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Busy week ahead

November 1, 2020

Last week: The expected rise in volatility came through last week following the risk-off shift as Covid cases continued to rise across the USA and Europe. New Covid-related lock-downs measures have been announced for England, France and Germany with Belgium also following suit. The US$ and Yen gained with the flight to safety shift but stocks, Gold, Oil and commodity currencies all suffered. November 3rd brings the US Presidential Election as the main risk event so be prepared for more volatility ahead. The US President suggests that the USA is winning the war against Covid but weekend reports reveal that Covid in the USA is being diagnosed at a rate of one case per second. This week also bring three Central bank rate updates, including FOMC, as well as NFP so traders would be well advised to exercise patience and wait for clarity until after all of this news-related dust settles.

 

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:  The risk-off shift resulted in some trend line breakouts last week. Articles published during the week can be found here, here, here and here:

 

  • S&P500: a TL b/o for 190 points.
  • ASX-200: a TL b/o for 130 points.
  • Gold: a TL b/o for $35.
  • EUR/USD: a TL b/o from for 90 pips.
  • AUD/USD: a TL b/o from for 100 pips.
  • AUD/JPY: a TL b/o from for 80 pips.
  • GBP/JPY: a TL b/o from for 130 pips.

 

This Week: (click on images to enlarge):

    • DXY: US$ Index: The US$ index closed with a bullish weekly candle and has broken up and out from a recent triangle and back above the recently broken multi-year support trend line. However, price action remains in the resistance of the daily Ichimoku Cloud and on low momentum. Watch to see if this week’s US Presidential Election result or FOMC rate update helps the index to break free of the daily Cloud:

 

DXY daily: still watching for any momentum-based breakout from the daily Cloud:

 

    • 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.

 

    • Multi-year trend lines: As noted recently and the caution remains valid: multi-year trend lines have been tested / broken on a number of instruments: The FX Indices (DXY and EURX) and the EUR/USD, AUD/USD, NZD/USD, AUD/JPY, GBP/USD and GBP/JPY. Caution is still required here though as trend lines of such duration are often not given up easily so traders should watch for any potential choppiness / consolidation as these levels are negotiated. Many of these levels are still back being tested and some have been tested and held.

 

    • Momentum & Bull Flags: Momentum remains low on many Forex pairs but a number are setting up with weekly chart consolidation-style Bull Flag patterns. These include:  EUR/USD, AUD/USD, AUD/JPY and NZD/USD.

 

    • Central Bank updates: there are three Central Bank rate updates this week: RBA (AUD), BoE (GBP) and FOMC (USD).

 

    • US Employment data: this week also brings US NFP.

 

    • AUDNZD and EURCAD: one of my followers asked me to review these two Forex pairs so my charts and thoughts are available through this link.

 

    • Covid:  The chart below is from Our World in Data and shows the worrying increase in the share of daily Covid tests that are positive for the USA and a number of European and other countries. Note the uptick of positive cases for the USA:

 

Covid: the share of daily Covid tests that are Positive:

 

 

    • 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 hovers under the 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 weekly candle but still above the key 3 level. Price action also continues holding above the 10-year bear trend line:

 

Copper weekly: holding above the 3 level;

 

    • Emerging Markets: The Emerging market ETF, EEM, has closed with a bearish weekly candle and back below the key 45 S/R level. Watch for any break of the revised support trend line;

 

EEM weekly: back below the 45 level:

 

    • DJIA: The DJIA closed with a large, bearish weekly candle and has broken the support trend line so watch for any pullback to the 61.8% Fibonacci:

 

DJIA weekly: watch for any pullback to the 61.8% Fibonacci:

 

 

    • NASDAQ composite: The NASDAQ Composite Index closed with another bearish weekly candle and this is helping to shape up the Double Top. Watch 10,800 for any new make or break as this has been a recent S/R zone:

 

NASDAQ weekly: watch 10,800 for any make or break:

 

 

    • DAX weekly: The DAX closed with a large, bearish weekly candle following the new Covid lock-down measures being taken in Germany and France. Watch for any push to 10,000 S/R as this is near the weekly 61.8% Fibonacci:

 

DAX weekly:

 

 

    • Russell-2000: The Russell-2000 is often viewed as the ‘Canary in the Coal Mine’ for US stocks and the index closed with a large bearish weekly candle BUT is holding above a recent support trend line for the time being.

 

RUT weekly: watch the support trend line for any new make or break:

 

 

    • Bonds / TLT: The Bond ETF, TLT, closed with a bearish weekly candle with no flight to safety shift on display here. The Elliott Wave indicator is still suggesting an uptrend from here for the time being:

 

TLT weekly: 

 

 

    • Fedex: The large, bearish weekly candle here has helped to form up a bearish-reversal Evening Star BUT watch for any potential Bull Flag. Further weakness though would bring the 61.8% Fibonacci into focus as this is also near a recent reaction zone of $160:

 

Fedex weekly: watch for any potential pause here:

 

    • VIX: the Fear index closed with a large, bullish weekly candle and above the key 30 level. Watch for any push up to the 61.8% Fibonacci region, circa 60 S/R.

 

VIX weekly: watch for any push to 60 S/R:

 

 

 

Calendar: Courtesy of Forex Factory: lots on the calendar this week:

 

 

Earnings: Courtesy of Earnings Whispers: another big week for Earnings:

 

 

 

Market Analysis:

 

S&P500: The S&P500 index closed with bearish weekly and monthly candles and has broken below a weekly support trend line. However, the index closed the week above the 3,200 S/R level and there is the look of a bullish-reversal Descending Wedge on the 4hr chart so keep an open mind here in this busy and potentially very volatile week.

Trading volume was higher last week and and has broken above the bear trend line AND 200 SMA so watch for any increased volume sell-off:

 

S&P500 ETF: SPY weekly: Watch for any further Volume:

 

Price action on the S&P500 closed above 3,200 so this will be the Support level in focus for any new make or break.

As noted recently: The weekly S&P500 chart below shows that the 61.8% Fibonacci level of this recent swing-High move (March 2020- September 2020) is down near the 2,700 region. Technical analysts would suggest that a pullback to this 61.8% level would be in order; even if there is to be ultimate bullish continuation. Trends do not travel in straight lines unabated so traders should be aware of this zig-zag potential.

Bullish targets: any bullish 4hr chart wedge trend line breakout, above 3,300, would bring 3,400 into focus followed by the whole-number 3,500 and 3,600 levels.

Bearish targets: any bearish 4hr chart wedge trend line breakout would bring 3,200 into focus followed by whole number levels on the way down to the weekly chart’s 61.8% Fibonacci, near 2,700.

  • Watch the 4hr chart’s wedge trend lines for any new breakout:

 

 

ASX-200: XJO: The ASX-200 closed with a large, bearish weekly candle and back below the key 6,000 level but the monthly candle closed bullish-coloured and just above the 11-yr support trend line.

Price action closed just above 5,900 so that will be the whole-number support level in focus this week.

Trading volume has edged just above the 200 SMA BUT remains below a multi-month Volume trend line so watch for any new trend line breakout:

 

XJO weekly: trading volume remains below the multi-month TL:

 

Keep in mind, however, that there has been a recent Golden Cross. 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 as you can see from the chart below so these crosses are worth noting:

 

XJO daily: recall there has been a recent Golden Cross:

 

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

Bullish targets: Any bullish 4hr chart triangle breakout would bring 6,000 into focus followed by 6,100 and 6,200.

Bearish targets: Any bearish 4hr chart triangle breakout would bring 5,900 and 5,800 into focus.

  • Watch for any new 4hr chart triangle breakout:

 

 

Gold:  Gold closed with bearish-coloured Spinning Top weekly and monthly candles, reflecting indecision, as price action continues to struggles at the $1,900 level. The precious metal is back below this key level as US$ strength impacted its progress.

Momentum remains low on the 4hr and daily time frames and continues declining on the weekly time frame. The daily chart’s Bull Flag trend lines have again been revised given the continued absence of any decent momentum.

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 above 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 new move 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 has moved back above the recently broken 10-year support trend line:

  • any US$ move back below the multi-year support trend line could help send Gold higher.
  • any US$ hold above this support trend line could keep Gold range-bound. This would help to further develop the Inverse H&S pattern.

Bullish targets: any bullish 4hr chart trend line breakout would bring $2,000 S/R into focus.

Bearish targets: any bearish 4hr chart trend line breakout would bring the recent Low, near $1,850, into focus.

  • Watch $1,900 S/R and for any 4hr chart trend line breakout:

 

 

EUR/USD: The EUR/USD closed with bearish weekly and monthly candles, however, despite this bearish sentiment there is the look of a Bull Flag on the weekly chart and momentum continues to declines on this weekly time frame.

There are revised 4hr chart triangle trend lines to monitor for any new momentum-based breakout and note how this chart pattern is a bullish-reversal Descending Wedge.

As mentioned over recent weeks: I have been warning for weeks that these major multi-year trend lines are not given up easily and so traders need to watch this region closely in coming sessions as the one here on the EUR/USD looks to be forming up into some decent support.

Bullish targets: Any bullish 4hr chart wedge trend line breakout would bring 1.17 into focus and, then, 1.18 on the way up to the recent High, circa 1.19.

Bearish targets: Any bearish 4hr chart wedge trend line breakout would bring the 13-yr TL into focus followed by 1.16 S/R.

  • Watch for any new 4hr chart wedge breakout;

 

 

AUD/USD: The Aussie closed with bearish weekly and monthly candles, however, despite this bearish sentiment there is the look of a Bull Flag on the weekly chart here too and momentum continues to declines on this weekly time frame as well.

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

Keep in mind, too, 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 triangle trend line breakout would bring bring 0.71 and, then, the upper daily/weekly chart Flag trend line into focus followed by 0.72, 0.73 and 0.74 S/R.

Bearish targets: Any bearish 4hr chart trend line breakout would bring 0.69 S/R into focus.

  • Watch for any new 4hr chart triangle trend line breakout; especially with this week’s RBA rate update:

 

 

AUD/JPY:  The AUD/JPY closed with bearish weekly and monthly candles and the multi-year trend line has been relaxed to reflect recent respect.

Despite this bearish sentiment, here too, there is still the look of a Bull Flag on the weekly chart and momentum continues to declines on this weekly time frame.

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

Bullish targets: Any bullish 4hr chart wedge trend line breakout would bring 75 into focus followed by the upper weekly-chart Flag trend line and, eventually, the revised 7-yr trend line.

Bearish targets: Any bearish 4hr chart trend wedge breakout would bring 73 and 72 S/R into focus.

  • Watch for any new 4hr chart wedge trend line breakout; especially with this week’s RBA rate update:

 

 

NZD/USD: The Kiwi closed with a bearish weekly candle but, here as well, there is still the look of a potential Bull Flag on the weekly chart.

Price action is back near 0.66 and this will be the level to watch in coming sessions 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 hold above 0.66 would bring 0.67 into focus followed by the upper Flag trend line.

Bearish targets: Any bearish break below 0.66 would bring the lower Flag trend line into focus followed by 0.65 S/R.

  • Watch 0.66 for any new make or break.

 

 

GBP/USD: The Cable closed with a bullish-coloured Doji monthly candle but bearish weekly candle and just below the 1.30 S/R level.

Brexit-related trade deal negotiations remain in focus however Covid news has dominated the airwaves this week.

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

Bullish targets: Any bullish 4hr chart break above 1.30 would bring the 4hr chart’s bear trend line into focus followed by 1.32 S/R. After that, the recent High, near 1.35, would come back into focus.

Bearish targets: Any bearish 4hr chart break below the 7-month support trend line would bring the recent Low, near 1.265 S/R, into focus.

  • Watch 1.30 and for any 4hr chart triangle breakout; especially with this week’s BoE rate update:

 

 

USD/JPY: Very little changed here last week as the risk off shift triggered both USD and JPY strength. The USD/JPY closed with a bearish-coloured Spinning Top monthly candle and bearish-coloured Doji weekly candle with both candle types reflecting indecision.

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

Bullish targets: Any bullish 4hr chart breakout above 105 would bring the upper 4hr chart triangle trend line into focus followed by 106 and 107 and, then, whole-number levels on the way up to the recent High, near 110.

Bearish targets: Any bearish 4hr trend line breakout below 104 S/R would bring whole-number levels on the way down to 100 S/R into focus.

  • Watch 105 S/R and for any new 4hr chart triangle breakout:

 

 

 

GBP/JPY: The GBP/JPY closed with bearish-coloured Spinning Top weekly and monthly candles reflecting indecision.

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

Bullish targets: Any bullish 4hr chart triangle breakout would bring 138 and 139 into focus as the latter is still near the 4hr chart’s 61.8% Fibonacci. After that, watch the 139 level and 40-yr trend line region.

Bearish targets: Any bearish 4hr chart break of the bottom 4hr chart trend line would bring 134 and 133 into focus on the way down to 130 S/R.

  • Watch for any 4hr chart triangle breakout: