Last week: There were some great trend line breakouts opportunities last week and one of the best was the move on the GBP/JPY, off last week’s profiled 145.50 level, that gave up to 250 pips. I hope the FX traders caught a chunk of this! Some interesting divergence has now emerged and I consider that this should be noted with caution; especially given how the Index of percentage of stocks above their 200 MA has been flashing a warning signal at us for some weeks. The first divergence to note is that the risk-sensitive instruments of USA Small Caps (RUT) and Emerging markets (EEM) both closed with bearish-reversal weekly candles BUT that Copper closed with a large, bullish weekly candle. A second is that the US$ index closed lower but so too did Gold and, finally, Commodity currencies closed higher but the DJIA was the only US stock index major to close green. Another interesting feature of last week’s market is that both stocks and Bonds traded lower; Bonds often provide a Flight to Safety haven when stocks close lower but this wasn’t the case last week. I continue to warn that this most recent stock rally, off the Covid-inspired March 2020 Lows, has run for around 11 months now and trends do not travel in straight lines forever. It is my belief that a pullback would be a healthier way to underpin any eventual bullish continuation. Traders need to keep an open mind and watch for momentum-based trend line breakouts.
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: There were some great trend line breakouts last week. Updates posted throughout last week can be found through the links here, here and here.
- ASX-200: a TL b/o for 45 points and another one on Friday for 70 points:
ASX-200: Friday’s trend line breakout easily seen on the 15 min chart:
- GBP/JPY: a TL b/o above 145.50 for 250 pips:
- USD/JPY: a TL b/o above for 100 pips.
- Gold: a TL b/o for $45.
- EUR/USD: a TL b/o for 80 pips.
- GBP/USD: a TL b/o for 160 pips.
- AUD/JPY: a TL b/o above for 70 pips on Friday:
- AUD/USD: also gave a TL b/o above for 70 pips on Friday.
- This Week: (click on images to enlarge):
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- DXY: US$ Index: The US$ index closed with a bearish-coloured Doji / Spinning Top weekly candle and remains within the revised bearish-reversal descending wedge. Price action remains mired in the daily Ichimoku Cloud so watch for any momentum-based breakout from this resistance zone:
DXY weekly: watch for any new Descending Wedge b/o:
DXY daily: Price remains stuck in the daily Cloud:
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- A few days off: I am away for a few days at the end of this week so updates will be brief and few from Wednesday – Saturday.
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- 10-yr T-Note Interest rate: The chart of the 10-yr Treasury Interest rate shows the recent bullish breakout from the triangle congestion pattern is moving along. Watch for any push to the 15 S/R region:
10-yr T-Note Interest rate: the bullish breakout continues:
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- % Stocks above their 200 Day Moving Average Index: The percentage of stocks above their 200 Day Moving Average remains above the 85% region. The first chart below gives a perspective of this current level and shows the previous peaks near 92.50 and how there often tends to be some mean-reversion once such lofty levels are reached. The second, expanded, chart shows the index is struggling under the 92.50 level. The next few weeks could be very interesting!
% of US Stocks above the 200 Day Moving Average: watch for any reaction at the 92.50 region:
% of US Stocks above the 200 Day Moving Average (expanded): struggling under 92.50;
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- Central Bank update: there is one Central Bank rate update next week: RBNZ (NZD).
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- GBP/USD: Someone during the week expressed surprise with this pair at just how far it has run. Regular readers will be aware that a breakout above the 14-yr trend line was noted here in my article on December 20th. Price action back then was around 1.35 and it is now 1.40, a move of 500 pips, so this trend line breakout was a great clue about things to come and the target for this move has not even been reached yet!
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- GBP/JPY: this pair also broke out from a multi-year trend line but this one was of 40 years duration and triggered a week later, as noted in my post of January 3rd. Price action at the time of this breakout was near 141 and it is now trading at 148, a move of around 700 pips, and so is another trend line breakout that has proven to be worthwhile. As with the Cable, the target here has not been reached.
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- S&P500: 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:
S&P500 yearly: keep this latest move in perspective:
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- 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 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:
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- Copper: Copper is often viewed as one metric of economic health and closed with a large bullish weekly candle and up at the whole-number 4 level. It seems demand optimism helped to boost Copper pricing last week:
Copper weekly: has reached the whole-number 4 level:
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- Emerging Markets: The Emerging market ETF, EEM, closed with a bearish-reversal Hanging Man weekly candle so watch for any pause with this lengthy rally.
EEM weekly: watch for any pause here:
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- DJIA: The DJIA closed with a bullish-coloured Doji style weekly candle reflecting indecision after printing a new all-time High. Watch the 11-month support trend line:
DJIA weekly: holding above 31,000:
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- NASDAQ composite: The NASDAQ Composite Index closed with a bearish-coloured Spinning Top weekly candle and back below 14,000 but not before testing a new all-time High during the week.
NASDAQ weekly: below 14,000:
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- DAX weekly: The DAX closed with a bearish-coloured Spinning Top weekly candle but still above the 13,850 level.
DAX weekly: still above 13,850 for now:
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- Commodities: The Commodity ETF, DBC, continues with a bullish breakout from the bullish-reversal Descending Wedge that I had been monitoring for some months and closed with a bullish weekly candle. The ADX has broken above the threshold 20 level AND price action is still above the $15 resistance-turned-support level.
DBC weekly: gapped again on open and closed with a bullish weekly candle:
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- 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-reversal Hanging Man weekly candle but has held above the 61.8% Fibonacci extension of the Covid-induced Swing Low. Watch for any pause following this lengthy rally.
RUT weekly: watch for any pause:
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- Bonds / TLT: The Bond ETF, TLT, gapped lower and closed with another bearish weekly candle and remains below the recently broken support trend line. The Elliott Wave indicator is still suggesting an uptrend from here though so watch the 61.8% Fibonacci for any potential support:
TLT weekly:
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- USD/CAD and USD/CNY: keep an eye on these two weekly chart Descending Wedge patterns for any new trend line breakout.
USD/CAD weekly:
USD/CNY weekly:
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- VIX: the Fear index closed with a bullish weekly candle but the symmetry with last week’s candle is giving these last two candles, forming at the 20 S/R level, a bit of a bullish Railway Track appearance.
VIX weekly: Watch for any Railway Track-style bullish reversal here:
Calendar: Courtesy of Forex Factory:
Earnings: Courtesy of Earnings Whispers: another full week of Earnings:
Market Analysis:
S&P500: The S&P500 closed with a bearish-coloured Spinning Top weekly candle after reaching another all-time High during the week. This rally has run for over 11 months now so some pause here would not surprise, even if there is to be eventual bullish continuation.
Trading volume remained below the trend line and the 200 MA for the shortened trading week BUT keep watch for any new breakout.
S&P500 ETF: SPY weekly: Volume still below the TL & 200 MA:
The Index closed the week just above 3,900 making this the horizontal level to watch for any new make or break but there are revised 4hr chart trend lines to also monitor for any new breakout.
NB: The second weekly chart shows how the 61.8% Fibonacci extension of the Covid-induced Swing Low is up near 4,150. This would be one target for any bullish continuation move.
Bullish targets: any bullish 4hr chart bounce up from 3,900 would bring a bear trend line and 3,950 into focus followed by 4,000, 4,100 and 4,150.
Bearish targets: any bearish 4hr chart break below 3,900 would bring 3,850 and 3,800 into focus as the latter is now near the 4hr chart’s 61.8% Fibonacci and 11-month support trend line. Any longer-term sell-off would bring the weekly chart’s 61.8% Fibonacci retracement level, down near 2,800, into focus.
- Watch 3,900 and for any 4hr chart trend line breakout:
ASX-200: XJO: The ASX-200 closed with a bearish-coloured Doji weekly candle and, again, having a long upper shadow reflecting that sellers forced price down after some earlier buying. The index also failed, again, to take out and hold above the pre-2020 High.
As mentioned over recent weeks: The pre-GFC High of 6,851.50, pre-2020 High of 6,893.7 and 2020 High of 7,197.2 loom large and ahead of current price action and are proving to be strong resistance levels for the index.
The index closed the week just below 6,800 so this remains the level to monitor for any new make or break.
Trading volume was a bit higher last week and is up nudging the 200 MA and bear trend line so watch for any new breakout.
XJO weekly: watch for any new TL and 200 MA b/o:
Keep in mind that the recent Golden Cross still remains valid. 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:
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 and note the look of a possible bullish-reversal Descending Wedge, so, keep an open mind.
Note, also, how ADX momentum remains low on the daily chart so watch for any new ADX breakout over 20.
Bullish targets: Any bullish 4hr chart wedge breakout would bring 6,800 and the pre-GFC high of 6,851.50 into focus. After that, watch the pre-2020 High of 6,893.70, the whole-number 7,000 and, then, the 2020 High of 7,197.20.
Bearish targets: Any bearish 4hr chart wedge breakout would bring 6,700, 6,600 and 6,500 into focus.
- Watch 6,800 and for any new 4hr chart wedge breakout:
Gold: Gold closed with a bearish weekly candle and back down near the recent Low and $1,770 support level.
As mentioned over recent 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. Keep watch of $1,900 now that price action is trading below this neckline region!
$1,900 remains the region in focus for any bullish Cup or Inverse H&S breakout:
- Any hold above $1,900 would support the Cup pattern thesis.
- Any move back 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.
There are revised 4hr chart triangle trend lines to monitor for any new breakout but the $1,800 is the horizontal resistance level to watch.
Keep in mind that ADX momentum still remains low on the weekly time frame though so keep an eye on this metric for any new uptick to give clues about the next momentum move; either up or down!
NB: The expanded view of the weekly chart below still shows a possible Bull Flag and this augers well with the Inverse Cup ‘n’ Handle / Cup pattern.
Bullish targets: any bullish 4hr chart breakout above $1,800 would bring the upper triangle trend line into focus followed by $1,850 and $1,900.
Bearish targets: any bearish 4hr chart trend line breakout below $1,770 would bring $1,700 S/R into focus.
- Watch $1,800 and for any new 4hr chart triangle trend line breakout:
EUR/USD: The EUR/USD closed with a bearish-coloured Doji weekly candle reflecting continued indecision as it remains pegged by the monthly 200 EMA.
There are revised 4hr chart trend lines to watch for any new breakout.
NB: Note that the longer-term target for any continued bullish movement, following the previous break of the 13-yr trend line, is the monthly chart’s 61.8% Fibonacci, near 1.40. However, a test of the 4hr chart’s 61.8% Fibonacci, near 1.19, would still fit within an overall bullish continuation thesis and move.
Bullish targets: Any bullish 4hr chart triangle breakout would bring 1.22 and 1.23 into focus. After that, watch whole-numbers on the way up to a previous weekly chart High, circa 1.26 and, then, for any continued push up to 1.40.
Bearish targets: Any bearish 4hr chart triangle breakout would bring 1.20 into focus followed by 1.19 as this is now near the 4hr chart’s 61.8% Fibonacci.
- Watch the monthly 200 EMA and for any momentum-based trend line breakout:
AUD/USD: The Aussie closed with a fairly large, bullish weekly candle and has finally broken free of the 0.78 level and monthly 200 EMA; a region that had kept it pegged for the last 7 weeks.
There are revised 4hr chart trend lines to monitor for any new momentum-based breakout but 0.79 S/R looks to be the resistance to beat above current price action.
NB: The longer-term target for any bullish continuation from the weekly/monthly chart’s Descending Wedge breakout is the weekly 61.8% Fibonacci, near 0.90.
Bullish targets: Any bullish 4hr chart breakout above 0.79 would bring 0.80 into focus followed by whole-number levels on the way up to the weekly chart’s Descending Wedge breakout target of 0.90.
Bearish targets: Any bearish 4hr chart hold below 0.79 would bring a recent support trend line into focus followed by 0.78 and 0.77 as the latter is near the 4hr chart’s revised 61.8% Fibonacci.
- Watch 0.79 and for any new 4hr chart Flag breakout;
AUD/JPY: The AUD/JPY closed with a large, bullish weekly candle and just under the 83 S/R level making this the level to watch for any new make or break.
However, as noted last week, the 85 level is an important S/R region and will be the next major resistance level to monitor.
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 deeper pullback, with stocks might render similar for the AUD/JPY:
AUD/JPY versus S&P500 (gold line): a higher degree of positive correlation:
There are revised 4hr chart trend lines to monitor for any new breakout.
Bullish targets: Any bullish 4hr chart breakout above 83 would bring 85 S/R into focus.
Bearish targets: Any bearish 4hr chart hold below 83 would bring a recent support trend line and the monthly 200 EMA back into focus followed by the revised 16-week support trend line. After that, watch whole-numbers on the way down to 76 as this is still near the 7-yr trend line.
- Watch 83 for any new 4hr chart momentum-based trend line breakout;
NZD/USD: The Kiwi closed with a bullish weekly candle and right on 0.73 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 hold above 0.73 would bring 0.74 and 0.75 as the latter is the next major horizontal S/R zone (see weekly chart). After that, watch 0.76 as this is near the monthly chart’s 61.8% Fibonacci target of the earlier monthly chart triangle breakout.
Bearish targets: Any bearish 4hr chart hold below 0.73 would bring 0.72, a recent support trend line and 0.71 into focus.
- Watch 0.73 for any new make or break:
GBP/USD: The Cable closed with a large, bullish weekly candle and just above the huge 1.40 level; a significant level as seen on the weekly and monthly charts.
There are revised 4hr chart trend lines to watch for any new breakout.
NB: The longer-term target for any bullish continuation above the previously broken 14-yr trend line is the monthly chart’s 61.8% Fibonacci, near 1.75. However, a test of this major breakout region would not surprise.
Bullish targets: Any bullish 4hr chart hold above 1.40 would bring whole-number levels on the way up to 1.50 into focus as this is a previous S/R region on the weekly chart. Any bullish continuation after that would bring whole-number levels on the way up to 1.75 into focus.
Bearish targets: Any bearish 4hr chart break back below 1.40 break would bring a two-week support trend line followed by 1.39 and 1.38 into focus followed by 1.37 and, after that, the 7-month support trend line.
- Watch 1.40 for any new make or break:
USD/JPY: The USD/JPY closed with a bullish weekly candle but retreated from the 106 High it had reached during the week.
Note how the weekly chart’s descending wedge breakout continues to run to the upside. There are revised 4hr chart trend lines to monitor for any new breakout AND note the low momentum on this time frame so use this to guide for any new breakout.
Bullish targets: Any bullish 4hr chart triangle breakout would bring 106 back into focus.
Bearish targets: Any bearish 4hr chart break triangle breakout would bring 105 back into focus.
- Watch for any new 4hr chart triangle breakout.
GBP/JPY: It is still onward and upwards for the GBP/JPY since it broke above the 40-yr bear trend line 8 weeks ago. The GBP/JPY closed with a large, bullish weekly candle after adding 250 pips from last weeks focus level of 145.50!
The weekly candle closed just below 148 making this the new resistance level to monitor in coming sessions.
There are revised 4hr chart trend lines to monitor for any new momentum breakout. Note how ADX momentum is now trending upwards on the weekly chart so watch for any new breakout above the 20 threshold.
NB: The longer-term target for any bullish continuation above the previously broken 40-yr trend line is the weekly chart’s 61.8% Fibonacci, near 170.
Bullish targets: Any bullish 4hr chart breakout above 148 would bring whole-number levels into focus on the way up to the weekly chart’s 61.8% Fibonacci, near 170.
Bearish targets: Any bearish 4hr chart hold below 148 would bring 147 and a one-week support trend line into focus followed by 146 and a two-week support trend line. After that, watch the nine-week support trend line and, then, whole-number levels on the way down to 137 S/R.
- Watch 148 for any new make or break.
