Trade Charting

Last week: Christmas week resulted in some low-volume breakout trades and this was exacerbated with news of the post-Brexit trade deal and the continued wait for a US stimulus package. All four of the major US stock indices, the S&P500, NASDAQ, DJIA and Russell-2000, closed with bullish weekly candles and the small caps Russell-2000 continues to push strongly to new all-time Highs. Contrary to this bullish theme however, the DAX, Copper and Emerging Markets all closed lower for the week so watch for any pause here, especially given that the US$ index closed with a bullish weekly candle which could help put a pause on the recent risk-on rally. Many trading instruments have again printed indecision-style weekly candles and it is likely to be another low-volume week given that New Year’s Day falls on Friday but keep an eye out for any developing news regarding US stimulus.

Updates over New Year week: updates will be less frequent and, at times, less detailed during the holiday period.

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: Articles published during the week can be found here, here, and here:

S&P500: a TL b/o for 100 points.
ASX-200: a TL b/o for 90 points and another for 50 points.
NZD/USD: a TL b/o for 100 pips.
GBP/USD: a TL b/o for 200 pips and another for 200 pips.
GBP/JPY: a TL b/o for 200 pips and another for 200 pips:

This Week: (click on images to enlarge):

- DXY: US$ Index: The US$ index closed with a bullish-reversal Inverted Hammer weekly candle as price action continues to consolidate within a bullish-reversal Descending Wedge. I note a report last week that Deutsche Bank considers Covid vaccine news to be USD positive so watch to see if these two bullish technical signals support this thesis. If so, this would likely put pressure on USD-based currency pairs and commodities:

DXY weekly: watch for any Descending Wedge mean-reversion activity:

- 10-yr T-Note Interest rates: some further encouraging news for the US$ could be coming from Treasury Interest rates. Note the congestion with the triangle pattern below. Any bullish breakout here might tie in with a US$ recovery:

10-yr T-Note Interest rates: watch for any new triangle breakout: up or down:

- 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.

- Stocks above their 200 Day Moving Average: The percentage of stocks above their 200 Day Moving Average remains above the 85% region but might be plateauing. The first chart below gives a perspective of this current level and shows how there often tends to be some mean-reversion once such lofty levels are reached. Thus, it might be prudent to keep watch for any pause or pullback with US stocks given their recent bullish run. The second, expanded, chart shows that this rally might be running out out of puff:

% of US Stocks above the 200 Day Moving Average:

- Indecision-style weekly candles: indecision-style weekly candles were printed on a few instruments last week: the DJIA, S&P500, DAX, TLT, XJO, Gold, EUR/USD, AUD/USD, AUD/JPY, GBP/USD, USD/JPY and GBP/JPY.

- Santa Claus Rally: check out this Tweet out from Ryan Detrick.

- S&P500: Keep the bigger picture in perspective with the recent moves:

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 bearish-reversal Hanging Man weekly candle under the weekly 61.8% Fibonacci. Watch this level for any new make or break and for any push to the whole-number 4 level:

Copper weekly: watch the weekly chart’s 61.8% Fib level, circa 3.6, for any new make or break:

Copper weekly expanded: note the bearish-reversal Hanging Man weekly candle:

- Emerging Markets: The Emerging market ETF, EEM, gapped lower to start the week and closed lower, albeit with a bullish weekly candle, so watch for any push to the previous High, near 52.

EEM weekly: watch for any push to the 52 level:

- DJIA: The DJIA closed with another bullish-coloured Spinning Top weekly candle so watch for any ascending triangle-style breakout move from this psychological 30,000 level.

DJIA weekly: holding above the psychological 30,000:

- NASDAQ composite: The NASDAQ Composite Index closed with another bullish weekly candle and at a new all-time High.

NASDAQ weekly: another new all-time High last week:

- DAX weekly: The DAX closed with a bearish-coloured Doji weekly candle as it trades just under the all-time High. Watch for any ascending triangle-style breakout.

DAX weekly: an indecision weekly candle:

- Commodities: The Commodity ETF, DBC, has made a bullish breakout from the bullish-reversal Descending Wedge that I have been monitoring for some months. The ADX has still not broken above the threshold 20 level yet so watch this for any uptick and for any close above the $15 resistance level:

DBC weekly: a descending wedge b/o looks to have started:

- Russell-2000: The Russell-2000 is often viewed as the ‘Canary in the Coal Mine’ for US stocks and the index closed with another bullish weekly candle and at a new all-time High. Note how the 61.8% Fibonacci extension of the Covid-induced Swing Low is up near 2,200 and this would be one target for any continuation move.

RUT weekly: another new all-time High:

- Russell-2000 versus S&P500: The Russell-2000 small-caps index has been leading the charge against the S&P500 but note how this relationship is still near the 61.8% Fibonacci. Watch this region for any new make or break and for clues about how each index might keep moving:

Russell-20000 v S&P500:

- Bonds / TLT: The Bond ETF, TLT, closed with a bullish-coloured Doji weekly candle reflecting ongoing indecision. The Elliott Wave indicator is still suggesting an uptrend from here:

TLT weekly:

- VIX: the Fear index closed with a bearish weekly candle having a long upper shadow reflecting last week’s volatility.

VIX weekly: watch the 30 level for any new make or break:

Calendar: Courtesy of Forex Factory: another quiet week with New Year:

Market Analysis:

S&P500: The S&P500 closed with another bullish-coloured Spinning Top weekly candle reflecting ongoing indecision as price hovers near the all-time High and 3,7000 whole-number level.

Trading volume was lower last week due to Christmas so keep watch for any new breakout.

S&P500 ETF: SPY weekly: Watch for any Volume pop back above the bear trend line:

There are revised 4hr chart triangle trend lines to monitor for any new breakout AND note the continued low level of momentum. The mantra remains the same: watch for any momentum-based trend line breakout: up or down!

Note, also, on the weekly chart, 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 triangle trend line breakout would bring 3,800 into focus.

Bearish targets: any bearish 4hr chart triangle trend line breakout would bring 3,600 into focus followed by whole-number levels on the way down to 3,200.

Watch 3,700 and for any 4hr chart trend line breakout:

ASX-200: XJO: The ASX-200 closed with a bearish-coloured Spinning Top style weekly candle after, again, testing 6,700 during the week.

The index could not break above 6,700 and closed just below this level keeping this as the next major resistance zone to monitor.

As mentioned over recent weeks: The GFC High of 6,851.50 and 2020 High of 6,893.70 loom large and ahead of current price action and will also be the resistance levels to negotiate in coming sessions.

Trading volume was lower last week due to Christmas:

XJO weekly: lighter Volume over Christmas week:

Keep in mind, too, that the recent Golden Cross remains valid. This 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:

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

Bullish targets: Any bullish 4hr chart trend line breakout above 6,700 would bring 6,800 into focus followed by the pre-GFC High of 6,851.50 and, then, the 2020 High of 6,893.70.

Bearish targets: Any bearish 4hr chart trend line breakout would bring 6,600 followed by whole-numbers on the way down to 6,000 into focus. The 6,200 level is still near the daily chart’s 61.8% Fibonacci so that would be in focus as well.

Watch 6,700 and for any 4hr chart trend line breakout:

Gold: Gold closed with a bearish-coloured Spinning Top weekly candle as it continues to struggle under the $1,900 S/R.

The $1,900 level remains in keen focus as it is the neck line of the multi-week bullish chart pattern that has been monitored here for some time.

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 back trading below this neckline region!

$1,900 remains the region in focus for any bullish Cup or Inverse H&S breakout:

Any new move 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 $1,900 level over the coming days / weeks especially as the US$ 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 trend lines to monitor for any new breakout BUT traders need to closely monitor the US$ index as it shapes up in a recent bullish-reversal chart pattern and printed a bullish-reversal candle for last week.

The expanded view of the weekly chart below still shows a possible Bull Flag on this longer time frame as well.

Bullish targets: any bullish 4hr chart bounce off the support trend line would bring $1,900 back into focus followed by the weekly chart’s upper Flag trend line.

Bearish targets: any bearish 4hr chart support trend line breakdown would bring $1,850 into focus followed by $1,800 and, then, the recent Low, near $1,770.

Watch for any new 4hr chart trend line breakout:

EUR/USD: The EUR/USD closed with a bearish-coloured Inside weekly candle reflecting indecision as it struggles under 1.22 S/R.

The trend remains UP here for the time being though with the print of higher Highs and higher Lows BUT this trend has been in play for 8 weeks and so a pause or pullback would not be out of order. As I always remind traders, trends do not travel in straight lines unabated; they zig and zag. So some caution is needed here at the moment, especially given the US$ index printed a bullish-reversal weekly candle.

Price action is consolidating in a 4hr chart triangle and just under 1.22 so watch for any new momentum-based trend line breakout.

NB: Note that the longer-term target for any continued bullish movement, following the recent break of the 13-yr trend line, is the monthly chart’s 61.8% Fibonacci, near 1.40.

Bullish targets: Any bullish 4hr chart triangle breakout above 1.22 would bring 1.23 followed by whole-numbers on the way up to a previous weekly chart High, circa 1.26, into focus. After that, watch for any continued push up 1.40.

Bearish targets: Any bearish 4hr chart triangle breakdown below the support trend line would bring the monthly 200 EMA into focus followed by 1.21, 1.20 and 1.19. The latter 1.19 is still near the 4hr chart’s 61.8% Fibonacci.

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

AUD/USD: The Aussie closed with a bullish-coloured Long Legged Doji weekly candle reflecting indecision as it continues trading near 0.76 making this the level to keep watch for any new make or break.

As with the EUR/USD, the trend remains UP for now with the print of higher Highs and higher Lows BUT this trend has been in play for 8 weeks and so a pause or pullback would not be out of order. As I always remind traders, trends do not travel in straight lines unabated; they zig and zag. So some caution is needed here at the moment, especially given the US$ index printed a bullish-reversal weekly candle.

There are revised 4hr chart triangle trend lines to monitor for any new momentum-based breakout.

Bullish targets: Any bullish 4hr chart triangle trend line breakout would bring 0.77 followed by whole-number levels on the way up to the weekly chart’s Descending Wedge breakout target of 0.90 into focus.

Bearish targets: Any bearish 4hr chart triangle trend line breakout would bring 75 S/R into focus followed by whole numbers on the way down to 0.72 as the latter still lies near the 4hr chart’s 61.8% Fibonacci.

Watch 0.76 and for any new 4hr chart triangle trend line breakout;

AUD/JPY: The AUD/JPY closed with a bullish-coloured Spinning Top weekly candle, still above a 7-yr bear trend line and still just below 79 S/R making this the level to watch for any new make or break.

The 79 is a major S/R zone for the AUD/JPY as the monthly chart below reveals.

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

Bullish targets: Any bullish 4hr chart trend line breakout above 79 would bring 80 into focus.

Bearish targets: Any bearish 4hr chart support trend line breakdown would bring 78, 77.5 and, then, the 77 and 7-yr trend line region into focus.

Watch 79 S/R and for any new 4hr chart momentum trend line breakout;

NZD/USD: The Kiwi closed with a bearish-reversal Hanging Man weekly candle as it continues to struggle to break through the 0.72 level. This is the first bearish candle in eight weeks though so some perspective is needed here.

There are revised trend lines on the 4hr chart so watch these for any new momentum-based breakout.

Bullish targets: Any bullish 4hr chart triangle breakout would bring 0.72 followed by whole-number levels on the way up to 0.75 into focus as this is the next major horizontal S/R zone.

Bearish targets: Any bearish 4hr chart triangle breakout would bring 0.70 and 0.69 back into focus.

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

GBP/USD: The Cable closed with a bullish-colored Spinning Top weekly candle reflecting the indecision that plagued the GBP/USD as it navigated the 14-year bear trend line and in the wait for any post-Brexit trade deal. The late announcement of a trade deal resulted in a bullish push above 1.35 making this the support region to watch for any new make or break.

The post-Brexit trade deal optimism could be moderated by the growing case load of Covid infections in parts of the UK and the tough UK Covid lock-down conditions. Max Rosser’s chart below, showing the number of daily new confirmed Covid-19 cases, is rather concerning:

Number of daily new confirmed Covid-19 cases

The longer-term target for any bullish continuation above the 14-yr trend line is the monthly chart’s 61.8% Fibonacci, near 1.75.

There are revised trend lines on the 4hr chart so watch these for any new momentum-based breakout.

Bullish targets: Any bullish 4hr chart trend line breakout above 1.363 would bring whole-number levels on the way up to 1.50, a previous S/R region on the weekly chart, into focus followed by further whole-number levels on the way up to 1.75.

Bearish targets: Any bearish 4hr chart break of the support trend line would bring 1.35, 1.34 and the 14-year bear trend line into focus followed by the 7-month support trend line.

Watch 1.35 and the 4hr chart triangle trend lines for any new momentum breakout:

USD/JPY: The USD/JPY closed with a bullish coloured Spinning Top, and almost Inside, weekly candle reflecting indecision. This weekly candle also has the look of a bullish-reversal Inverted Hammer which is noteworthy given the the look of a bullish-reversal Descending Wedge on the weekly chart.

Price action remains below 104 keeping this as the resistance level to watch in coming sessions for any new make or break.

There are revised 4hr chart triangle trend lines to monitor for any new momentum-based breakout.

Bullish targets: Any bullish 4hr chart triangle breakout would bring 104 followed by the 4-month bear trend line into focus.

Bearish targets: Any bearish 4hr chart triangle breakout would bring 103 into focus.

Watch for any 4hr chart triangle breakout:

GBP/JPY: The GBP/JPY closed with a bullish-coloured Spinning Top weekly candle reflecting the indecision that plagued price action as it navigated the 40-yr bear trend line in the wait for any post-Brexit trade deal. The late announcement of a trade deal resulted in a bullish push above this resistance but it paused after rejecting the 141 level making this the level to watch for any new make or break.

The longer-term target for any bullish continuation above the 40-yr trend line is the weekly chart’s 61.8% Fibonacci, near 170.

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

Bullish targets: Any bullish 4hr chart breakout above 141 would bring whole-number levels on the way up to the weekly chart’s 61.8% Fibonacci, near 170.

Bearish targets: Any bearish 4hr chart breakout would bring 140 and 40-yr trend line back into focus.

Watch the 4hr chart’s trend lines for any new breakout.

Heading into the New Year