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Clear as Mud?

July 12, 2020

Last week: There was a bit of to an fro between risk-on and risk-off last week but the three major US stock indices all closed higher as hope for a Covid vaccine ultimately moderated concern about the rising cases load of infected citizens in the USA and worldwide. The NASDAQ index actually closed with a large bullish candle as it continues to carve out new all time Highs. This risk-on bias was not broad based though as there was also movement into safety haven Bonds and the US bellwether stock index, the Russell-2000, was one of the few to close lower. So, clear as mud it seems? The S&P500 recovery move continues on declining / low Volume and declining Momentum so caution is still required. Gold, the Aussie and the Kiwi are all sitting near major resistance levels and I’m wondering if they’re going to invoke Tom Petty in his well known song: I won’t back down? Both the NASDAQ and NDX indices gapped higher last week so this will likely trigger some to watch for any gap fill test.

 

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

  • EUR/USD: a TL b/o for 50 pips.
  • GBP/USD: the TL b/o from the recent Descending Wedge gave up to 270 pips:

 

  • This Week: (click on images to enlarge):

 

    • DXY: US$ Index: The US$ index closed with another bearish-coloured weekly candle and remains range-bound on low momentum. Watch to see how this week’s ECB rate update impacts the index:

 

DXY weekly: 

 

 

    • Central Bank updates: there are three Central Bank updates this week: BoJ (JPY), BoC (CAD) and ECB (EUR).

 

    • Indecision weekly candles: these reappeared last week and were printed on: the DJIA, DAX, Russell-2000, the VIX, ASX-200, Gold, Crude Oil, AUD/USD, AUD/JPY and USD/JPY.

 

    • S&P500: Keep the bigger picture in perspective with the recent moves:

 

S&P500 yearly: keep this latest move in perspective:

 

 

    • Currency Strength Indicator: note how the currencies continue converging on the daily time frame. I ask again: Is a big breakout move brewing?

 

Currency Strength Indicator (daily): 

 

    • Gold: I have been warning about the bigger picture chart pattern shaping up on the weekly chart of an Inverse H&S. The choppiness I had anticipated continues playing out BUT watch carefully as the precious metal has now broken the $1,800 ‘neck line’ breakout level of this pattern.

 

    • 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; even if the S&P500 heads back to testing its 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 Weekly: Copper closed with a large bullish weekly candle so watch for any new triangle breakout:

 

Copper weekly:

 

 

    • DJIA weekly: The DJIA closed with a bullish-coloured Doji weekly candle reflecting indecision as the index holds above the key 25,000 S/R region:

 

DJIA weekly: 

 

 

    • NASDAQ composite: The NASDAQ Composite Index gapped higher to close with a large bullish weekly candle after last week’s bullish Engulfing candle. How far can the index keep going? This is anyone guess, however, the second weekly chart below has an Elliott Wave Extension tool applied and it shows the 12,000 region is near the 161.8% Fibonacci extension of the previous breakout move so I would be watching for any run to this whole-number region. Will there be any gap fill move here?

 

NASDAQ weekly: 

 

NASDAQ weekly + Elliott Wave: 

 

 

  • NDX weekly: The NDX Index is made up of the top 100 or so NASDAQ non-financial stocks and it gapped higher to close with a bullish weekly candle and well above the 10,000 level. Will there be any gap fill move here too?

 

NDX weekly: 

 

 

    • DAX weekly: The DAX closed with a bullish-coloured Spinning Top weekly candle so watch the recent High for any new make or break:

 

DAX weekly:

 

 

    • Russell-2000: The Russell-2000 is often viewed as the ‘Canary in the Coal Mine’ for US stocks and is still bucking the weekly trend on US stocks. The index closed with another bearish-coloured Spinning Top weekly candle reflecting indecision:

 

RUT weekly:

 

 

    • Bonds / TLT: The Bond ETF, TLT, closed with a bullish weekly candle despite this continued risk-on bias. However, note the pullback that is still being suggested by the Elliott Wave indicator:

 

TLT weekly:

 

 

    • VIX: the Fear index closed with a bearish-coloured Spinning Top weekly candle and still below the 30 level so watch this region for any new momentum based make or break:

 

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

 

 

Calendar:    Courtesy of Forex Factory:

 

 

Earnings: Courtesy of Earnings Whispers:

 

 

 

Market Analysis:

 

S&P500: The S&P500 closed with a small bullish weekly candle just under the 3,200 S/R making this the upper region to watch for any new make or break. This bullish price action comes despite the worsening global Covid situation as the market seem to be looking forward to the hope of a vaccine.

Volume was roughly similar to the previous week and is still below a bear trend line, as revealed on the S&P500 ETF chart: SPY. There is still clear divergence here with price action trending higher but Volume trending lower so traders should keep watch for any new Volume breakout here:

 

S&P500 ETF: SPY weekly: watch the Volume trend line for any new breakout:

 

 

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

Bullish targets: any bullish 4hr chart triangle breakout above 3,200 would bring whole-numbers on the way back to the previous High, near 3,400, into focus.

Bearish targets: any bearish 4hr chart triangle breakdown would bring 3,100 and 3,000 into focus followed whole-number levels on the way down to 2,800.

  • Watch 3,200 S/R and the 4hr chart triangle trend lines for any new breakout:

 

 

 

ASX-200: XJO: The ASX-200 closed with a bearish-coloured Inside-style weekly candle reflecting indecision as price traded back below the psychological 6,000 level. However, trading Volume was lower last week, yet again, as the chart below reveals so keep watch for any new Volume trend line breakout.

 

XJO weekly: trading Volume lower again this week:

 

 

The 6,000 level remains the S/R level to watch for any new make or break although there are revised 4hr chart trend lines to monitor as well.

Bullish targets: Any bullish 4hr chart triangle breakout would bring the recent High, near 6,190, into focus followed by whole number levels on the way back to the previous all time High, circa 7,200.

Bearish targets: Any bearish 4hr chart triangle breakout would bring the 11-yr trend line support into focus followed by the 5,000 level as this is still near the 4hr chat’s 61.8% fib level.

  • Watch 6,000 S/R and for any new 4hr chart triangle breakout:

 

 

Gold: Gold closed with a bullish-coloured Spinning Top style weekly candle and just above the key $1,800 level making this the level to keep watching for any new make or break in coming sessions.

Weekly chart: As mentioned over recent weeks, the weekly chart 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 $700 so it is a longer-term pattern worth monitoring. Keep watch of $1,800 now that price action is navigating this neckline region!

Bullish targets: any bullish triangle breakout would bring the previous all time High region, near $1,900, into focus.

Bearish targets: any bearish break back below $1,800 and the support trend line would bring $1,750 into focus followed by $1,700 and, then, $1670.

  • Watch $1,800 and the triangle trend lines for any new momentum based trend line breakout:

 

 

Oil: Oil closed with a bullish-coloured Doji weekly candle, under the $41.50 level, and this reflects indecision. This region marks an earlier Gap Fill level so is the level to watch for any new make or break.

Bullish targets: any continued bullish daily chart triangle breakout above $41.50 would bring $42 into focus on the way up to the $50 S/R region.

Bearish targets: any bearish retreat from $41.50 would bring $40 and $35 followed by $30 and $20 and, then, the recent Low, near $6.50, into focus.

  • Watch the $41.50 level and for any continued daily chart triangle breakout:

 

 

 

EUR/USD: The EUR/USD closed with a small bullish-coloured candle, having a long upper shadow, and this is giving the candle a bit of an indecision style look as price trades just under the 1.13 and weekly 200 EMA resistance level ahead of this week’s ECB rate update.

Price action is still in a 4hr chart Flag but now bound by the weekly 200 EMA above and 1.12 below BUT the 1.13 level is the one to watch for any new make or break. 

I also want to point out the bullish style pattern setting up on the daily chart. To me at least, this has a bit of a bullish Cup ‘n’ Handle look to it so, at the very least, traders should keep an open mind here:

 

EUR/USD daily: is this a bullish Cup ‘n’ handle brewing?

 

Bullish targets: Any bullish breakout above 1.13 would bring the upper Flag trend line, the weekly 200 EMA and 1.14 into focus followed by whole-number levels on the way up to a recent High, near 1.15.

Bearish targets: Any bearish hold below 1.13 would bring 1.12 into focus followed by 1.11 as this is near the 4hr chart’s 50% fib. After that watch the 1.10 level, near the 4hr chart’s 61.8% fib and, then, the 20-yr support trend line.

  • Watch 1.13 for any new make or break; especially with this week’s ECB rate update:

 

 

 

AUD/USD: The Aussie closed with a bullish-coloured Spinning Top weekly candle reflecting indecision as price navigates the major 9-11 year bear trend line. Remember that this trend line is the upper trend line of the longer-term bullish-reversal Descending Wedge so traders should keep watch of this region for any new new breakout. 

As mentioned over recent weeks:

  • The June monthly candle actually closed just under this wedge trend line so it will take another month before the next candle close could confirm a monthly wedge breakout. The monthly candle close below the multi-year trend line supports the full range of trading possibilities: a pullback, further consolidation and continuation so keep an open mind here.
  • A pullback, even if only temporary, could still well evolve here so watch the multi-year trend line here for clues. Remember, trends do not travel in straight lines unabated and so a pullback at this major wedge trend line resistance zone would not be at all unexpected.

There are revised 4hr chart trend lines to watch for any momentum breakout and the 0.695 level features again this week for any new make or break.

Bullish targets: Any bullish 4hr chart triangle breakout above 0.695 would bring 0.70 into focus followed by whole-number levels on the way up 0.90.

Bearish targets: Any bearish 4hr chart triangle breakout would bring 0.69 into focus followed by the 9-11 year bear trend line and, then, 0.67 S/R.

  • Watch 0.695 and for any new triangle trend line breakout;

 

 

 

AUD/JPY:  The AUD/JPY closed with a bearish-coloured Spinning Top reflecting indecision as price struggles under the 75 S/R level. Price action closed just above 74 though making this the region to keep watch for any new make or break. It is worth noting too that the AUD/JPY traded lower on Friday despite the higher close on the S&P500; another bit of divergence!

Note, also, the break of the the multi-month support trend line but, as I always suggest, watch for any potential Bull Flag formation (see the second 4hr chart below).

Bullish targets: Any bullish bounce up from 74 would bring 75 into focus followed by whole-number levels on the way up to 78 S/R.

Bearish targets: Any bearish 4hr chart break below 74 would bring 73 and 70 S/R back into focus followed by whole-number levels on the way down to 65 and 60 S/R as well as the longer-term support trend line.

  • Watch 74 S/R for any new make or break:

 

 

 

NZD/USD: The Kiwi closed with a bullish weekly candle and is now approaching the major resistance level of the 7-year bear trend line making this the upper region to watch for any new make or break.

Bullish targets: Any bullish breakout above the 7-year bear TL would bring 0.70 S/R into focus.

Bearish targets: Any bearish 4hr chart break of the support trend line would bring 0.65 into focus followed by the weekly chart’s support trend line.

  • Watch the 7 yr bear trend line and for any momentum-based trend line breakout:

 

 

 

GBP/USD:  The GBP/USD closed with a bullish weekly candle after completing the recent bullish-reversal Descending Wedge move. This breakout gave up to 270 pips so these charting patterns are certainly worth respecting!

 

GBP/USD 4hr: chart profiled prior to Descending Wedge breakout:

 

GBP/USD 4hr: chart after the Descending Wedge breakout:

 

Price action is now in a revised 4hr chart triangle that is sitting within a larger weekly triangle so watch trend lines for any new breakout.

Bullish targets: Any bullish 4hr chart triangle breakout would bring the recent High, near 1.28, into focus.

Bearish targets: Any bearish 4hr chart triangle breakout below 1.26 would bring the 1.246 region into focus as this is near the 4hr chart’s 50% Fibonacci and the 4hr chart’s 200 EMA.

  • Watch for any  4hr chart triangle breakout:

 

 

 

USD/JPY: The USD/JPY closed with yet another Spinning Top weekly candle, this time bearish coloured, making this the fourth consecutive such weekly candle. These small indecision-style candles reflect that price action has essentially chopped sideways for the last four weeks.

There are revised triangle trend lines on the 4hr chart giving traders trend lines to watch for any new momentum breakout.

Bullish targets: Any bullish 4hr chart triangle breakout above 107 would bring 108 and 108.5 into focus.

Bearish targets: Any bearish 4hr chart triangle breakout would bring the recent Low, near 106, into focus.

  • Watch for any 4hr chart triangle breakout: