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End of the doldrums in sight?

September 5, 2021

Last week: The market landscape of last week was little changed from the week before and Friday’s disappointing US jobs report only helped to continue this theme. The S&P500 and NASDAQ have closed again at new all-time Highs and these two, plus the DJIA, continue to hold above 18-month support trend lines. The miss with NFP helped to keep pressure on the US$ index which further fuelled the recovery of the EUR/USD, Gold and commodity currencies. Monday is a bank holiday in the USA for Labor Day and also marks the end of the the northern summer doldrums period so watch to see if trading volumes and activity improve over the coming sessions. There are also three Central bank rate updates this week so watch to see if / how these might impact market sentiment. The S&P500 is approaching a key Fibonacci resistance level, near 4,600, so it will be very interesting to see how market participants react as the index nears this zone.

 

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: US$ weakness helped to trigger some great trend line breakouts from chart patterns posted in last week’s update. Articles released during the week can be found here, here, here and here. (Click on the charts to enlarge the view)

 

  • EUR/USD: a TL b/o for up to 100 pips after breaking above last week’s focus 1.18 level:

 

  • AUD/USD: a TL b/o for up to 130 pips:

 

  • AUD/JPY: a TL b/o for up to 170 pips:

 

  • NZD/USD: a TL b/o for up to 160 pips:

 

 

This Week: (click on images to enlarge):

 

    • DXY: US$ Index: The DXY closed with a bearish weekly candle and was not helped by Friday’s NFP report. The number of ‘jobs added’ fell well below expectations and this cemented a bearish weekly close for the index. Price action remains in a weekly triangle so watch for any new momentum-based breakout.

 

DXY weekly: watch for any new momentum-based TL b/o:

 

 

    • Central Bank Updates: There are three Central Bank updates during the week: RBA (AUD), BoC (CAD) and ECB (EUR).

 

    • Currency Strength Indicator: The 4hr chart of my CSI shows the continued recovery with the commodity currencies. Watch for any mean reversion here though (click on chart to expand and enhance view).

 

Currency Strength Indicator 4hr: note the continued recovery with the commodity currencies:

 

 

    • Labor Day holiday Monday: Monday is a bank holiday in the USA and Canada for Labor Day.

 

    • % Stocks above their 200 Day Moving Average Index: The Percentage of stocks above their 200 Day Moving Average continues to trade below the all time High 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 continued struggle under the 92.50% level. It is interesting to see the decent pullback here now despite the fact that the S&P500 is trading up at an all-time High.

 

% of US Stocks above the 200 Day Moving Average: still retreating after peaking at the 92.50% region:

 

% of US Stocks above the 200 Day Moving Average (expanded): holding below 92.50%:

 

 

    • 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. Note how the recent Covid dip does not even figure on this chart!

 

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 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:

 

 

    • Copper: Copper is often viewed as one metric of economic health and closed with a bullish-coloured Doji weekly candle reflecting ongoing indecision. It still looks like Copper is consolidating after its recent bullish run so watch the Bull Flag trend lines for any new breakout: up or down.

 

Copper weekly: Watch for any new breakout:

 

 

    • Emerging Markets: The Emerging market ETF, EEM, closed with a bullish weekly candle and there is still the look of a Bull Flag here. Watch for any trend line breakout: up or down.

 

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

 

 

    • DJIA: The DJIA closed with a bearish weekly candle, in contrast to the S&P500 and NASDAQ, but continues to hold above the key 35,000 level and 18-month support trend line. Any failure at this key level, if bearish momentum evolves, would bring the weekly 61.8% Fibonacci, near 25,000, into focus.

 

DJIA weekly: keep watch of 35,000:

 

 

    • NASDAQ composite: The NASDAQ Composite Index closed with a bullish weekly candle, at another new all-time High and above the key 15,000 level. Watch for any uptick with the ADX above 20 and for any push to the 16,000 level.

 

NASDAQ weekly: keep an eye on momentum here as it looks to be building!

 

 

    • DAX weekly: The DAX closed with a bearish-coloured Spinning Top weekly candle but continues to hold above the 18-month support trend line. Watch for any new momentum breakout: up or down.

 

DAX weekly: watch 16,000 for any new make or break:

 

 

    • Russell-2000: The Russell-2000 is often viewed as the ‘Canary in the Coal Mine’ for US stocks and the index closed with a bullish weekly candle but continues to chop sideways within a Bull Flag so watch for any new breakout: up or down.

 

RUT weekly: watch the Flag for any new b/o:

 

 

    • 10-yr T-Note Interest rate / TNX: This has closed with a bullish-coloured Spinning Top weekly candle. Watch for any new trend line breakout.

 

  • 10-yr T-Note Interest rate (weekly): watch for any trend line breakout: 

 

 

    • Bonds / TLT: The Bond ETF, TLT, closed with a bearish weekly candle BUT watch for any bullish continuation from the recent trend line breakout.

 

TLT weekly: watch for any push to the 61.8% Fibonacci:

 

 

    • BTC/USD: The bullish wedge breakout continues, first noted in my update from 6 weeks ago. Watch for any new reaction at the daily 61.8% Fibonacci, near $51,000. Any bullish close above $51,000 would bring the previous High, circa $65,000, back into focus.

 

BTC/USD: watch the daily 61.8% Fibonacci, near $51,000, for any new reaction:

 

 

    • VIX: the Fear index closed with a bearish-coloured Spinning Top weekly candle BUT watch for any push back above 20 S/R.

 

VIX weekly: watch for any push back above 20 S/R:

 

 

Calendar: Courtesy of Forex Factory:

 

 

Earnings: Courtesy of Earnings Whispers: Game Stop might be worth monitoring here!

 

 

Market Analysis:

 

S&P500: The S&P500 closed with a bullish weekly candle, at a new all-time High and continues to hold above an 18-month support trend line. The 4,600 is coming within sight and will be a key level to monitor if bullish momentum continues given that this is the region of the 200% Fibonacci retracement of the Covid swing Low move.

Traders should also monitor the 18-month support trend line for any bearish break and, if this support does give way, they should then watch for any potential sideways consolidation that might form a Bull Flag.

Trading volume was lower last week BUT watch for any new trend line and 200 MA breakout. Keep in mind that Monday is a holiday in the USA but also marks the end of the northern summer doldrums period where people are back to work and children head back to school so watch to see how this impacts trading volume.

 

S&P500 ETF: SPY weekly: watch for any new TL and 200 MA b/o:

 

There are revised 4hr chart trend lines to monitor.

Bullish targets: any bullish breakout above 4,550 would bring 4,600 into focus as this is near the 200% Fibonacci retracement of the Covid swing Low (see the second weekly chart). After that, watch whole numbers on the way up to the 5,000 level.

Bearish targets: any bearish 4hr chart trend line breakout would bring 4,500 and the 18-month support trend line into focus. After that, watch 4,450 and, then, whole-numbers on the way down to the weekly chart’s 61.8% Fibonacci retracement level, now near 3,100.

  • Watch 4,550 and for any new 4hr chart trend line breakout:

 

 

 

ASX-200: XJO: The XJO closed with a bullish-coloured Spinning Top weekly candle reflecting ongoing indecision after last week’s Inside candle. As with the S&P500, the index is holding above an 18-month support trend line and, if this support does give way, traders should then watch for any potential sideways consolidation that might form a Bull Flag.

As mentioned over recent weeks:

  • It has taken a long time for the XJO to break and hold above the pre-GFC High region and, in this regard, it has lagged well behind most other global stock indices. However, any continued hold above this 7,200 region could well mark the beginning of a new trading range for the index and put it in catch-up mode with its peers.
  • S&P upgraded the Australian outlook from ‘Negative’ to ‘Stable’ recently so watch for any impact this may have on market sentiment for the XJO.

 

Trading volume was a bit lower last week but is still up near the 200 MA so watch for any push higher.

 

XJO weekly: watch for any push higher with trading volume:

 

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. This current Golden Cross has 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.

Bullish targets: Any bullish 4hr chart trend line breakout would bring 7,550 and 7,600 into focus.

Bearish targets: Any bearish 4hr chart trend line breakout would render a break of the 18-month support trend line and would then bring 7,400 into focus. After that, watch 7,300 followed by 7,200, the previous 2020 High of 7,197.20, 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 7,500 and for any 4hr chart trend line breakout:

 

 

 

Gold: Gold closed with a bullish weekly candle and made a bullish trend line breakout on Friday as the metal received a boost from the weaker US$ following the disappointing ‘jobs added’ print with NFP.

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.

Traders need to watch this $1,900 level over the coming sessions especially as the US$ 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.

The daily chart reveals the importance of the $1,670 level so this continues to be a ‘line in the sand’ support level to monitor. 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.

 

Bullish targets: any continued bullish 4hr chart trend line breakout would bring the 61.8% Fibonacci, $1,850 and $1,900 into focus.

Bearish targets: any bearish break of a recent support trend line would bring $1,800, $1,770 and $1,750 into focus. After that, watch for any push down to the $1,670 support level.

  • Watch for any continued 4hr chart trend line breakout.

 

 

 

EUR/USD: The EUR/USD closed with a bullish weekly candle following last week’s bullish-reversal Railway Track weekly candle pattern. Price action closed back above the recently broken 18-month support trend line and just below the 1.19 level making this the level to watch for any new make or break.

The broader bullish-reversal Descending Wedge remains in play.

As mentioned over recent weeks: I have included a second weekly chart again and this shows the potential for a longer-term bearish Double Top pattern but, if the 1.17 continues to hold, then this would be a rather bullish signal. All of this suggests that, at the very least, traders should keep an open mind!

Bullish targets: Any bullish break above 1.19 would bring 1.20 into focus as this is just below the 4hr chart’s wedge 61.8% Fibonacci. After that, watch whole-numbers on the way up to the 14-yr bear trend line.

Bearish targets: Any bearish retreat from 1.19 would bring the 18-month support trend line and 1.18 S/R back into focus. After that, watch for any push to the daily chart’s 61.8% Fibonacci, near 1.13.

  • Watch 1.19 for any new make or break; especially with this week’s ECB rate update.

 

 

 

AUD/USD: The Aussie closed with a bullish weekly candle and back above the recently broken 18-month support trend line. Price action closed just under the daily 200 EMA and a revised bear trend line 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 4hr chart trend line breakout and break above the daily 200 EMA would bring 0.75 into focus. After that, watch whole numbers on the way up to the 11-yr bear trend line and 0.80 S/R.

Bearish targets: Any bearish hold below the daily 200 EMA would bring a rather congested zone made up of the 18-month support trend line, a recent support trend line and the 0.74 level into focus. After that, watch 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 the daily 200 EMA and for any new 4hr chart trend line breakout; especially with this week’s RBA rate update.

 

 

 

AUD/JPY: The AUD/JPY closed with a bullish weekly candle and back up near the recently broken 18-month support trend line, monthly 200 EMA and 82 S/R level 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.
  • The recent divergence on the chart below still has me wondering which of the two will yield? Will the S&P500 join the AUD/JPY in tracking lower or will the AUD/JPY recover and move higher to catch up with the S&P500?

 

AUD/JPY versus S&P500 (gold line): a high degree of positive correlation BUT note the recent divergence!

 

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

Bullish targets: Any bullish 4hr chart trend line breakout above 82 and the recently broken 18-month TL would bring whole numbers on the way up to 85 and 90 S/R into focus.

Bearish targets: Any bearish hold below 82 and the recently broken 18-month TL would bring a recent support trend line into focus followed by 81 and 80 S/R and the weekly 200 EMA as the latter is near the 4hr chart’s 61.8% Fibonacci. After that, watch 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.

  • Watch 82 S/R and for any new 4hr chart trend line breakout; especially with this week’s RBA rate update.

 

 

 

 

NZD/USD: The Kiwi closed with a bullish weekly candle and back above the recently broken 18-month support trend line. Price action closed just under 0.72 and a bear trend line making this the region to watch for any new make or break.

Bullish targets: Any bullish 4hr chart trend line breakout would bring 0.72 into focus. After that, watch for any push to 0.75.

Bearish targets: Any bearish 4hr chart trend line breakout would bring 0.71 and the recently broken 18-month support trend line into focus. After that, watch the 4hr chart’s 61.8% Fibonacci region, near the weekly 200 EMA, and whole-number levels on the way down to 0.63 as this is near the 61.8% Fibonacci of the March 2020 – Feb 2021 swing High move.

  • Watch 0.72 and for any new 4hr chart trend line breakout:

 

 

 

GBP/USD: The Cable closed with a bullish weekly candle and back above the recently broken 18-month support trend line. Price action closed just under 1.39 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 break above 1.39 would bring 1.40 into focus. After that, watch for any push to the 15-yr bear trend line.

Bearish targets: Any bearish retreat from 1.39, and break back below the 18-month support TL, would bring 1.38 and 1.37 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.

  • Watch 1.39 and for any 4hr chart trend line breakout:

 

 

 

USD/JPY:  The USD/JPY closed with a bearish-coloured Spinning Top weekly candle reflecting indecision as price holds below the 110 S/R level.

Bullish targets: Any bullish 4hr chart trend line breakout would bring 111 into focus followed by whole-numbers on the way up to 115.

Bearish targets: Any bearish 4hr chart trend line breakout would bring 109 S/R into focus followed by whole numbers down to 106 as the latter is near the weekly chart’s 61.8% Fibonacci.

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

 

 

 

 

GBP/JPY: The GBP/JPY closed with a bullish weekly candle and just under a multi-month bear trend line and near the 152 S/R level.

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 reached up as far as 156, a move of around 1,500 pips, and so is another trend line breakout that has proven to be worthwhile monitoring.

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

Bullish targets: Any bullish 4hr chart trend line breakout would bring 153 into focus. After that, watch whole-number levels on the way up to the weekly chart’s 61.8% Fibonacci, near 170.

Bearish targets: Any bearish 4hr chart trend line breakout would bring 151 and the 18-month support trend line into focus. After that, watch whole-number levels on the way down to 136 as this is near the daily chart’s 61.8% Fibonacci of the March 2020 – March 2021 swing High move.

  • Watch 152 and for any new 4hr chart trend line breakout: