Last week: There were a number of great trend-line breakout trades on offer last week, with huge moves on the GBP/USD and GBP/JPY in particular, so I hope you were able to catch a slice of some of this action. The US$ remains range-bound but these GBP moves were driven by renewed Brexit concern. The major US stocks indices closed lower for the week but most could also be viewed as shaping up in potential Bull Flags so caution is needed with adopting any particular bias just yet. As well, trading volumes for the US stock majors, including the ASX-200, were lower compared to the previous week so that should also give traders some pause for thought. As I always emphasise, traders need to watch for momentum based trend line breakouts. The main risk even this week is the FOMC update so watch to see how this news impacts stocks and the US$; Forex might be choppy / sideways until this release so caution is needed until then, especially with USD-based pairs.
Technical Analysis: As noted over recent months, it is important to keep in mind that this analysis is Technical and chart-based but that any major Fundamental news items, as recently seen with Coronavirus, have the potential to quickly undermine identified chart patterns. This is why it is critical that traders appropriately manage their trade exposure and risk per trade during these volatile market conditions.
Trend line breakouts summary: There were a couple of great breakouts last week. Articles published during the week can be found here, here, here, and here:
- GBP/JPY: a TL b/o from 1.32 for 400 pips:
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- G/J 4hr chart from last week’s analysis
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- G/J 4hr chart after the 400 pip b/o
- GBP/USD: a TL b/o from 1.32 for 400 pips:
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- G/U 4hr chart from last weekend’s analysis
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- G/U 4hr chart after the 400 pip b/o
- NZD/USD: a TL b/o for 80 pips.
- GBP/USD: a TL b/o from 1.32 for 400 pips.
- EUR/USD: a TL b/o for 100 pips.
- AUD/JPY: a TL b/o for 85 pips.
- S&P500: a 100 point breakout from last week’s 3,400 focus level.
This Week: (click on images to enlarge):
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- DXY: US$ Index: The US$ closed with a bullish-coloured Spinning Top weekly candle but it continues to struggle under the recently broken 10-year support trend line. There is still the look of a bullish-reversal Descending Wedge here though so watch for any relief rally; even if it’s only temporary. Also keep watch of the 10-yr bear trend line as this previous Support will likely become Resistance. There is also a bit of a Morning Star reversal pattern here. This week brings the FOMC rate update so watch to see how this news might impact the US$. A more detailed review of the FX Indices can be found through this link:
DXY weekly:
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- 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.
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- Indecision-style weekly candles: indecision-style weekly candles were printed on many instruments again last week: the DXY, S&P500, NASDAQ, Gold, TLT, EUR/USD, AUD/USD, AUD/JPY, NZD/USD and USD/JPY.
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- Central Bank Updates: there are two Central Bank updates this week for the FOMC (USD) and BoJ(JPY).
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- 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.
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- USD/CAD: I don’t usually review this pair but it caught my eye as I was scrolling through my Profit Source charts. There is one of my preferred charting patterns setting up on the weekly chart so it made the cut this week. You can find this review at the bottom of this post.
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- S&P500: Keep the bigger picture in perspective with the recent moves:
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 has pulled back from its latest 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 bearish-reversal Hanging Man weekly candle although it continues to hold above the 3 level. The break above the 10-year bear trend line is holding as well:
Copper weekly: another weekly close above the 3 level; albeit a bearish candle:
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- Emerging Markets: The Emerging market ETF, EEM, has closed back below the 45 level again but with a bullish candle so keep watch for any Bull Flag activity:
EEM weekly: back below the 45 level:
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- DJIA weekly: The DJIA closed with a bearish weekly candle but has broken a recent support trend line. However, traders still need to watch for any Bull Flag activity.
DJIA weekly: watch for any Bull Flag
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- NASDAQ composite: The NASDAQ Composite Index closed with a bearish-coloured Long Legged Doji weekly candle reflecting a large amount of indecision. Many are talking about a major crash looming for tech but, for the time being, price action could equally be just paused within a potential Bull Flag. I still think the psychological 10,000 level may well be tested but any break below 10,000 would suggest, to me at least, that there could be more bearish activity and I’d then be looking down to the weekly 61.8% Fibonacci, near 8,800. Remember, technical theory would suggest that the 61.8% Fib level could be tested as part of the zig and zag of any overall bullish continuation move.
NASDAQ weekly: watch for any Bull Flag activity:
NASDAQ daily: watch for any Bull Flag activity:
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- DAX weekly: The DAX closed with a bullish weekly candle so watch for any push to the previous all time High:
DAX weekly:
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- Russell-2000: The Russell-2000 is often viewed as the ‘Canary in the Coal Mine’ for US stocks and closed with a bearish weekly candle. There has been a recent break of support trend line and, like with the other indices, traders should watch for any Bull Flag activity. The horizontal 1,460 level remains as one ‘line in the sand’ level to monitor:
RUT weekly: watch for any Bull Flag:
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- Bonds / TLT: The Bond ETF, TLT, closed with a bullish-coloured Doji weekly candle reflecting indecision. The Elliott Wave indicator is still suggesting an uptrend from here and any continued sell-off with stocks would likely underpin this Bond ETF:
TLT weekly:
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- VIX: the Fear index closed with a bearish weekly candle and back below the key 30 level. This is somewhat of a surprise given the stock sell off last week but is another cautionary metric to keep in mind! There had been a bullish-reversal Descending Wedge on display here so watch to see if this pattern develops at all. Any sell off with stocks would likely help to underpin the index:
VIX weekly: watch the 30 level for any new make or break:
Calendar: Courtesy of Forex Factory:
Earnings: Courtesy of Earnings Whispers: winding down:
Market Analysis:
S&P500: The S&P500 index closed with a bearish-coloured Spinning Top weekly candle which is painting a bearish charting setup similar to what was seen at the start of the Global Financial Crisis; as I explained in a recent post.
However, there are three cautionary technical warnings to note following last week’s bearish activity:
- Momentum on the 4hr chart has declined and contracted throughout last week (see 4hr chart below).
- Despite the break of a weekly support trend line, price action could be consolidating in a potential Bull Flag (see weekly chart below).
- Trading volume was lower last week and is back below the 200 SMA:
S&P500 ETF: SPY weekly: Volume pulled back below the moving average line last week:
Price action on the S&P500 is now just above the whole-number 3,300 so this will be the first support level to monitor for any new make or break.
As noted last week: 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 bounce up from 3,300 would bring 3,400 & 3,500 back into focus followed by other whole-number levels.
Bearish targets: any bearish 4hr chart break below 3,300 would bring the 3,200 level into focus as this is near the 4hr chart’s 61.8% Fibonacci level. Beyond that, the weekly chart’s 61.8% Fibonacci, down near 2,700, would come into focus.
- Watch 3,300 for any new make or break:
ASX-200: XJO: The ASX-200 closed with a small, bearish weekly candle and below the psychological 6,000 level. I am rather surprised that the candle wasn’t more bearish though considering the negative news impacting Australia at the moment. Apart from the negative lead offered by the US stock majors, there are particularly worrying issues related to the increased souring of Australia-China relations and the Covid-related border closures: Australia’s external border remains closed and there ongoing arguments surrounding the closure of many internal borders.
Another anomaly, at least that’s how I see it, is that weekly trading volume fell back below the 200 moving average AND below that seen over recent weeks and weekly momentum remains low. Traders need to watch for any new momentum and volume-based breakouts that might evolve.
XJO weekly: trading volume back below the moving average and lower than for recent weeks:
The index closed just above 5,850 so 5,900 is the whole-number level resistance above current price and 5,800 is whole-number support below to watch for any new make or break. There are also new 4hr chart wedge trend lines to monitor for any new momentum breakout.
Bullish targets: Any bullish 4hr wedge breakout would bring 5,900 and 6,000 into focus as the latter is near the 61.8% fib of the recent swing Low move and also near the 4hr chart’s 200 EMA. After that, watch the recent High, near 6,200, and, after that, whole number levels on the way back to the previous all time High, circa 7,200.
Bearish targets: Any bearish 4hr chart wedge breakout below 5,800 would bring the previously broken 11-yr trend line back into focus along with 5,700 S/R.
- Watch for any new 4hr chart wedge breakout:
Gold: There has not been a lot of change here again as Gold closed with yet another Spinning Top style weekly candle but this one was bullish-coloured; this is the fourth consecutive such candle. There is clearly ongoing indecision as the precious metal hovers above the key $1,900 level. The other point of note is the complete lack of momentum on the 4hr and daily chart: note how the ADX is below the threshold 20 level on both time frames. The good thing here is that this will make it easier to identity the next momentum-based breakout move.
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 trading above 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 new move 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 struggling under the recently broken 10-year support trend line:
- any US$ hold below this multi-year support trend line could help send Gold much higher.
- any US$ recovery 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.
NB: Traders should watch for any increased bullish flows into stocks as this could compete against flows into Gold.
Bullish targets: any bullish 4hr chart triangle breakout would bring $2,000 into focus as this is still near the 4hr chart’s 61.8% Fibonacci.
Bearish targets: any bearish 4hr chart triangle breakout would bring $1,900 S/R back into focus.
- Watch for any new 4hr chart triangle breakout:
EUR/USD: The EUR/USD closed with a bullish-coloured Long Legged Doji weekly candle reflecting great indecision; although it continues to hold above the recently broken 13-year bear trend line ahead of next week’s FOMC update.
There are revised 4hr chart trend lines to monitor for any new breakout.
Bullish targets: Any bullish 4hr chart triangle breakout would bring 1.19 and 1.20 S/R into focus followed by whole-number levels on the way up to the previous weekly chart High, circa 1.26.
Bearish targets: Any bearish 4hr chart triangle breakout would bring 1.18 and, then, the 13-year bear trend line into focus.
- Watch for any 4hr chart trend line breakout; especially with this week’s FOMC rate update:
AUD/USD: The Aussie closed with a bearish-coloured Doji weekly candle reflecting continued indecision. The last three weekly candles also have a bit of a bearish-reversal Evening Star look to them although price action continues to hold above the recently broken upper trend line of the multi-year bullish-reversal Descending Wedge.
There are revised trend lines on the 4hr chart to monitor for any new momentum-based breakout.
Bullish targets: Any bullish 4hr chart trend line breakout above 0.73 would bring 0.74 into focus followed by whole-number levels on the way up 0.90 S/R.
Bearish targets: Any bearish 4hr chart trend line breakout would bring 0.72 into focus followed by 0.71 and, then, 0.70 and the 9-11 year bear trend line.
- Watch for any new 4hr chart triangle breakout;
AUD/JPY: Price action here was similar to the AUD/USD last week with a bearish-coloured Doji weekly candle reflecting continued indecision. The last three weekly candles also have a bit of a bearish-reversal Evening Star look to them. This prevarication is hardly surprising as the AUD/JPY continues holding near a 7-year bear trend line.
As mentioned over recent weeks: How the AUD/JPY reacts at the 7-year bear trend line above might depend on how the S&P500 reacts as it trades near the all-time High so keep an eye on both!
There are revised 4hr chart triangle trend lines to monitor for any new momentum breakout.
Bullish targets: Any bullish 4hr chart triangle breakout would bring 78 into focus followed by the weekly 200 EMA, 79 and, then, 80 S/R.
Bearish targets: Any bearish 4hr chart triangle breakout, below the 7-yr bear trend line, would bring 76 into focus followed by whole-numbers on the way down to 65 S/R.
- Watch for any new 4hr chart triangle breakout;
NZD/USD: The Kiwi also closed with a bearish-coloured Spinning Top weekly candle reflecting indecision as price holds above the recently broken 7-year bear trend line BUT the last three weekly candles also have a bit of a bearish-reversal Evening Star look to them.
Price action closed just below 0.67 so this remains the level to watch for any new make or break and there are revised trend lines to monitor as well.
Bullish targets: Any bullish 4hr trend line breakout above 0.67 would bring 0.68 and, then, 0.70 S/R into focus.
Bearish targets: Any bearish 4hr chart trend line breakout would bring 0.66 into focus, as this is near the 4hr chart’s 61.8% Fibonacci ,followed by the recently broken 7-yr trend line.
- Watch 0.67 and for any 4hr chart trend line breakout:
GBP/USD: The Cable closed with a large, bearish weekly candle after breaking through the key 1.32 level that was in focus with last week’s analysis. This break of 1.32 extended down to 1.28 for a move worth around 400 pips so I hope some of you caught a slice of this action!
GBP/USD 4hr: a great 400 pip b/o move after the break of 1.32 S/R:
This bearish shift resulted in the break of a 6-month support trend line and the last three weekly candles now also have a bit of a bearish-reversal Evening Star look to them.
Renewed Brexit concern was the major issue here last week and this could well continue to plague the GBP/USD and other GBP pairs. However, the 4hr chart has a bit of a bullish-reversal Descending Wedge look to it so a relief rally could evolve here; before any potential bearish continuation. As always, watching for momentum-based trend line breakouts will be important.
Bullish targets: Any bullish 4hr chart wedge breakout would bring 1.32 back into focus as this is near the 4hr chart’s 61.8% Fibonacci.
Bearish targets: Any bearish 4hr chart wedge breakout would bring 1.22 into focus as this is near the weekly chart’s 61.8% Fibonacci.
- Watch for any new 4hr chart wedge breakout:
USD/JPY: The USD/JPY closed with a bearish-coloured Spinning Top style weekly candle reflecting indecision although this candle had a long lower shadow suggesting buyers stepped up throughout the week.
There are 4hr chart trend lines to continue to monitor for any new breakout as price becomes increasingly squeezed into the apex of this triangle.
Bullish targets: Any bullish 4hr triangle breakout would bring 107 into focus followed by 107.5 as the latter is still near the 4hr chart’s 61.8% Fibonacci.
Bearish targets: Any bearish 4hr triangle breakout would bring the monthly 200 EMA and 105 back into focus followed by the recent Low, near 104.
- Watch for any new 4hr chart triangle breakout:
GBP/JPY: The GBP/JPY closed with a large, bearish weekly candle and the break below the key 140 level, a level that has pegged it all year, gave a great 400 pip trend line breakout trade last week; and note how the 61.8% fib target was reached here!
GBP/JPY 4hr: a great 400 pip b/o move after the break of 140 and the 10-week support trend line:
The last three weekly candles have a bit of a bearish-reversal Evening Star look to them so there could be more bearish action to come. HOWEVER, I am seeing a possible bullish-reversal Descending Wedge on the 4hr chart so some mean reversion could evolve before any potential bearish-follow through. Watching for momentum-based trend line breakouts will be important here too.
Bullish targets: Any bullish 4hr chart wedge breakout would bring 140 into focus as this is near the 4hr chart’s 61.8% Fibonacci.
Bearish targets: Any bearish 4hr wedge breakout below 135 would bring whole-numbers on the way down to 130 into focus.
- Watch for any 4hr chart wedge breakout:
USD/CAD: The USD/CAD caught my eye this week as it has closed with one of my preferred chart patterns and above a major support level.
The USD/CAD closed with a bullish weekly candle above the key 1.30 level; the monthly chart below reveals the importance of this S/R level.
Price action has been in a steady decline since March this year but the pace of decline has slowed such that a bullish-reversal Descending Wedge can be seen brewing on the weekly chart. The last three weekly candles also have a bit of a bullish-reversal Morning Star look to them so traders should watch for any potential pause at this major 1.30 level. Some mean reversion would not surprise here at all; even if there is to be eventual bearish continuation.
I have mapped this swing Low move ( March 2020 – Sept 2020) with a Fibonacci retracement tool and this has the popular 61.8% Fibonacci level landing near the whole-number 1.40 level which. itself, can be seen on the monthly chart as a popular S/R level as well.
This set up is one based off the weekly chart so traders should really wait to confirm a weekly candle breakout above the upper trend line of this wedge. Thus, some patience is required but this move is worth stalking as there are 1,000 pips on offer from 1.30 to 1.40. I have included a 4hr chart below for any shorter-term traders though and there are 4hr chart trend lines to monitor for any momentum breakout. As with all USD_based pairs, caution is needed leading up to this week’s FOMC.
Bullish targets: Any bullish weekly chart wedge breakout would bring 1.40 into focus as this is near the weekly chart’s 61.8% Fibonacci.
Bearish targets: Any bearish weekly wedge breakout would bring whole-number levels on the way down 1.15 into focus as this is near the monthly chart’s 61.8% Fibonacci.
- Watch for any new weekly chart wedge breakout:
