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Fear: still the main driver.

March 8, 2020

Last week: Fear is still the main driver of market action and note, again, how much of Saturday’s CNBC front page was devoted to this topic! Despite this, or perhaps because of, there were two great trend line breakout trades during the week that I hope you all caught: up to 250 pips with the wedge breakout move on the EUR/USD and up to $100 with the breakout move on Gold off the 4hr chart’s 200 EMA! Both of these trade setups were clearly explained and profiled in last week’s analysis. The longer term economic implications of Coronavirus remains a topic of much debate but, as traders, the best one can do is to watch for momentum-based trend line breakouts and to manage risk and position size appropriate to these volatile conditions.

 

CNBC’s Saturday front page: almost every item related to Coronavirus:

 

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.

 

Trend line breakouts and TC signals:  There were plenty of trend line breakouts again last week! Articles published during the week can be found here, here, here and here:

  • EUR/USD: a TL b/o for up to 250 pips:

EUR/USD 4hr: chart from last week’s analysis with wedge trend line as resistance above:

 

EUR/USD 4hr: this week’s chart with a 250 pip b/o above the wedge trend line:

 

  • Gold: this gave a b/o move above the 4hr chart’s 200 EMA for up to $100:

Gold 4hr: chart from last week’s analysis with 4hr 200 EMA in focus:

 

Gold 4hr: this week’s 4hr chart after a $100 push up from the 4hr 200 EMA:

 

  • GBP/USD: a TL b/o for up to 220 pips:

 

  • S&P500: a TL b/o for 120 points.
  • ASX-200: a TL b/o for 290 points.
  • TLT: a TL b/o now up around $26.
  • USD/JPY: a TL b/o below 107 S/R for 170 pips.
  • AUD/JPY: a TL b/o for 100 pips.
  • Oil: a TL b/o for up to $5.50 following Wednesday’s chart update:

Oil 4hr: chart from Wednesday:

 

Oil 4hr: a TL b/o for up to $5.50:

 

This Week: (click on images to enlarge):

    • DXY: US$ Index: I have warned over the last two weeks about the potential for some technical reversal on the US$ index and this has indeed evolved! The US$ index closed with a bearish weekly candle following last week’s bearish-reversal Evening Star formation and note the break of the 16-month support trend line:

DXY weekly: bearish follow-through after last week’s bearish-reversal Evening Star pattern:

 

    • US$ Conundrum: the US$ weakness, identified above, has helped to boost the Aussie, EUR/USD and Kiwi as just a few. In fact, the Aussie is setting up with a bullish-reversal Inverse H&S on the 4hr chart. However, it is hard to imagine the Aussie and Kiwi going for a bullish run against a backdrop of risk-off style Coronavirus fear seen across the broader markets. Hence, the conundrum!

 

    • EUR/USD: there has been a descending wedge brewing on this pair for the last two years and, after a couple of false starts, there has been another weekly breakout. I’m wondering if this will be a case of third time lucky?

 

    • Central Banks: there is one Central Bank rate update this week: ECB (EUR).

 

    • Indecision Candles: there have been a number of indecision-style weekly candles printed again last week: DJIA (Spinning Top), S&P500 (Spinning Top), NASDAQ (Spinning Top), Russell-2000 (Spinning Top), DAX (Spinning Top) and AUD/JPY (Spinning Top).

 

    • Technical lessons from history: I spent some of Friday reviewing the charts of the S&P500 and ASX-200 in preparation for an ATAA discussion. The focus was to look and see how these indices reacted in previous market pullbacks and what I found so interested me I drafted a separate article that afternoon. This article can be found through this link and, as a result of this research, I realise one of the main metrics to keep in focus is the weekly Ichimoku Cloud.

 

    • S&P500: Keep the bigger picture in perspective with any continued pullback:

S&P500 yearly: keep this latest move lower in perspective:

 

    • DJIA weekly: has closed with a bullish-coloured Spinning Top weekly candle. Watch the weekly chart’s 61.8% fib, circa 24,800, for any new make or break:

DJIA weekly: 

 

    • NASDAQ composite weekly: has closed with a bearish-coloured Spinning Top weekly candle. Watch the 15-month support trend line for any new make or break:

NASDAQ weekly: 

 

    • DAX weekly: The DAX closed with a bearish-coloured Spinning Top weekly candle.

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 bearish-coloured Spinning Top weekly candle and is still below the 12-month support trend line. Watch for any push down to the 10-year support trend line;

RUT weekly:

 

    • Bonds / TLT: The Bonds ETF, TLT, closed with a large bullish weekly candle and just under the 170 level.

TLT weekly:

 

    • VIX: the Fear index closed with a bullish weekly candle but still below the weekly chart’s 100% Fibonacci:

VIX weekly:

 

Calendar:    Courtesy of Forex Factory:

 

Earnings: Courtesy of Earnings Whispers: another pretty busy week.

 

Markets:

S&P500: SPX: The S&P500 closed with a bearish-coloured Spinning Top weekly candle, having long upper and lower shadows, reflecting the great deal of indecision that exits in the markets at the moment. There are some analysts that suggest the Coronavirus impact will be short lived and some suggesting this will lead to a global health and economic pandemic.

Price action has continued to hold above the 50% Fibonacci of the 14-month (2019-2020) swing High move (see daily chart). Technical theory suggests the current uptrend would remain intact until the 61.8% fib is breached, and this is down near 2,750 so this will is the lower level to keep in mind for coming sessions, should price action remain bearish (see daily and weekly charts).

The index spent much of last week chopping around either side of the 3,000 S/R level and this has generated a 4hr chart triangle giving traders trend lines to monitor for any new momentum breakout. The failure to close above this key level on Friday is rather bearish though.

Price action also remains above the weekly Ichimoku Cloud.

Bullish targets: any bullish triangle breakout would bring 3,200 into focus as this is still near the 4hr chart’s 61.8% fib. 

Bearish targets: any bearish triangle breakout would bring the recent Low, near 2,860 into focus followed by the daily chart’s 61.8% fib, near 2,750.

  • Watch for any 4hr chart triangle breakout:

 

 

ASX-200: XJO: The ASX-200 closed with a bearish weekly candle near 6,200 but Futures action suggest a Monday market open down near 6,100 (see 4hr chart). The 6,100 level is an important near-term S/R level as this is the 61.8% Fibonacci level of the daily chart’s 2019-2020 swing High move. Note how the bottom of the weekly Ichimoku Cloud also aligns near the 6,100 level.

The 4hr chart shaped up during last week with a Bear Flag formation and the bearish breakout looks to be underway. I Tweeted about this Bear Flag chart set up on Thursday. The Flag pole here is around 1,000 points and this would project a target near 5,300 which, interestingly, is the region of the weekly support trend line! This weekly trend line supports the long-term 2009-2020 swing High move. However, as mentioned above, the daily chart’s 61.8% level is down near 6,100 so this will be the main level to watch in coming sessions for any new make or break.

Bullish targets: Any bullish recovery above 6,100 will bring the 4hr chart’s 61.8% fib level, near the pre-GFC High of 6,851.50, into focus. 

Bearish targets: Any bearish hold below 6,100 would bring the the 4hr chart’s Bear Flag target of 5,300 into focus.

  • Watch 6,100 for any new make or break:

 

 

 

Gold:  Gold certainly did a bit of catching up last week finishing up $100 from last week’s focus level and closing with a large bullish weekly candle. The metal closed just under $1,675 making this the level to watch for any new make or break.

Daily chart Bull Flag details: Recall that there is a broader Bull Flag breakout in progress on Gold (see daily chart below) and this remains at a total gain, thus far, of around $200. The length of the Daily chart’s Bull Flag pole is about $300 and, according to technical theory, this could be the expected move on any bullish Flag breakout (see daily chart). This Bull Flag breakout remains in progress and brings the $1,790 region into focus; this being the target of the $300 Flag pole above the $1,490 breakout level, and this target is up near previous S/R at $1,800 for added confluence.

Bullish targets: any bullish break above $1,675 would bring $1,700 into focus followed by the Bull Flag target region of $1,790 / $1,800.

Bearish targets: any bearish retreat from $1,675 would bring the 4hr chart’s support trend line followed by $1,650 and $1,600 S/R into focus.

  • Watch $1,675 for any new make or break:

 

 

Oil: Oil price plummeted again last week and the commodity printed a bearish weekly that closed just above $40 making this the level to watch for any new make or break. The fall being attributed to OPEC as much as Coronavirus.

Bullish targets: any bounce up from $40 would bring the 4hr chart’s bear trend line followed by the recently broken 4-yr TL and, then, $50 S/R into focus as the latter is near the 4hr chart’s 61.8% Fibonacci.

Bearish targets: any bearish break below $40 would bring the Feb 2009 Low, near $33.50, back into focus.

  • Watch $40 for any new make or break:

 

 

EUR/USD: The EUR/USD closed with a large, bullish weekly candle following on from last week’s bullish-reversal Morning Star weekly pattern.

The main point to note this week though is that price action has finally broken up and out from a multi-month descending wedge pattern so I will be watching for any follow-through here. This breakout move gave a great trend line breakout during the week for up to 250 pips:

 

EUR/USD 4hr: a wedge TL b/o for up to 250 pips:

 

The target for this wedge breakout move is up near the daily chart’s 61.8% fib, circa 1.19, so watch for any follow through. Price closed the week just below 1.13 making this the level to watch for any new make or break.

Bullish targets: any breakout above 1.13 would bring the weekly 200 EMA, near 1.144 S/R, followed by whole numbers on the way up to 1.19 into focus.

Bearish targets: any bearish hold below 1.13 would bring a 4hr chart support TL followed by 1.12, then the recently broken wedge TL, circa 1.11, and then the 4hr chart’s 61.8% fib, circa 1.10, back into focus.

  • Watch 1.13 S/R for any new make or break:

 

 

AUD/USD: The Aussie put in a recovery last week with a bounce up from the long-term (14-month) wedge support trend line and it printed a bullish, almost engulfing, weekly candle.

Price action is trying to break up through a 10-week bear trend line and, in doing so, has shaped up with a bit of a 4hr chart bullish-reversal Inverse Head and Shoulder pattern. The neckline here is 0.665 so this will be the level to watch for any new make or break.

Bullish targets: Any bullish neckline breakout above 0.665 would bring 0.67 and, then, the 4hr chart’s 61.8% fib, near 0.68, into focus.

Bearish targets: Any bearish neckline respect of 0.665 would bring 0.66, 0.65 and, then, the bottom weekly wedge TL into focus.

  • Watch 0.665 S/R for any new make or break:

 

 

AUD/JPY:  The AUD/JPY closed with a bearish-coloured Spinning Top weekly candle and back near the 70 whole-number S/R level keeping this as the main horizontal level to watch for any new make or break. Price action also remains below an 11-year support trend line and there are new 4hr chart triangle trend lines to monitor.

NB: as per previous weeks, AUD/JPY traders should keep an eye on the broader stock market as this currency pairs often trades in tandem with stock market sentiment. A stock market pullback might take the AUD/JPY along for the ride.

Bullish targets: Any bullish triangle breakout would bring the 4hr chart’s 50% fib of the recent swing Low, near 72, into focus followed by 73 S/R.

Bearish targets: Any bearish triangle breakout would bring whole-number levels on the way down to 65 S/R into focus.

  • Watch 70 S/R and the 11-yr TL and for any 4hr chart triangle breakout:

 

 

NZD/USD: The Kiwi closed with bullish, almost engulfing, weekly candle and back above the 0.625 S/R level and the 20-yr support trend line giving the chart a bit of a bullish-reversal Railway Track appearance. Note, also, how significant this 0.625 support level has been over recent years; it has been a point of reversal on two occasions which begs the question: will this make three?

 

NZD/USD weekly: will this be a triple bounce off 0.625?

 

Price action has shaped up under a revised 4hr chart bear trend line so watch this for any new make or break.

Bullish targets: any bullish trend line breakout would bring 0.64 into focus followed by 0.65, the daily 200 EMA and the 0.66 S/R level.

Bearish targets: Any bearish hold below the trend line would bring 0.63 S/R back into focus followed by 0.625.

  • Watch the 4hr chart bear trend line for any new make or break:

 

 

GBP/USD: The Cable ended up having a good week, likely helped by US$ weakness, and printed an almost bullish engulfing weekly candle. Price action has closed above a 4hr chart bear trend line with bullish momentum suggesting there could be more to come. The close for the week was just below 1.305 and so this is the horizontal level to watch for any new make or break.

Bullish targets: Any bullish breakout above 1.305 would bring 1.32 into focus as this is near the 4hr chart’s 61.8% fib.

Bearish targets:  Any bearish hold below 1.305 would bring 1.30 and and whole-numbers on the way back down to 1.28 into focus.

  • Watch 1.305 for any new make or break:

 

 

USD/JPY: The USD/JPY closed with a bearish weekly candle following last week’s bearish engulfing candle.

Price action ended the week back near 105 S/R and the monthly 200 EMA making this the region to watch for any new make or break. 

Take a look at the weekly chart and note how price action has been range-bound by 105, on the lower side, and 115, on the upper side, for the last three years! Thus, this 105 region will be an important level to monitor in coming sessions!

Bullish targets: Any bullish bounce up from 105 would bring the recently broken 8-rear trend line, followed by 107, 108, 108.5, 109, and 110 into focus as the latter is near the 4hr chart’s 61.8% fib and 5-year trend line. After that, watch other whole number levels on the way up to 115 S/R. 

Bearish targets: Any bearish break below 105 would bring whole-numbers on the way down to 100 into focus (see weekly chart).

  • Watch 105 for any new make or break: