2,800, into focus.

Trading volume has now broken above the bear trend line and 200 MA so watch for any follow-through volume support for this latest selling:

 

S&P500 ETF: SPY weekly: Volume has now broken above the TL & 200 MA:

 

The Index closed the week just above 3,800 making this the horizontal level to watch for any new make or break but there are revised 4hr chart trend lines to also monitor for any new breakout.

NB: The second weekly chart shows 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 bounce up from 3,800 would bring a recent bear trend line and 3,850 into focus followed by 3,900 and 3,950.

Bearish targets: any bearish 4hr chart break below the 12-month support trend line and 3,800 would bring whole-numbers on the way down to the weekly chart’s 61.8% Fibonacci retracement level, near 2,800, into focus. Traders would need to watch for any potential weekly chart Bull Flag activity though if this support trend line is broken.

  • Watch 3,800 and the 12-month support TL for any new make or break:

 

 

 

ASX-200: XJO: The ASX-200 closed with a bearish weekly candle and failed to break back above the pre-GFC High of 6,851.50. Note on the 4hr chart how price has pulled back to the 61.8% pf the recent Jan-Feb swing High move.

As mentioned over recent weeks: The pre-GFC High of 6,851.50, pre-2020 High of 6,893.7 and 2020 High of 7,197.2 loom large and ahead of current price action and are proving to be strong resistance levels for the index.

The index closed the week below 6,700 so this will be the resistance level to monitor for any new make or break. 

Trading volume was higher last week and has made a breakout above the 200 MA and bear trend line so watch for any follow-through volume with this selling.

 

XJO weekly: note the break above the TL 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.

Note, also, how ADX momentum still remains low on the daily chart so watch for any new ADX breakout over 20.

Bullish targets: Any bullish 4hr chart triangle breakout would bring 6,800 and the pre-GFC high of 6,851.50 into focus. After that, watch the pre-2020 High of 6,893.70, the whole-number 7,000 and, then, the 2020 High of 7,197.20.

Bearish targets: Any bearish 4hr chart triangle breakout would bring 6,600 and 6,500 into focus.

  • Watch 6,700 and for any new 4hr chart triangle breakout; especially with this week’s AUD GDP and RBA rate update.

 

 

Gold:  Gold closed with another bearish weekly candle and has broken below the recent Low (Nov 2020) $1,770 support level. This price action and hold 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.

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.

 

Price action closed the week just above $1,730 so this is the horizontal level to watch for any new make or break.

Keep in mind that ADX momentum still remains low on the weekly time frame but is edging higher, along with the bearish DMI, 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 shows a possible Bull Flag and this augers well with the Inverse Cup ‘n’ Handle / Cup pattern. The weekly chart Bull Flag has been revised and this week’s Low actually gives a more valid pattern given there are now three touches of the bottom trend line.

Bullish targets: any bullish 4hr chart hold above $1,730 would bring $1,770 into focus as this has been a recent S/R level and is near the 4hr chart’s 50% Fibonacci. After that watch $1,800, $1,850 and $1,900.

Bearish targets: any bearish 4hr chart trend line break below $1,730 would bring the revised weekly wedge trend line followed by $1,700 S/R into focus.

  • Watch $1,730 for any new make or break:

 

 

 

EUR/USD: The EUR/USD closed with a small, bearish weekly candle having a long upper shadow reflecting that sellers took control by the end of the week as the risk-off shift developed.

There are revised 4hr chart trend lines to watch for any new breakout and 1.21 is the resistance level to monitor 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.

Bullish targets: Any bullish 4hr chart break back above 1.21 would bring the monthly 200 EMA, 1.22 and a weekly trend line 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 to 1.40.

Bearish targets: Any bearish 4hr chart trend line breakout would bring 1.20 into focus followed by 1.19.

  • Watch 1.21 for any new 4hr chart momentum-based trend line breakout;

 

 

AUD/USD: The Aussie closed with a bearish weekly candle after testing the 0.80 level during the week. Price pulled back sharply with the risk-off shift after that test though and closed back down near 0.77 so this will be the one to watch for any new make or break.

There are revised 4hr chart trend lines to monitor for any new momentum-based breakout; especially with Aussie GDP and the RBA rate update scheduled for this week.

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.

Bullish targets: Any bullish 4hr chart hold above 0.77 and bear trend line breakout would bring 0.78 and the monthly 200 EMA back into focus followed by 0.79 and 0.80. After that, watch 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 break below 0.77 would bring 0.76 and 0.75 into focus.

  • Watch 0.77 for any new make or break; especially with this week’s AUD GDP and RBA rate update.

 

 

 

AUD/JPY:  The AUD/JPY closed with a bearish-reversal Shooting Star-style weekly candle after testing the key 85 S/R level during the week. Price action pulled back sharply with the risk-off shift into the Yen and closed the week back down near the monthly 200 EMA making this the level to watch for any new make or break.

As mentioned over recent weeks: 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 deeper 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 revised 4hr chart trend lines to monitor for any new breakout.

Bullish targets: Any bullish 4hr chart trend line breakout, and bounce up from the monthly 200 EMA, would bring 83, 84 and 85 S/R into focus.

Bearish targets: Any bearish 4hr chart break below the monthly 200 EMA would bring the 18-week support trend line 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.

  • Watch the monthly 200 EMA and for any new 4hr chart momentum-based trend line breakout; especially with this week’s AUD GDP and RBA rate update.

 

 

NZD/USD: The Kiwi closed with a bearish-reversal Shooting Star-style weekly candle after reaching up to near 0.75 during the week. Price then reversed sharply as the risk-off shift developed later in the week.

Price action closed down near the 4hr chart’s 200 EMA (teal coloured line) making this the level to watch for any new make or break.

Bullish targets: Any bullish 4hr chart hold above the 4hr chart’s 200 EMA would bring 0.73, 0.74 and 0.75 into focus as the latter is the next major horizontal S/R zone (see weekly chart). After that, watch 0.76 as this is near the monthly chart’s 61.8% Fibonacci target of the earlier monthly chart triangle breakout.

Bearish targets: Any bearish 4hr chart break below the 4hr chart’s 200 EMA would bring 0.72 and 0.71 into focus.

  • Watch the 4hr chart’s 200 EMA for any new make or break:

 

 

GBP/USD: The Cable closed with a bearish-reversal Shooting Star-style weekly candle under the huge 1.40 level; a significant level as seen on the weekly and monthly charts. Price then reversed as the risk-off shift developed later in the week and it closed just above 1.39.

There are revised 4hr chart trend lines to watch for any new breakout and the 1.39 level is the support to watch for any new make or break.

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 to 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!

Bullish targets: Any bullish 4hr chart triangle breakout would bring 1.40 back into focus followed by whole-number levels on the way up to 1.50 as this 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 4hr chart triangle breakout, and break below 1.39, would bring 1.38 into focus followed by 1.37 and the 7-month support trend line.

  • Watch 1.39 and 4hr chart triangle trend lines for any new breakout:

 

 

 

USD/JPY:  The USD/JPY closed with a bullish weekly candle and looks headed to 107.

Note how the weekly chart’s descending wedge breakout continues to run to the upside. There are revised 4hr chart trend lines to monitor for any new breakout.

Bullish targets: Any bullish 4hr chart triangle breakout above 107 would bring whole-numbers on the way up to 110 into focus.

Bearish targets: Any bearish 4hr chart break triangle breakout would bring 106 and 105 back into focus.

  • Watch 107 and for any new 4hr chart triangle breakout.

 

 

GBP/JPY: It continued to be onward and upwards for the GBP/JPY following the break above the 40-yr bear trend line 9 weeks ago. Another 230 pips was added early in the week following a breakout from last week’s focus level.

The GBP/JPY closed with a small, bullish weekly candle having a long upper shadow, reflecting the risk-off move into the Yen that evolved towards the end of the week, but not before testing the key 150 S/R level. The weekly candle ended up closing just above 148 though making this the new support level to monitor in coming sessions.

There are revised 4hr chart trend lines to monitor for any new momentum breakout. Note how ADX momentum is still trending upwards on the weekly chart so watch for any new breakout above the 20 threshold.

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 to 150, a move of around 900 pips, and so is another trend line breakout that has proven to be worthwhile monitoring.

Bullish targets: Any bullish 4hr chart triangle breakout would bring 149 and 150 back 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 4hr chart triangle breakout, and break below 148, would bring 147 into focus as this is near the 10-week support trend line. After that, watch whole-number levels on the way down to 140 S/R.

  • Watch 148 and 4hr chart trend lines for any new breakout: