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Covid news dominates after US Election

November 15, 2020

Last week: The first full week of trading after the announcement of the Biden/Harris US Election win was skewed towards risk-on with flows into stocks and copper, out of the safety-haven Gold and with a lower VIX. Monday’s announcement from Pfizer about positive Covid vaccine news helped to support this momentum. The S&P500, DJIA and NASDAQ tested new all-time Highs throughout the week, the Russell-2000 printed a large bullish weekly candle and even the Emerging Market ETF closed higher, albeit after pulling back from the gap up at market open. Despite encouraging vaccine news, Covid cases continue to rise across the USA and Europe and traders need to monitor these developments for any impact on risk sentiment.

 

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

 

  • ASX-200: a TL b/o for 230 points.
  • AUD/JPY: a TL b/o for 170 pips.
  • GBP/JPY: a TL b/o for 280 pips.
  • NZD/USD: a TL b/o for 55 pips.

 

This Week: (click on images to enlarge):

    • DXY: US$ Index: The US$ index closed with a bullish-coloured Inside weekly candle reflecting indecision in the wake of the US Presidential Election and it remains below the recently broken 10-yr support trend line. Watch for any support level from the 91.75 level and, after that, the previous Low near 88.

 

DXY weekly: an indecision-style Inside weekly candle:

 

DXY daily: watch for any new trend line breakout:

 

 

    • 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 continue to hold for the time being.

 

    • 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 near all-time Highs. 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 small, bullish weekly candle and still above the key 3 level. Price action also continues holding above the recently broken 10-year bear trend line:

 

Copper weekly: holding above the 3 level;

 

    • Emerging Markets: The Emerging market ETF, EEM, gapped higher at market open but ended up closing with a bearish weekly candle, albeit at a higher level, and still above the key 45 S/R level.

 

EEM weekly: a bearish weekly candle, although higher weekly close, and still above the 45 level:

 

    • DJIA: The DJIA gapped higher to open the week after the result for the US Presidential Election was called BUT closed with a bullish-coloured Doji weekly candle. Watch for any ascending triangle breakout above the psychological 30,000 level.

 

DJIA weekly: very close to the psychological 30,000:

 

 

    • NASDAQ composite: The NASDAQ Composite Index closed with a bearish weekly candle under $12,000 S/R and this remains the main level to watch for any new make or break. The NASDAQ was the only US major stock index to close with such a bearish weekly candle. Traders should watch for any bearish-reversal ‘Triple Top’ potential here even though the ascending triangle remains intact for now:

 

NASDAQ weekly: watch 12,000 for any new make or break:

 

 

    • DAX weekly: The DAX closed with a bullish weekly candle and still within the ascending triangle. Watch for any push back up to the recent High:

 

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, bullish weekly candle and has broken above the 1,720 level.

 

RUT weekly: watch for any ascending triangle continuation move:

 

 

    • Growth versus Value: there was a bit of discussion about stock rotation last week and the chart below reflects this shift. I wrote about this concept of Growth versus Value back in August so watch for any continued rotation:

 

Growth versus Value weekly: watch for any continued weakness:

 

 

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

 

TLT weekly: 

 

 

    • Fedex: Fedex closed a bearish weekly candle but the Bull Flag pattern remains valid.

 

Fedex weekly: watch for any potential Bull Flag:

 

    • VIX: the Fear index closed with a bearish-coloured Spinning Top style weekly candle and still below the key 30 level.

 

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

 

 

Calendar: Courtesy of Forex Factory: a bit quieter this week:

 

 

 

 

Earnings: Courtesy of Earnings Whispers: some big names reporting this week:

 

 

 

Market Analysis:

 

S&P500: The S&P500 index gapped higher last week following announcements calling the result of the US Presidential Election. This enthusiasm may have been due to the prospect of a divided Congress or simply due to end to speculation or a mix of both. The Index tested all-time Highs above 3,600 during the week but ended up closing with a bullish-coloured Doji weekly candle just under this psychological whole-number level.

Trading volume was little changed last week though and so I have adjusted the bear trend line.

 

S&P500 ETF: SPY weekly: Volume is little changed so the trend line has been adjusted:

 

There are revised 4hr chart trend lines to monitor for any new breakout AND watch for any stutter under the 3,600 level as this could help shape up a possible Triple Top (see weekly chart).

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 trend line breakout above 3,600, would bring 3,700 into focus.

Bearish targets: any bearish 4hr chart trend line breakout would bring whole-number levels on the way down to 3,200 into focus. The 3,400 level is near the 4hr chart’s 61.8% Fibonacci so that would be a key level to monitor if weakness sets in at all.

  • Watch 3,600 and for any 4hr chart trend lines breakout:

 

 

ASX-200: XJO: The ASX-200 also seemed to enjoy the resolution of the US Election and closed with a large, bullish weekly candle above the key 6,200 level; a level that had been resistance for the last 5 months.

Price action closed just above 6,400 so this will be the region to watch next week for any new make or break.

The important feature to note from last week is that trading volume spiked above a multi-month volume trend line so watch for any continuation here.

 

XJO weekly: trading volume has spiked above the multi-month TL:

 

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 triangle move up from above 6,400 would bring whole-number levels on the way up to the pre-2020 High of 6,893.70 into focus.

Bearish targets: Any bearish 4hr chart triangle breakout would bring whole-numbers on the way down to 6,000 into focus.

  • Watch 6,400 and for any new 4hr chart ascending triangle breakout:

 

 

Gold:  Gold closed with a bearish weekly candle and back below $1,900 S/R so this is the level to watch for any new make or break. 

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 below this neckline region!

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

  • Any new move back above $1,900 would support the Cup pattern thesis.
  • Any hold 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.

Bullish targets: any bullish 4hr chart break back above $1,900 would bring the upper Flag trend line followed by $2,000 S/R into focus.

Bearish targets: any bearish 4hr chart hold below $1,900 would bring the recent Low, circa $1,850, into focus.

  • Watch $1,900 S/R for any new make or break:

 

 

EUR/USD: The EUR/USD closed with a small, bearish, almost Spinning Top, weekly candle following the sharp move higher from the previous week. Price action is back near 1.18 S/R so that is the level to watch for any new make or break.

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

Bullish targets: Any bullish 4hr chart continuation above 1.18 would bring 1.19 and the weekly Flag trend line into focus followed by whole-numbers on the way up to a previous weekly chart High, circa 1.26.

Bearish targets: Any bearish 4hr chart trend line breakout, below 1.18, would bring 1.17 S/R into focus as this is still down near the 61.8% Fibonacci level.

  • Watch 1.18 and for any new 4hr chart trend line breakout;

 

 

AUD/USD: The Aussie closed with a bullish-coloured Spinning Top weekly candle following the previous week’s big move higher and weekly chart Bull Flag breakout.

There are revised 4hr chart triangle trend lines to monitor for any new momentum-based breakout as price sits just under 0.73 S/R. Note the look of a Bull Flag on this 4hr chart time frame.

Keep in mind 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 trend line breakout above 0.73 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 trend line breakout would bring 0.72 and 0.71 into focus.

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

 

 

AUD/JPY:  The AUD/JPY closed with a small, bullish weekly candle, just above the 76 S/R level and has made a breakout from the weekly chart’s Bull Flag pattern.

The multi-year bear trend line isn’t too far above current price action and so might come into greater focus this week.

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

Bullish targets: Any bullish 4hr chart trend line breakout would bring 77 and, then, the 7-yr bear trend line into focus.

Bearish targets: Any bearish 4hr chart trend breakout would bring 75 and 74 S/R into focus.

  • Watch for any new 4hr chart trend line breakout:

 

 

NZD/USD: The Kiwi closed with a bullish-coloured Spinning Top weekly candle following the previous week’s big move higher and weekly chart Bull Flag breakout.

There are revised 4hr chart trend lines to monitor for any new momentum-based breakout and note the look of a Bull Flag on this 4hr time frame.

Bullish targets: Any bullish 4hr chart trend line breakout would bring 0.69 and 0.70 into focus.

Bearish targets: Any bearish 4hr chart trend line breakout would bring 0.68 into focus followed by 0.67 S/R as the latter is near the 4hr chart’s 61.8% Fibonacci.

  • Watch for any new trend line breakout;

 

 

GBP/USD: The Cable closed with a bullish-coloured Spinning Top weekly candle and still just below the 1.32 S/R level.

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

Bullish targets: Any bullish 4hr chart trend line breakout would bring 1.33 into focus on the way up to the recent weekly-chart High, near 1.35.

Bearish targets: Any bearish 4hr chart trend line breakout would bring the 7-month support trend line into focus.

  • Watch 1.32 and for any 4hr chart trend line breakout:

 

 

USD/JPY:  The USD/JPY closed with a bullish weekly candle and just above 104.5 making this the the level to watch in coming sessions for any new make or break.

Bullish targets: Any bullish 4hr chart hold above 104.5 would bring 105 and the 4-month bear trend line into focus.

Bearish targets: Any bearish 4hr chart break below 104.5 S/R would bring 104 into focus followed by whole-number levels on the way down to 100 S/R.

  • Watch 104.5 S/R for any new make or break:

 

 

GBP/JPY: The GBP/JPY closed with a bullish weekly candle and near 138 S/R.

There are revised 4hr chart triangle trend lines to monitor for any new momentum-based breakout. Note how the 40-yr bear trend line has been relaxed slightly and sits near 140 S/R.

Bullish targets: Any bullish 4hr chart triangle breakout would bring 139 into focus followed by 140 as the latter sits near the 40-yr bear trend line.

Bearish targets: Any bearish 4hr chart triangle breakout would bring the daily 200 EMA region into focus as this is near the 4hr chart’s 61.8% Fibonacci.

  • Watch 138 S/R and for any 4hr chart triangle breakout: