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Covid uncertainty returns

June 28, 2020

Last week: I wrote two weeks ago that the reality on Main St had caught up with Wall St and last week was somewhat similar. The escalating spread of Covid-19 has resulted in a number of US Governors pausing their wind back of social gathering restrictions and this reality-check sent renewed jitters through the markets. This 7 minute interview offers one, rather worrying, perspective for the increasing Covid case load in the USA and does not bode well for the future. The week ended up being bearish for stocks and Oil but bullish for Gold and Bonds. However, the US$ did not receive the same Flight to Safety flow and closed lower for the week and this helped to keep some currency pairs supported that, otherwise, might have been expected to be trading much lower. Next Tuesday marks the end of month, quarter and half year, as well as end of financial year in some areas, so some caution would be prudent trading around this period; especially when you consider the number of indecision style weekly candles printed across the board. The 3,000 level is a major psychological level for the S&P500 so watch to see if the Index can hold above this support to see out the month.

 

Technical Analysis: As noted over recent weeks, 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, here and here:

  • Gold: a TL b/o for $35.
  • NZD/USD: a TL b/o for 80 pips.
  • EUR/USD: a TL b/o for 75 pips.
  • USD/JPY: a TL b/o for 40 pips.

 

This Week: (click on images to enlarge):

 

    • DXY: US$ Index: The US$ index closed with a bearish-coloured Spinning Top style weekly candle, having a long lower shadow, and remains range bound on low momentum. Watch for any developing Flight to Safety flow here:

 

DXY weekly: 

 

 

    • Indecision weekly candles: there was an abundance of indecision-style weekly candles printed last week: S&P500, Gold, DXY, EURX, the DAX, Russell-2000, ASX-200, VIX, Crude Oil, EUR/USD, AUD/USD, AUD/JPY, NZD/USD, GBP/USD and USD/JPY.

 

    • Friday holiday in the USA:  Friday is a bank holiday in the USA for Independence Day and NFP is released on Thursday.

 

    • 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.

 

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 now trades up near 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:

 

 

    • DJIA weekly: The DJIA closed with a bearish, ‘Engulfing’-style, weekly candle and right on 25,000 S/R so watch this region for any new make or break:

 

DJIA weekly: 

 

 

    • NASDAQ composite: The NASDAQ Composite Index closed with a bearish-reversal Shooting Star style weekly candle under the 10,000 level so watch for any developing weakness.

 

NASDAQ weekly: 

 

 

  • NDX weekly: The NDX Index is made up of the top 100 or so NASDAQ non-financial stocks and it closed with a bearish-reversal Shooting Star style weekly candle under the 10,000 level so watch for any developing weakness.

 

NDX weekly: 

 

 

    • DAX weekly: The DAX closed with a bearish-coloured Doji weekly candle reflecting indecision.

 

DAX weekly:

 

 

    • Russell-2000: The Russell-2000 is often viewed as the ‘Canary in the Coal Mine’ for US stocks. The index closed with a small bearish-coloured, almost Inside style, weekly candle reflecting indecision:

 

RUT weekly:

 

 

    • Bonds / TLT: The Bond ETF, TLT, closed with a bullish weekly candle with the risk-off shift. 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 reflecting indecision. Note the continued hold above the key 30 S/R 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: Note that Friday is a holiday in the US for Independence Day and NFP is released on Thursday.

 

 

Earnings: Courtesy of Earnings Whispers: another light week:

 

 

 

Market Analysis:

 

S&P500: The S&P500 closed with a bearish, almost Inside, weekly candle but above the 3,000 level ahead of the end of month close next Tuesday. This key psychological level will be in focus with this monthly close.

Note how average weekly Volume was lower again last week, as revealed on the S&P500 ETF chart: SPY. Traders should watch for any new Volume breakout here:

 

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

 

 

Price action is looking bearish on the 4hr chart with the recent break of the 4hr chart Flag trend line on rising bearish momentum. Traders should now watch the 3,000 for any new momentum breakout.

Bullish targets: any bullish hold above 3,000 would bring whole-numbers on the way back to the previous High, near 3,400, into focus.

Bearish targets: any bearish breakdown below 3,000 would bring whole-number levels on the way down to the recently broken 11-yr support TL and, after that, the recent Low, near 2,200.

  • Watch 3,000 for any new make or break:

 

 

 

ASX-200: XJO: The ASX-200 closed with a bearish-coloured Spinning Top weekly candle, reflecting continued indecision as the index navigates this psychological whole-number region of 6,000 ahead of Tuesday’s monthly candle close. Tuesday also marks the End of Financial Year in Australia so watch for any Window Dressing that may impact markets on Monday and Tuesday ahead of this close.

Trading Volume was lower last week and note the new Volume trend line to monitor for any new breakout.

 

XJO weekly: trading Volume lower this week ahead of ‘End of Month’:

 

 

The 6,000 level remain the upper resistance level for the index and price action is still shaping up in a sort of 4hr chart Flag pattern to monitor for any new breakout.

Bullish targets: Any bullish 4hr chart Flag breakout would bring 6,000 followed by whole number levels on the way back to the previous all time High, circa 7,200, into focus.

Bearish targets: Any bearish 4hr chart Flag 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 for any new 4hr chart Flag breakout:

 

 

 

Gold: Gold closed with a bullish-coloured Spinning Top style weekly candle under the key $1,800 level ahead of next week’s monthly candle close. The precious metal closed near $1,770 S/R making this the level to watch 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. The upper breakout region for this pattern is $1,800 which is still a way off yet.

Bullish targets: any bullish breakout move above $1,770 would bring $1,800 S/R into focus.

Bearish targets: any bearish retreat from $1,770 would bring a recent support trend line into focus followed by $1,750 and $1,700 and, then, $1670.

  • Watch $1,770 for any new make or break:

 

 

 

 

 

Oil: Oil closed with a bearish-coloured Spinning Top weekly candle reflecting indecision. Price action remains pegged by the $40 level keeping this the one to watch for any new make or break.

Bullish targets: any continued bullish daily chart triangle breakout above $40 would bring the $41 / $43 region into focus as this represents a Gap Fill region and is near the 61.8% fib of the recent swing Low move.

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

  • Watch the $40 level and for any continued daily chart triangle breakout:

 

 

 

EUR/USD: The EUR/USD closed with a bullish-coloured Spinning Top weekly candle, having a long upper shadow, reflecting both indecision AND that sellers dominated to see out the week. The weekly close was just above 1.12 S/R keeping this as the region to watch of for any new make or break. 

Price action is trading in triangle on the 4hr chart so watch these trend lines for any new momentum breakout.

Bullish targets: Any bullish 4hr chart triangle breakout would bring 1.130 and the weekly 200 EMA into focus followed by whole-number levels on the way up to a recent High, near 1.15.

Bearish targets: Any bearish 4hr chart triangle breakout would bring 1.11 into focus as this is near the 4hr chart’s 61.8% fib, followed by the 20-yr support trend line.

  • Watch the 4hr chart triangle trend lines for any new breakout:

 

 

 

AUD/USD: The Aussie closed with a bullish-coloured Spinning Top weekly candle reflecting ongoing indecision as it continues navigating 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 watch this region for any new make or break. I suspect this choppiness will continue until at least Tuesday when the monthly candle will close.

As mentioned over recent weeks: A pullback, even if only temporary, could still well evolve here so watch the support 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. For the time being, price action is consolidating in a 4hr chart triangle of sorts, with declining and contracting momentum, along this multi-year trend line.

The monthly candle close will be important here:

  • A decisive, bullish monthly candle trend line breakout would support a continuation thesis.
  • A close below the multi-year trend line would support the full range of trading possibilities: pullback, further consolidation and continuation.

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

Bearish targets: Any bearish 4hr chart triangle trend line breakout would bring the 0.68  and 0.67 into focus followed by 0.625 S/R as the latter aligns near the 50% Fibonacci level.

  • Watch for any 4hr chart triangle trend line breakout;

 

 

 

AUD/JPY:  The AUD/JPY closed with a bullish-coloured Spinning Top reflecting ongoing indecision.

Price action continues shaping up in a kind of 4hr chart Flag pattern, holding near a 3 month support trend line and above 73 S/R making this the region to keep watch for any new make or break. Note the uptick with bearish momentum on the 4hr chart.

Bullish targets: Any bullish 4hr chart Flag trend line breakout 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 of the 73 level would bring 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 73 S/R and for any 4hr chart momentum-based Flag breakout;

 

 

NZD/USD: The Kiwi closed with a bullish-coloured Doji weekly reflecting indecision and still down near 0.64 S/R so watch this level for any new momentum breakout; either up or down.

There are 4hr channel trend lines to monitor for any new breakout BUT note the continued lack of momentum on this time frame.

Bullish targets: Any bullish bounce up from 0.64 would bring 0.65 followed by the 6-year bear TL into focus.

Bearish targets: Any bearish 4hr chart channel breakout would bring the support trend line followed by 0.625 S/R into focus.

  • Watch 0.64 and for any new 4hr chart momentum-based channel breakout:

 

 

 

 

GBP/USD:  The GBP/USD closed with a bearish-coloured Spinning Top weekly candle, with a long upper shadow, reflecting both indecision and that sellers had control to see out the week.

Price action broke down from a weekly triangle but the 4hr chart has a bit of a bullish-reversal Descending Wedge appearance so keep an open mind here.

Bullish targets: Any bullish 4hr chart Wedge breakout would bring 1.26 into focus as this is near the daily 200 EMA and the 4hr chart’s 61.8% Fibonacci.

Bearish targets: Any bearish 4hr chart Wedge breakdown would bring 1.21 S/R into focus.

  • Watch for any 4hr chart Descending Wedge breakout:

 

 

 

USD/JPY: The USD/JPY closed with a bullish-coloured Spinning Top weekly candle and back above 107 S/R keeping this the region to watch for any new make or break.

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 would bring 108.5 into focus as this is still near the 4hr chart’s 61.8% Fibonacci level.

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

  • Watch for any 4hr chart triangle breakout: