Trade Charting

Last week: Welcome to the first review for 2021 and I’ll start by wishing everyone a safe and happy new year. I had thought the last week of the 2020 trading year might be relatively quiet but there ended up being a few trend line breakouts stemming from US$ weakness. There was also the continued melt-up with US stocks with all four of the major indices, the S&P500, NASDAQ, DJIA and Russell-2000, closing the year at new all-time Highs. Other than NFP, there isn’t much on the economic calendar to start the year now that ratification of the post-Brexit trade and US stimulus deals are behind us. However, this week brings the January 5th Georgia runoff elections and the January 6th US congressional joint session count of the electoral votes for the US Presidential Election so watch to see if the theater surrounding either of these events impacts market sentiment at all. This is a longer post than usual due to the inclusion of monthly and yearly charts so you might want to grab a coffee, or similar, before reading on.

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: There were a few trend line breakouts but most of these were aligned and due to ongoing US$ weakness. Articles published during the week can be found here, here, and here:

EUR/USD: a TL b/o for 60 pips.
AUD/USD: a TL b/o for 80 pips.
AUD/JPY: a TL b/o for 45 pips.
NZD/USD: a TL b/o for 100 pips.
GBP/USD: a TL b/o for 120 pips.
USD/JPY: a TL b/o for 45 pips.
GBP/JPY: a TL b/o above 140 for 100 pips. The 30 minute chart shows how this b/o triggered in Wednesday’s European session:

This Week: (click on images to enlarge):

- DXY: US$ Index: The US$ index closed with a bearish-coloured Spinning Top-style weekly candle as price action continues to consolidate within a bullish-reversal Descending Wedge.

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

- FX performance for 2020. Thanks to ForexLive for publishing this graphic. Note how well the AUD performed! Please recall that my technical analysis of the AUD/USD pointed to this bullish run following a Descending Wedge breakout that triggered earlier this year. Early references to this bullish-reversal Descending Wedge and subsequent breakout can be found through the links found in a Tweet from back on April 27th, in a post from June 2nd, in another post from June 9th and in a weekly market update from July 7th.

- Yearly candles: some of the yearly candles deserve special mention due to their impressive formations. Make sure to take note of yearly charts for the following when reading through this analysis:

- - XJO: a bearish-reversal style candle and impressive due to the long lower shadow.
  - Gold: a very large bullish candle.
  - AUD/USD: a bullish-reversal style candle and impressive due to the long lower shadow.
  - AUD/JPY: also a bullish-reversal style candle and impressive due to the long lower shadow.
  - NZD/USD: impressive due to the close above a 7-yr bear trend line.
  - GBP/USD: impressive due to the close above a 14-yr bear trend line.
  - GBP/JPY: impressive due to the close above a 40-yr bear trend line.

- Roaring Twenties? Given my respect for patterns and trends I am quite interested in the emerging commentary about the possibility of a post-pandemic Roaring Twenties-style recovery. Two recent articles on this topic can be found here and here but I suspect this space will become more populated as the year progresses.

- 10-yr T-Note Interest rate: The chart of the 10-yr Treasury Interest rate still shows congestion within a triangle pattern. Any bullish breakout here might tie in with a US$ recovery:

10-yr T-Note Interest rate: watch for any new triangle breakout: up or down:

- 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.

- Stocks above their 200 Day Moving Average: The percentage of stocks above their 200 Day Moving Average remains above the 85% region but looks to be plateauing. 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 might be running out out of puff:

% of US Stocks above the 200 Day Moving Average:

% of US Stocks above the 200 Day Moving Average (expanded): is the bullish run losing steam?

- 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 bearish weekly candle, following last week’s bearish-reversal Hanging Man weekly candle under the weekly 61.8% Fibonacci. Watch this level for any new make or break and for any push to the whole-number 4 level. This pause could also evolve into a Bull Flag so watch for any consolidation under the 61.8% Fibonacci:

Copper weekly: watch the weekly chart’s 61.8% Fib level, circa 3.6, for any new make or break:

Copper weekly expanded: note the bearish weekly candle following last week’s bearish-reversal Hanging Man:

- Emerging Markets: The Emerging market ETF, EEM, closed with a bullish weekly candle so watch for any push past the previous High, near 52.

EEM weekly: watch for any push past the 52 level:

- DJIA: The DJIA closed with a bullish weekly candle and at a new all time High so keep watch for any ascending triangle-style breakout move from this psychological 30,000 level.

DJIA weekly: closed the year above the psychological 30,000:

- NASDAQ composite: The NASDAQ Composite Index closed with an indecision-style Spinning Top weekly candle but at a new all-time High and just under the 13,000 level.

NASDAQ weekly: another new all-time High last week:

- DAX weekly: The DAX closed with a small, bullish candle having a long upper shadow reflecting that sellers stepped up following some buying into the all time High region. The yearly candle closed at a new all time High though so keep watch for any ascending triangle-style breakout.

DAX weekly: sitting near the all time High region:

- Commodities: The Commodity ETF, DBC, continues with a bullish breakout from the bullish-reversal Descending Wedge that I had been monitoring for some months. The ADX has now broken above the threshold 20 level BUT watch for any close above the $15 resistance 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 bearish-coloured Spinning Top weekly candle and just under 2,000 after testing new Highs through the week. The yearly candle closed as a good sized bullish candle 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 one target for any continuation move.

RUT weekly: closed the year just below 2,000:

- Russell-2000 versus S&P500: The Russell-2000 small-caps index has been leading the charge against the S&P500 but note how this relationship has now paused at the 61.8% Fibonacci. Watch this region for any new make or break and for clues about how each index might keep moving:

Russell-20000 v S&P500:

- Bonds / TLT: The Bond ETF, TLT, closed with a small bullish weekly candle and the Elliott Wave indicator is still suggesting an uptrend from here:

TLT weekly:

- VIX: the Fear index closed with a bullish-coloured Spinning Top weekly candle reflecting indecision as trading slowed to end the year.

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

Calendar: Courtesy of Forex Factory: note that next week brings NFP:

Earnings: Courtesy of Earnings Whispers: a quiet start to the new year:

Market Analysis:

S&P500: The S&P500 closed at an all time High and with a:

bullish weekly candle.
bullish monthly candle.
bullish yearly candle having a long lower shadow reflecting that buyers stepped in after the selling.

Trading volume was low again last week due to the shortened trading week for New Year BUT keep watch for any new volume breakout.

S&P500 ETF: SPY weekly: Volume was lower again heading into NYE but watch for any Volume pop back above the bear trend line:

The index closed the year just above 3,750 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 hold above 3,750 would bring 3,800 into focus.

Bearish targets: any bearish 4hr chart break back below 3,750 would bring the 4hr support trend line followed by 3,700 into focus. After that, watch whole-number levels on the way down to 3,400 as this now lies near the 4hr chart’s 61.8% Fibonacci.

Watch 3,750 and for any 4hr chart trend line breakout:

ASX-200: XJO: The ASX-200 closed with a:

bearish weekly candle.
small, bullish monthly candle but having a long upper shadow reflecting that sellers stepped in after some initial buying.
bearish-reversal Hanging Man-style candle under the Pre-GFC High of 6,851.50. This is certainly an ugly looking candle with its rather long lower shadow and, at the very least, reflects indecision if nothing else.

The index closed out the year just below 6,600 making this the resistance level to monitor into the new year.

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 was even lower last week heading into the shortened New Year trading week:

XJO weekly: lighter Volume again following Christmas and into New Year:

Despite the ugly yearly candle, 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 trend lines on the 4hr chart to monitor for any new momentum breakout.

Bullish targets: Any bullish 4hr chart recovery above 6,600 would bring the 4hr chart’s upper Flag trend line followed by 6,700 into focus. After this, watch 6,800 and the pre-GFC High of 6,851.50 followed by the 2020 High of 6,893.70.

Bearish targets: Any bearish 4hr chart trend line breakout would bring whole-numbers on the way down to 6,000 into focus. The 6,200 level is still near the daily chart’s 61.8% Fibonacci so that would be in focus as well.

Watch 6,600 and for any 4hr chart trend line breakout:

Gold: Gold closed with a:

bullish-coloured Spinning Top-style weekly candle reflecting indecision.
bullish monthly candle.
large, bullish yearly candle (the largest bullish candle print on my software that dates back to 1975).

The other point to note, apart from having its best year in a decade is that this is the first yearly candle print above $1,900; a key S/R area for the metal. This level remains in keen focus as it is the neck line of the multi-week bullish chart pattern that has been monitored here for some time.

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 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.

There are 4hr chart trend lines to monitor for any new breakout BUT traders need to closely monitor the US$ index as it shapes up in a recent bullish-reversal chart pattern.

The expanded view of the weekly chart below still shows a possible Bull Flag on this longer time frame as well. Price action closed the year right on this upper Bull Flag trend line so watch this for any new make or break. The Flag pole here is about $900 so this is a pattern that is well worth monitoring!

The second of the yearly charts below shows how there looks to be a much longer-term Bull Flag breakout in progress.

So, summing up, there are a few different bullish patterns on the various Gold charts:

Yearly chart: Bull Flag (in progress)
Weekly chart: Cup or Inverse H&S (brewing)
Weekly chart expanded: Bull Flag (brewing)

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

Bullish targets: any bullish 4hr chart hold above $1,900 would trigger the weekly chart’s Bull Flag breakout and would then bring $2,000 into focus.

Bearish targets: any bearish 4hr chart close back below $1,900 would bring a recent support trend line into focus followed by $1,850, $1,800 and, then, the recent Low, near $1,770.

Watch $1,900 and for any new 4hr chart trend line and weekly chart Bull Flag breakout:

EUR/USD: The EUR/USD closed with a:

bullish-coloured Doji weekly candle.
large and bullish monthly candle.
good-sized bullish yearly candle that broke above a 13-year bear trend line.

As mentioned last week: 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 9 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.

Price action tested 1.23 last week but pulled back to the recent support trend line to close the year near 1.22 making this the region to watch for any new momentum-based trend line breakout.

NB: Note that the longer-term target for any continued bullish movement, following the recent 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 bounce up from 1.22 would bring 1.23 followed by whole-numbers on the way up to a previous weekly chart High, circa 1.26, into focus. After that, watch for any continued push up 1.40.

Bearish targets: Any bearish 4hr chart breakdown below the support trend line and 1.22 would bring the monthly 200 EMA into focus followed by 1.21, 1.20 and 1.19. The latter 1.19 is near the 4hr chart’s 61.8% Fibonacci.

Watch 1.22 and the 4hr chart support trend line for any new breakout:

AUD/USD: The Aussie closed with a:

bullish weekly candle.
bullish monthly candle.
bullish-reversal Hammer-style yearly candle, having a long lower shadow reflecting that buyers stepped in after the selling. The important point to note is the close above the multi-year descending wedge trend line.

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.

There are revised 4hr chart trend lines to monitor for any new momentum-based breakout as price closed the year just below 0.77 making this the level to watch for any new make or break.

The yearly chart is rather noteworthy here given the bullish-reversal Hammer-style candle that formed after a downtrend and at a major support (that support being 0.70).

Bullish targets: Any bullish 4hr chart breakout above 0.77 would bring whole-number levels on the way up to the weekly chart’s Descending Wedge breakout target of 0.90 into focus.

Bearish targets: Any bearish 4hr chart hold below 0.77 breakout would bring the recent support trend line into focus followed by whole numbers on the way down to 0.73 as the latter now lies near the 4hr chart’s 61.8% Fibonacci.

Watch 0.77 and for any new 4hr chart trend line breakout;

AUD/JPY: The AUD/JPY closed with a:

bullish weekly candle.
bullish monthly candle breaking above a 7-yr trend line.
bullish-reversal Hammer-style yearly candle, having a long lower shadow reflecting that buyers stepped in after the selling. This is a most impressive monthly candle and the other important point to note is the close above the 7-yr trend line.

There are revised 4hr chart trend lines to monitor for any new momentum-based breakout as price closed the year above 79 and just under 79.5 making the latter as the one to watch for any new make or break.

The yearly candle is rather noteworthy here too given the bullish-reversal Hammer-style that formed after a downtrend and above support (75 S/R as well as 79 S/R).

Bullish targets: Any bullish 4hr chart trend line breakout above 79.5 would bring 80 into focus.

Bearish targets: Any bearish 4hr chart hold below 79.5 would bring 79 and a recent support trend line into focus. Any break of this support trend line would bring 78, 77.5 and, then, the 77 and 7-yr trend line region into focus.

Watch 79.5 and for any new 4hr chart momentum trend line breakout;

NZD/USD: The Kiwi closed with a:

bullish weekly candle.
bullish monthly candle.
small, bullish yearly candle, having a long lower shadow reflecting that buyers stepped in after the selling. The important point to note is the close above a 7-year bear trend line.

Price action tested above 0.72 last week but pulled back to close the year just below making this the level to watch for any new make or break.

Bullish targets: Any bullish 4hr chart breakout above 0.72 would bring 0.73 followed by whole-number levels on the way up to 0.75 into focus as this is the next major horizontal S/R zone.

Bearish targets: Any bearish 4hr chart hold below 0.72 would bring a recent support trend line into focus followed by 0.71 and 0.70 back into focus.

Watch 0.72 for any new make or break:

GBP/USD: The Cable closed with a:

bullish weekly candle.
bullish monthly candle.
small, bullish yearly candle having a long lower shadow reflecting that buyers stepped in after the selling. The important point to note is the close above a 14-year bear trend line.

NB: The longer-term target for any bullish continuation above the 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 and note how this multi-year trend line lies near the 4hr chart’s 61.8% Fibonacci; for some added confluence!

The Cable closed the year just above 1.365 making this the level to watch for any new make or break.

Bullish targets: Any bullish 4hr chart trend line hold above 1.365 would bring whole-number levels on the way up to 1.50, a previous S/R region on the weekly chart, into focus followed by further whole-number levels on the way up to 1.75.

Bearish targets: Any bearish 4hr chart break below 1.365 would bring a recent support trend line into focus followed by 1.36, 1.35 and the 14-year bear trend line.

Watch 1.365 for any new make or break.

USD/JPY: The USD/JPY closed with a:

bearish-coloured Spinning Top weekly candle.
bearish-coloured Spinning Top monthly candle.
bearish-coloured Spinning Top yearly candle.

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

Price action remains closed near 103 S/R making this the support level to watch in coming sessions for any new make or break.

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 104 followed by the 4-month bear trend line into focus.

Bearish targets: Any bearish 4hr chart triangle breakout would bring 103 into focus.

Watch for any new 4hr chart triangle breakout:

GBP/JPY: The GBP/JPY closed with a:

bullish weekly candle.
bullish monthly candle that closed just above the 40-yr bear trend line.
small bearish, Dragonfly Doji-style yearly candle, having a long lower shadow reflecting that buyers stepped in after the selling. Whilst this yearly candle is not a text book example of a Dragonfly Doji it does have the characteristic T appearance. These types of Doji candles, when formed at support, can signal reversal and this candle formed above 140 S/R which has been effective support for the last 4 years. The yearly candle, like the monthly candle, closed just above the 40-yr bear trend line.

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

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

Bullish targets: Any bullish 4hr chart hold above 141 would bring 141.50 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 break back below 141 would bring a recent support trend line followed by 140 and the 40-yr trend line back into focus.

Watch 141 and the 4hr chart’s trend lines for any new breakout.

Charting into the 2021 Trading Year