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Covid back in focus on Black Friday

November 28, 2021

Last week: Markets were relatively quiet to start the week, with the lower-volume trading associated with Thanksgiving week, but were well and truly rattled on Friday following concerning news about the fast-rising Omicron; a Covid variant that has emerged out of Southern Africa. This news sent global stocks markedly lower resulting in bearish weekly candles for the four US index majors of the S&P500, DJIA, NASDAQ and Russell-2000 and sending the VIX well above the 20 threshold level. Travel related stocks and stocks sensitive to the reopening of the economy were particularly hard hit along with Oil, Cryptos and the commodity currencies. Black Friday sales were up on the previous year but this encouraging signal was offset by the Covid news. Traders will need to see how Omicron further impacts market sentiment as more information is gathered about this virus variant and as trading volume returns following the Thanksgiving break in the lead up to this Friday’s US jobs report.

 

Technical Analysis: 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 Covid-19, 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: Some sharp moves were triggered on Friday after the release of news about the new Covid variant. Articles released during the week can be found here, here and here.

 

  • Gold: a TL b/o for $55.
  • USD/JPY: a TL b/o for 110 pips.
  • GBP/JPY: a TL b/o for 190 pips on Friday.
  • ASX-200: a TL b/o on Friday that has given up to 230 points.
  • EUR/USD: a TL b/o for 90 pips.

 

 

This Week: (click on images to enlarge):

 

    • DXY: US$ Index: The DXY closed with a bullish-coloured Long Legged Doji weekly candle reflecting indecision in the wake of Friday’s Covid news. The index managed to hold above the 95 breakout region of a bullish-reversal Double Bottom or W Bottom on the weekly chart and closed at the weekly 50% Fibonacci retracement so watch for any recovery, and potential push to the key 61.8% level; especially with this week’s NFP.

 

DXY weekly: watch for any recovery and potential push to the 61.8% Fibonacci:

 

 

    • S&P500: Perspective: 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. Note how the recent Covid dip does not even figure on this chart!

 

S&P500 yearly: keep the bigger picture in perspective:

 

 

    • DJIA: The DJIA closed with a bearish weekly candle and below the 35,000 level. As with the other Bull Flags in play, traders will need to monitor whether price action continues upwards or rolls over in bearish Double Top fashion.

 

DJIA weekly: back below the 36,000 resistance level:

 

 

    • NASDAQ composite: The NASDAQ Composite Index closed with a bearish engulfing weekly candle but only after reaching a new all-time high prior to the retreat with Friday’s latest Covid news.

 

NASDAQ weekly: back below 16,000 following Friday’s Covid news:

 

 

    • 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. Note how price action has continued its retreat following the recent test of the 200% retracement of the Covid-19 swing low move so watch this region for any new make or break.

 

RUT weekly: pulling back from the 200% Fibonacci:

 

 

    • DAX weekly: The DAX closed with a bearish weekly candle and back below 16,000 following Friday’s Covid news. As with the other Bull Flags in play, traders will need to monitor whether price action continues upwards or rolls over in bearish Double Top fashion.

 

DAX weekly: watch for any potential Double Top:

 

 

    • BTC/USD: The weekly chart of BTC/USD is shaping up in a bullish-continuation pattern of a Cup or, potentially, Cup ‘n’ Handle. The technical theory here is that the extent of the breakout, from either the neck line of the Cup or from the Handle, will extend by the same order of magnitude as the Height of the Cup. The height of the Cup on BTC/USD is around $40,000 so, IMHO, this is a pattern well worth monitoring!

 

BTC/USD weekly: watch for any bullish Cup or Handle breakout:

 

 

    • Copper: Copper is often viewed as one metric of economic health and closed with a bearish weekly candle. Watch for any new momentum-based trend line breakout. The ADX is still on the decline here.

 

Copper weekly: watch for any new breakout:

 

 

    • Emerging Markets: The Emerging market ETF, EEM, closed with a large, bearish weekly candle BUT watch for any trend line breakout: up or down.

 

EEM weekly: watch for any trend line breakout: up or down:

 

 

    • 10-yr T-Note Interest rate / TNX: This has closed with a bearish weekly candle AND is back below the key 15 level. Momentum remains on the decline BUT watch for any new breakout.

 

    • 10-yr T-Note Interest rate (weekly): Watch for any new TL b/o:

 

 

    • Bonds / TLT: The Bond ETF, TLT, closed with a bullish weekly candle AND note the new trend line breakout HOWEVER momentum remains on the decline.

 

TLT weekly: a new TL b/o:

 

 

    • VIX: the Fear index closed sharply higher following Frida’s news of the new Covid variant. The index closed above 20 S/R so watch 30 for any new make or break.

 

VIX weekly: watch 30 S/R for any new make or break:

 

 

Calendar: Courtesy of Forex Factory:

 

 

Earnings: Courtesy of Earnings Whispers:

 

 

Market Analysis:

S&P500: The S&P500 closed with a bearish-engulfing weekly candle but only after reaching a new all-time during the week. The bearish sentiment evolved on Friday following news of the new Covid variant of concern. Price action ended the week back near the 4,600 level and recall this has been in focus of late as it is the whole-number level near the 200% Fibonacci retracement of the Covid swing Low (see the second weekly chart) and so this is the one to watch for any new make or break:

Trading volume was higher last week but remains below the 200 MA so watch for any new breakout.

 

S&P500 ETF: SPY weekly: watch for any move back above the 200 MA:

 

Keep in mind that a Golden Cross remains valid for the time being and the index is holding above the 50 SMA. 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 and, ss with the XJO, this Golden Cross was a great signal! I wrote an article recently evaluating the Golden Cross on both the SPX and XJO and this can be found through the following link.

 

SPX daily: the Golden Cross remains valid:

 

 

There are revised 4hr chart trend lines to monitor.

Bullish targets: any bullish move back above 4,600 would bring 4,650 and 4,700 into focus followed by whole-number levels on the way up to the 5,000 level.

Bearish targets: any bearish hold below 4,600 would bring 4,450 into focus as this is near the 4hr chart’s 61.8% Fibonacci. After that, watch whole-numbers on the way down to the weekly chart’s 61.8% Fibonacci retracement level, near 3,150.

  • Watch 4,600 for any new make or break:

 

 

 

ASX-200: XJO: The XJO closed with a bearish weekly candle and has broken down from the 15-week consolidation Flag pattern in response to Friday’s Covid news. The Index closed the week just above the key 7,200 level and this will be the one to watch in coming sessions for any new make or break.

The 4hr charts below show the reaction to Friday’s news about this new Covid variant:

 

ASX-200 4hr: chart prior to Friday’s Covid news:

 

ASX-200 4hr: chart after Friday’s Covid news:

 

As mentioned over recent weeks:

  • Recall that the 7,200 region was resistance prior to 2021 and any hold above this region would be a bullish signal as it would suggest that this old Resistance has evolved into new Support.

  • Traders will need to watch for any new weekly chart Bull Flag breakout and for any push to the previous all-time High region of 7,632.8 but, as with the S&P500, any failure at this level would help shape up a potential Double Top.

  • I do wonder if the XJO might just chop along sideways, under the resistance of the previous high of 7,632.8, until after the next Australian Federal election, likely sometime in the first quarter of 2022? A change of Government might just be the catalyst needed to invigorate market confidence and get the index moving to tackle this 7,650 region.

  • The second weekly chart shows the Fibonacci retracement of the Covid swing low move and projects bullish levels that are worth monitoring. The most interesting level would have to be the 200% retracement, a level the S&P500 has just passed, but for the XJO this level lies up at the whole-number level of 10,000; a nice round number to monitor!

 

Trading volume on the XJO was little changed again last week and still below the 200 MA so watch for any new breakout:

 

XJO weekly: trading volume still below the 200 MA:

 

Keep in mind that the recent Golden Cross remains valid here BUT the index is now back below the 50 SMA. 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 and this current Golden Cross proved to be great signal.

 

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.

Bullish targets: Any hold above 7,200 would bring the recently broken weekly chart’s Bull Flag lower trend line and 7,300 level into focus. After that watch whole-number levels, the previous all-time High region of 7,632.8, the 161.8% retracement of the Covid swing low (near 9,000) followed by the 200% level (near 10,000).

Bearish targets: Any break and hold below 7,200 would bring the previous 2020 High of 7,197.20 into focus followed by 7,100, 7,000, the pre-2020 High of 6,893.70 and the pre-GFC High of 6,851.50. The weekly chart’s 61.8% Fibonacci is down near 5,600 so that would be the next support to monitor.

  • Watch 7,200 for any new make or break;

 

 

 

 

Gold: Gold closed with a bearish weekly candle and below $1,800 making this the level to watch for any new make or break. The precious metal fell earlier in the week with the stronger US$ but recovered at the end of the week with some flight to safety activity following Friday’s Covid news.

NB: the 16-month bear TL has been revised to capture recent price action and because momentum remains low on the daily and weekly charts.

As mentioned over recent months: The activity 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.

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 – $900. Keep watch of $1,900 now that price action is trading back above this neckline region!

$1,900 remains the region in focus for any bullish Cup or Inverse H&S breakout:

  • Any break back above $1,900 would support the Cup pattern thesis.
  • Any hold below $1,900 would support the Inverse H&S pattern thesis.

The daily chart reveals the importance of the $1,670 level and this continues to be a ‘line in the sand’ support level. Any new weekly close below the $1,670 level would bring $1,500 into greater focus. The two weekly charts show that $1,500 is:

  • near the 61.8% Fibonacci of the Aug 2018 – Aug 2020 swing High move.
  • forms the lower boundary of the Inverse H&S pattern I have had on my charts for many months.

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

Bullish targets: any bullish break above $1,800 and 4hr chart trend line breakout would bring $1,850 into focus as this is near the 4hr chart’s 61.8% Fibonacci. After that, watch the revised 16-month TL followed by $1,900 S/R.

Bearish targets: any bearish hold below $1,800 and 4hr chart trend line breakout would bring $1,770 and the daily/weekly chart’s support trend line into focus followed by $1,700 and the $1,670 support level.

  • Watch $1,800 and for any 4hr chart trend line breakout:

 

 

 

EUR/USD: The EUR/USD bucked the risk-off trend on Friday to close higher for the week; despite the concerning Covid news that emerged on Friday. Note the print of a bullish-reversal Hammer weekly candle and close back above the 1.13 level making this the level to watch for any new make or break.

There had been a 4hr chart bullish-reversal descending wedge here last week and this was one that did give a bullish breakout; as the following two charts reveal.

EUR/USD 4hr: chart prior to Friday’s Covid news:

 

EUR/USD 4hr: chart after Friday’s Covid news:

 

The weekly close back above 1.13 is significant as this region marks the daily chart’s 61.8% Fibonacci retracement of the the March 2020 – February 2021 swing High and any hold above this level would be a rather bullish signal.

Bullish targets: Any bullish hold above 1.13, and continued 4hr chart wedge breakout, would bring 1.15 into focus as this is near the 4hr chart’s 61.8% Fibonacci. After that, watch the weekly 200 EMA, 1.17, the daily 200 EMA and whole-numbers on the way up to the 14-yr bear trend line.

Bearish targets: Any bearish break back below 1.13 would bring 1.12 into focus.

  • Watch 1.13 for any new make or break:

 

 

 

 

AUD/USD: The Aussie was hit hard by Friday’s Covid news and closed with a bearish weekly candle and just above 0.71 making this the level to watch for any new make or break.

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

Bullish targets: Any bullish bounce up from 0.71 would bring 0.72 and the upper 4hr chart channel trend line into focus. After that, watch the daily 200 EMA, the recently broken 19-month support trend line, 0.74 as these lie near the 4hr chart’s 61.8% Fibonacci. After that, watch 0.75 and other whole numbers on the way up to the 11-yr bear trend line and 0.80 S/R.

Bearish targets: Any bearish break below 0.71 would bring 0.70 into focus followed by whole-number levels on the way down to 0.65 as this is near the 61.8% Fibonacci of the March 2020 – Feb 2021 swing High move (see daily chart).

  • Watch 0.71 and the 4hr chart’s channel trend lines for any new make or break;

 

 

 

AUD/JPY: The AUD/JPY closed with a large, bearish weekly candle and has broken back below the 19-month support trend line. Friday’s Covid news sent the Yen higher in flight to safety mode which punished this pair. Price action ended just above 80 making this the region to watch for any new make or break. 

As noted over recent weeks:

  • The weekly chart reveals that the 85 level has been a significant reaction zone for the AUD/JPY and has been resistance for the last three years; this level was peppered many times throughout 2018 but could not be broken. The next major level above 85 is 90 so watch this target level if 85 is broken.
  • 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 serious pullback with stocks might render similar for the AUD/JPY.

 

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

 

 

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

Bullish targets: Any bullish hold above 80 would bring the region of the daily 200 EMA, monthly 200 EMA and recently broken 19-month support trend line into focus. After that watch 84 as this lies near the 4hr chart’s 61.8% Fibonacci and 86 as there hasn’t been a weekly chart close above this level since Feb 2018. Then watch whole-number levels up to 90 and the 9-yr bear trend line.

Bearish targets: Any break below 80 would bring 79 S/R into focus followed by whole-numbers on the way down to 70 as this is near the 61.8% Fibonacci of the March 2020 – March 2021 swing High move (see daily chart).

  • Watch 80 for any new make or break;

 

 

 

NZD/USD: The Kiwi was also hit hard on Friday with the Covid news and closed with a large, bearish weekly candle and below the 19-month support trend line. Price action ended up down near 0.68 making this the region to watch for any new make or break.

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

Bullish targets: Any bullish hold above 0.68 would bring 0.69 and a 4hr chart channel trend line into focus. After that, watch the recently broken 19-month support trend, daily 200 EMA and 0.70 region followed by 0.71 and the 9-month bear trend line.

Bearish targets: Any bearish break below 0.68 would bring 0.67 into focus. After that, watch whole-number levels on the way down to 0.62 as this is near the 61.8% Fibonacci of the daily chart’s March 2020 – Feb 2021 swing High move.

  • Watch 0.68 for any new make or break;

 

 

 

GBP/USD: The Cable closed with a bearish weekly candle and just above 1.33 making this the level to watch for any new make or break. Price action held up relatively well here on Friday, considering the risk-off shift seen on some other Forex pairs.

There are revised 4hr chart trend lines to monitor for any new breakout and note the look of a bullish-reversal descending wedge here so keep an open mind.

Bullish targets: Any bullish 4hr chart wedge trend line breakout would bring 1.34 into focus. After that watch 1.363, as this is near the daily chart’s 200 EMA and 4hr chart’s 61.8% Fibonacci, followed by whole-number levels on the way up to the 15-yr bear trend line.

Bearish targets: Any bearish wedge trend line breakout and move below 1.33 would bring 1.32 into focus. After that, watch whole-number levels on the way down to 1.25 as this is near the 61.8% Fibonacci of the March 2020 – Feb 2021 swing High move (see daily chart).

  • Watch 1.33 and the 4hr chart wedge trend lines for any new make or break;

 

 

 

USD/JPY:  The USD/JPY closed with a bearish weekly candle and back down near 113 making this the level to watch for any new make or break.

Bullish targets: Any bullish hold above 113 would bring 114 and 115 into focus. After that, watch whole-number levels on the way to 120 S/R.

Bearish targets: Any break below 113 would bring 112.30 S/R into focus followed by whole numbers down to 107.50 as the latter is near the weekly chart’s 61.8% Fibonacci.

  • Watch 113 for any new make or break.

 

 

 

GBP/JPY: The GBP/JPY closed with a bearish weekly candle, below the 19-month support trend line and down near 151 making this the level to watch for any new make or break.

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 now reached up as far as 158, a move of around 1,700 pips, and so is a trend line breakout that has proven to be worthwhile monitoring.

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

Bullish targets: Any bullish hold above 151 would bring 152 and the recently broken the 19-month support trend line into focus. After that, watch 153, the 4hr chart upper channel trend line and 156, as the latter is just above the 4hr chart’s 61.8% Fibonacci, followed by the recent high region of 158, and then whole-number levels on the way up to the weekly chart’s 61.8% Fibonacci, near 170.

Bearish targets: Any bearish break below 151 would bring 150 and the recent low region of 149 into focus. After that, watch whole-number levels on the way down to 137 as this is near the daily chart’s 61.8% Fibonacci of the March 2020 – current swing High move (see daily chart).

  • Watch 151 for any new make or break: