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Covid back in focus this Thanksgiving week

November 21, 2021

Last week: Better that expected US Retail Sales data and earnings from some big USA retailers provided a positive back drop for stocks to start the week but Friday’s announcements of a new lock-down in Austria and new restrictions in Germany, in the face of rising Covid cases, rocked those stocks sensitive to the reopening of the economy. This resulted in a mixed bag for the four US index majors with the S&P500 and NASDAQ both carving out a weekly all-time high, and with the NASDAQ making its first weekly close above 16,000, but the DJIA and Russell-2000 both closed lower. Covid cases have swung higher in the US over recent weeks as well but the case load and death rate are much lower than than for the same period last year. The US$ closed higher which has kept pressure on commodities and many Forex pairs but, despite this US$ strength, the US 10 Yr yield closed lower which is divergence worth noting. This week might be relatively slow and quiet given it is US Thanksgiving week.

 

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: Articles released during the week can be found here, here, here and here.

 

  • EUR/USD: a TL b/o for 100 pips.
  • NZD/USD: a TL b/o for 50 pips.
  • GBP/JPY: a TL b/o for 100 pips.
  • USD/JPY: a TL b/o for 50 pips.

 

 

This Week: (click on images to enlarge):

 

    • DXY: US$ Index: The DXY closed with a bullish weekly candle and has held above the key 95 resistance region. Recall that this break above 95 marks the breakout of a bullish-reversal Double Bottom or W Bottom on the weekly chart, as well as a breakout above the weekly Cloud, so watch for any bullish continuation. The index has closed at the weekly 50% Fibonacci retracement so watch for any potential push to the key 61.8% level.

 

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

 

 

    • S&P500:
      • Roaring ’20s on the way? I still see some traders suggesting that the US stock market is in for a massive and imminent correction and I can understand this view given the lengthy stock market rally. However, as the major US stock indices continue to hold up well, in spite of the uncertainty caused by Covid, I wonder if the post-Covid world might just as likely emerge into something akin to a second Roaring ’20s? The eponymous Roaring ’20s evolved after the end of the Spanish Flu and WW1 and continued until the market crash of 1929 and Great Depression of the 1930s. It is with some interest then that I note the potential confluence of past and present events with the projected pattern on the multi-year S&500 chart (below). A bit of deja vu there perhaps?  My reason for positing this idea is to remind traders to keep an open mind about the possibility of continued moves higher with the S&P500, as well as other stock indices. NB: I listened to an interesting 52 minute podcast recently where, with suitable government policy, the notion of a second Roaring 20s was floated as a possibility for Australia suggesting that I’m not the only one thinking on this wavelength! It is well worth a listen!

 

      • 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:

 

 

    • 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 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:

 

 

    • DJIA: The DJIA closed with a bearish weekly candle and back below the key 36,000 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. Momentum is giving no clues away here at the moment!

 

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

 

 

    • NASDAQ composite: The NASDAQ Composite Index closed with a bullish weekly candle, at a new all time high and made its first weekly close above the 16,000 level. Note how bullish ADX momentum is now edging higher and is above the 20 level!

 

NASDAQ weekly: above 16,000 on increasing ADX momentum here:

 

 

    • DAX weekly: The DAX closed with a bullish weekly candle, at a new all-time high and has held above 16,000 following on from the recent Bull Flag-style breakout. 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:

 

 

    • 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 and back below the key 24,000 level following the recent breakout above a 9-month trading channel. Note how price action recently retreated from the 200% retracement of the Covid swing low move so watch this region for any new make or break.

 

RUT weekly: paused after the recent 9-month channel breakout:

 

 

    • Copper: Copper is often viewed as one metric of economic health and closed with a small, 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 bearish engulfing weekly candle BUT there is still the look of sideways consolidation so 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 small, bearish weekly candle BUT is holding above the key 15 level following. 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 BUT watch for any new trend line breakout. Momentum remains on the decline here as well.

 

TLT weekly: watch for any new TL b/o:

 

 

    • VIX: the Fear index closed with a bullish weekly candle but is still below 20 S/R. Increased PUT buying (stock protection), ahead of the Thanksgiving holiday week, likely helped to lift the VIX higher for the week.

 

VIX weekly: watch 20 S/R for any new make or break:

 

 

Calendar: Courtesy of Forex Factory:

 

 

Earnings: Courtesy of Earnings Whispers: a shorter week due to Thanksgiving.

 

 

Market Analysis:

S&P500: The S&P500 closed with a small, bullish weekly candle and at a new weekly all-time high but spent much of the week consolidating near the whole-number 4,700 level following the recent daily-chart Bull Flag breakout.

There is still the look of a 4hr chart shows Bull Flag so watch these Flag trend lines for any new breakout; either up or down. Try to keep an open mind!

Trading volume was lower last week and 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 4-hr chart Bull Flag breakout would bring 4,750 into focus followed by whole-number levels on the way up to the 5,000 level.

Bearish targets: any bearish 4-hr chart Bull Flag breakout would bring 4,600 back into focus. Recall that the 4,600 has been in focus here for some weeks as it is the whole-number level near the 200% Fibonacci retracement of the Covid swing Low (see the second weekly chart) and any failure at this resistance zone would help to shape a potentially bearish-reversal Double Top. After 4,600, watch the 4hr chart’s 61.8% Fibonacci, near 4,450, followed by whole-numbers on the way down to the weekly chart’s 61.8% Fibonacci retracement level, near 3,150.

  • Watch 4,700 and for any 4hr chart Bull Flag breakout:

 

 

 

ASX-200: XJO: The XJO closed with a bearish-coloured Spinning Top weekly candle, reflecting indecision, as price action remains in a weekly Bull Flag, now of 15-weeks duration, so keep watch for any new momentum breakout: up or down. Momentum remains low on the weekly and daily charts so watch the ADX for any clues about the next directional move for the index.

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 and the index is still above 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 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 break above 7,400 would bring weekly chart’s Bull Flag upper trend line into focus followed by 7,500, 7,600 and the previous all-time High region of 7,632.8. After that watch the 161.8% retracement of the Covid swing low, near 9,000, followed by the 200% level, near 10,000 (see second weekly chart).

Bearish targets: Any hold below 7,400 would bring 7,300 and the weekly chart’s Bull Flag support trend line into focus. After that, watch 7,200, the previous 2020 High of 7,197.20, 7,100 followed by 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 7,400 and the Bull Flag trend lines for any new make or break;

 

 

 

Gold: Gold closed with a bearish-coloured, almost Inside weekly candle, reflecting indecision, following last week’s large bullish candle. The precious metal closed back below $1,850 making this the level to watch for any new make or break.

Reminder: A key point to note, however, is that momentum remains quite low on the 4hr time frame, as well as on the weekly time frame, so watch how the ADX evolves on these charts and, if and when, price action creeps back to the key $1,900 level. As you all should know the $1,900 is a MAJOR S/R level we’ve had in focus here for many months so it will be keenly monitored to see whether this might be THE bullish breakout we’ve been waiting for.

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.

Momentum remains low on the weekly chart so watch the ADX for any new move above 20 as it could potentially offer a clue about the next major directional move, whether that be up or down.

Bullish targets: any bullish break above $1,850 and 4hr chart triangle trend line breakout would bring $1,900 S/R into focus.

Bearish targets: any bearish hold below $1,850 and 4hr chart triangle trend line breakout would bring the recently broken 16-month TL, $1,800, $1,770 and $1,750 into focus followed by $1,700 and the $1,670 support level.

  • Watch $1,850 and for any 4hr chart triangle trend line breakout:

 

 

 

EUR/USD: The EUR/USD closed with a large, bearish weekly candle, below a daily /weekly chart wedge trend line and just below the key 1.13 level making this the level to watch for any new make or break.

The weekly close below 1.13 is significant as this is the daily chart’s 61.8% Fibonacci retracement of the the March 2020 – February 2021 swing High. Technical theory would suggest that a hold below this level would mark the end of the previous uptrend and render a bearish view for the instrument.

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 break back above 1.13 and 4hr chart wedge breakout would bring the recently broken daily/weekly chart’s Bull Flag lower trend line into focus. After that, watch 1.15 as this is the 4hr chart’s 61.8% Fibonacci followed by daily/weekly chart’s Bull Flag upper trend line for any new breakout. Followed by 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 below the bottom 4hr chart wedge trend line would bring 1.12 into focus.

  • Watch 1.13 and the 4hr chart’s wedge trend lines for any new breakout:

 

 

 

AUD/USD: The Aussie closed with a bearish weekly candle and has broken back below the 19-month support trend line. Price action ended the week just above 0.72 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 and, like with the EUR/USD, note the look of a bullish-reversal descending wedge here so keep an open mind!

Bullish targets: Any bullish bounce up from the bottom 4hr chart wedge trend line would bring the upper 4hr chart wedge trend line and 0.73 into focus. After that, watch the weekly 200 EMA, the recently broken 19-month support trend line, 0.74 and the daily 200 EMA as the latter lies 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 0.72 would bring 0.71 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 0.72 and the 4hr chart’s wedge trend lines for any new make or break;

 

 

 

AUD/JPY: The AUD/JPY closed with a bearish weekly candle and just above 82 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.
  • Watch for any new and developing divergence!

 

AUD/JPY versus S&P500 (gold line): a high degree of positive correlation but watch for any renewed divergence!

 

There are revised 4hr chart trend lines to monitor for any new breakout and, like with the EUR/USD and AUD/USD, note the look of a bullish-reversal descending wedge here so keep an open mind!

Bullish targets: Any bullish hold above 82 would bring 83 and the 4hr chart’s upper wedge trend line into focus. After that watch 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 82 would bring the 4hr chart’s 61.8% Fibonacci, the daily 200 EMA, monthly 200 EMA and the 19-month support trend line into focus. After that, watch 81, the weekly 200 EMA and 79 S/R 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 82 and the 4hr chart’s wedge trend lines for any new make or break;

 

 

NZD/USD: The Kiwi closed with a bearish weekly candle and down near 0.70 and the 19-month support trend line keeping this the region to watch for any new make or break ahead of this week’s RBNZ rate update.

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

Bullish targets: Any bullish break back above 0.70 and the 19-month support trend would bring the daily 200 EMA and 0.71 into focus. After that, watch the 9-month bear trend line and 0.72 followed by 0.73 and the 8-yr bear trend line and, then, 0.75.

Bearish targets: Any bearish hold below 0.70 and the 19-month support trend line would bring the monthly 200 EMA and 0.69 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 0.70 and the 19-month support trend line for any new make or break; especially with this week’s RBNZ rate update.

 

 

 

GBP/USD: The Cable closed with a small, bullish weekly candle having a long upper shadow reflecting the attempted recovery here last week. Price action couldn’t make it back above 1.35 though and ended near 1.345 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 4hr chart triangle trend line breakout would bring 1.35 into focus. After that watch 1.365, 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 triangle trend line break would bring 1.34 and the weekly 200 EMA 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 1.345 and the 4hr chart triangle trend lines for any new make or break;

 

 

 

USD/JPY:  The USD/JPY closed with a bullish-coloured long legged Doji weekly candle, reflecting indecision, and closed, yet again near the 114 level keeping this the one to watch for any new make or break.

Bullish targets: Any bullish break above 114 would bring a 4hr chart trend line and 115 into focus. After that, watch whole-number levels on the way to 120 S/R.

Bearish targets: Any hold below 114 would bring a 4hr chart trend line into focus. After that, watch 112.30 S/R and 112 followed by whole numbers down to 107 as the latter is near the weekly chart’s 61.8% Fibonacci.

  • Watch 114 and the 4hr chart triangle trend lines for any new make or break.

 

 

 

GBP/JPY: The GBP/JPY closed with a small, bullish weekly candle having a long upper shadow but back near 153 keeping this the region 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 153 would bring the 4hr chart’s upper triangle trend line into focus. After that, watch the 156 as this is near the 4hr chart’s 61.8% Fibonacci, and recent high, near 158, followed by whole-number levels on the way up to the weekly chart’s 61.8% Fibonacci, near 170.

Bearish targets: Any bearish break below 153 would bring the lower 4hr chart triangle trend line and the 19-month support trend line 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 153 and the 4hr chart’s triangle trend lines for any new make or break: