Trade Charting

Last week: There were no trend line breakout trades of any substance last week and the raft of indecision-style weekly candles that were just printed would help to explain this. The uncertainty surrounding recent US political events (Capitol riots and the US President Impeachment) clearly impacted market sentiment last week. This week brings the US Presidential Inauguration, a new US government regime, three Central Bank rate updates and the start of US Earnings season so watch to see if any of these help to shape the next directional move for the broader market and, especially, the US$ index. The Russell-2000 was the only major US stock index to close higher last week with the S&P500, DJIA and NASDAQ all closing with bearish weekly candles. The Emerging Markets ETF (EEM) closed the week strongly but Gold closed lower and remains below the $1,900 threshold and Copper has also paused at resistance.

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 was only one trend line breakout last week on the AUD/USD but this is hardly worth the mention. Articles published during the week can be found here, and here:

AUD/USD: a TL b/o for 60 pips.

This Week: (click on images to enlarge):

- DXY: US$ Index: The US$ index closed with a bullish weekly candle, following last week’s bullish-reversal Hammer-style weekly candle, as price action continues to consolidate within a bullish-reversal Descending Wedge. The last three weekly candles also shape up in a bullish-reversal Morning Star pattern adding weight to some bullish bias here. Watch the wedge trend lines for any breakout and for any potential mean-reversion.

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

- Indecision-style weekly candles: indecision-style weekly candles were printed on a few instruments last week: the DJIA, S&P500, NASDAQ, DAX, ASX-200, Copper, TLT, VIX, Gold, AUD/USD, AUD/JPY, NZD/USD, GBP/USD, GBP/JPY and USD/JPY.

- 10-yr T-Note Interest rate: The chart of the 10-yr Treasury Interest rate shows a recent bullish breakout from the triangle congestion pattern. Watch for any push to the 15 S/R region:

10-yr T-Note Interest rate: a recent bullish breakout:

- 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.

- Central Banks updates: there are three Central Bank rate updates this week: BoC (CAD), BoJ (JPY) and ECB (EUR).

- Stocks above their 200 Day Moving Average: 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 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 continues pushing up to the previous High region of circa 92.50. I wrote an article during the week about using this index and it can be found through the following link:

% of US Stocks above the 200 Day Moving Average:

% of US Stocks above the 200 Day Moving Average (expanded): watch for any push to 92.50:

- 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 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:

- Copper: Copper is often viewed as one metric of economic health and closed with a bearish-coloured Inside weekly candle reflecting indecision and back below the weekly 61.8% Fibonacci. Watch for any push to the whole-number 4 level.

Copper weekly: back below the 61.8% Fib BUT watch for any push to the 4 level:

- Emerging Markets: The Emerging market ETF, EEM, closed with a bullish weekly candle having a long upper shadow reflecting some indecision as it trades just under the previous all time High, near 56.

EEM weekly: watch for any push past the 56 level:

- DJIA: The DJIA closed with a bearish-coloured Spinning Top, and almost Inside, weekly candle reflecting indecision but keep watch for any ascending triangle-style activity above this psychological 30,000 level.

DJIA weekly: indecision at these lofty levels:

- NASDAQ composite: The NASDAQ Composite Index closed with a bearish-coloured Spinning Top, and almost Inside, weekly candle reflecting indecision and back below the 13,000 level.

NASDAQ weekly: some indecision and back below 13,000:

- DAX weekly: The DAX closed with a bearish-coloured, essentially Inside, weekly candle reflecting indecision and back below the 13,850 level:

DAX weekly: indecision and back below 13,850:

- 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 it closed with a bullish weekly candle. The ADX has broken above the threshold 20 level AND price action is above the $15 resistance level:

DBC weekly: a descending wedge b/o continues:

- 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 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 so this would be the target for this continuation move.

RUT weekly: watch for any push to 2,200:

- Bonds / TLT: The Bond ETF, TLT, closed with a bullish-coloured Spinning Top weekly candle and below the recently broken support trend line BUT the Elliott Wave indicator is still suggesting an uptrend from here:

TLT weekly:

- 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:

- VIX: the Fear index closed with a bullish-coloured Long Legged Doji weekly candle reflecting indecision:

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

Calendar: Courtesy of Forex Factory:

Earnings: Courtesy of Earnings Whispers: Earnings season starts this week:

Market Analysis:

S&P500: The S&P500 closed off its all-time High and with a bearish-coloured Spinning Top, and almost Inside, weekly candle reflecting indecision as it navigates these lofty levels against US political uncertainty and a worsening US Covid situation.

Trading volume was lower last week and I have revised the bear trend line SO watch for any new volume breakout above this and the 200 MA.

S&P500 ETF: SPY weekly: Volume was lower last week so watch for any Volume pop back above the TL & 200 MA:

As with some other trading instruments, the trend remains UP here for the time being though with the print of higher Highs and higher Lows. However, this trend has been in play for 11 weeks now 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.

The index closed the week just above 3,750 making this the level to watch for any new make or break and there are revised 4hr chart trend lines to monitor for any new breakout.

Note, 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 hold bounce up from 3,750 and the 11-week support trend line would bring 3,800 and 3,850 into focus.

Bearish targets: any bearish 4hr chart break of the 11-week support trend line would bring whole-number levels on the way down to 3,500 into focus as this still lies near the 4hr chart’s 61.8% Fibonacci.

Watch 3,750 and for any 4hr chart trend line breakout:

ASX-200: XJO: The ASX-200 closed with a bearish-reversal Hanging Man but also indecision-style Inside weekly candle and near 6,700 making this the level to watch in coming sessions for any new make or break.

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 resistance levels to negotiate in coming sessions.

Trading volume remains subdued so watch for any new breakout:

XJO weekly: watch for any new TL b/o:

Keep in mind 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:

Last week’s wedge trend lines remain in place on the 4hr chart to monitor for any new momentum breakout. Note how ADX momentum remains low and declining on the daily chart so watch for any new uptick here.

Bullish targets: Any bullish 4hr chart wedge trend line breakout would bring 6,750 and 6,800 into focus. After this, watch the pre-GFC High of 6,851.50 followed by the 2020 High of 6,893.70.

Bearish targets: Any bearish 4hr chart trend line breakout below 6,700 would bring the bottom wedge trend line and 6,600 into focus. After that, watch whole-numbers on the way down to 6,000. 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 wedge trend line breakout:

Gold: Gold closed with a bearish-coloured Spinning Top weekly candle and still below the all-important $1,900 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.

Keep in mind that ADX momentum still remains low on the daily and 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.

There are revised 4hr chart trend line to watch for any new breakout; I kept revising these during the week as ADX momentum declined on the 4hr time frame.

Bullish targets: any bullish 4hr chart trend line breakout would bring $1,850 followed by $1,900 into focus with the latter being near the 4hr chart’s 61.8% Fibonacci.

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

Watch for any new 4hr chart trend line breakout:

EUR/USD: The EUR/USD closed with a bearish weekly candle after last week’s warning from the bearish-reversal Shooting Star-style weekly candle.

There had been potential for a 4hr chart Bull Flag but price broke below the support of the monthly 200 EMA. However, the revised trend lines still confer a bit of a Bull Flag appearance here so these will be the ones to watch for any new momentum breakout; either up or down. Keep an eye on the DXY though as any bullish mean reversion on the DXY would put pressure on the EUR/USD and possibly support further bearish mean reversion.

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 Flag 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 1.40.

Bearish targets: Any bearish 4hr chart Flag breakdown would bring 1.20 and 1.19 into focus as the latter 1.19 is still near the 4hr chart’s 61.8% Fibonacci.

Watch for any new Bull Flag breakout:

AUD/USD: The Aussie closed with a bearish-coloured Spinning Top weekly candle reflecting indecision as price action just managed to hold above an 11 week support trend line.

As mentioned over recent weeks: 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 11 weeks now 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 remains in a bullish-reversal descending wedge on the weekly time frame.

There are revised 4hr chart trend lines to monitor for any new momentum-based breakout as price closed the week just above 0.77 making this the support level to watch for any new make or break.

NB: The longer-term target for any bullish continuation from the weekly/monthly chart’s Descending Wedge breakout is the 61.8% Fibonacci, near 0.90.

Bullish targets: Any bullish 4hr chart triangle breakout above 0.78 would bring 0.79 and 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 triangle breakout below 0.77 and the 11 week support trend line would bring whole numbers on the way down to 0.73 into focus as the latter now lies near the 4hr chart’s 61.8% Fibonacci.

Watch for any new 4hr chart triangle breakout;

AUD/JPY: The AUD/JPY closed with a bearish-coloured Spinning Top and Inside weekly candle reflecting indecision as price action just managed to hold above an 11 week support trend line here too.

The other point of note for AUD/JPY traders is to keep an eye on the sentiment with stocks, especially the S&P500 index, as the two are generally highly aligned; as the chart below reveals. Any pause or pullback with stocks might render similar for the AUD/JPY:

AUD/JPY versus S&P500: a higher degree of positive correlation:

There are revised 4hr chart trend lines to monitor for any new breakout as price closed near 80 S/R making this support level to watch for any new make or break.

Bullish targets: Any bullish 4hr chart bounce up from 80 S/R would bring 81 and 82 S/R into focus.

Bearish targets: Any bearish 4hr chart break 80 S/R and the 11-week support trend line would bring 79, 78, and, then, the 77 and 7-yr trend line region into focus.

Watch 80 S/R and for any new 4hr chart momentum trend line breakout;

NZD/USD: The Kiwi closed with a bearish, almost ‘engulfing’, weekly candle and broke down late in the week below a 11-week support trend line.

As mentioned over recent weeks: The trend had been UP here for some time with the print of higher Highs and higher Lows BUT this trend of 11 weeks has now been broken. Note the recent break of the SUPPORT trend line on the 4hr chart BUT, also, watch for any potential Bull Flag formation. 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 remains in a bullish-reversal descending wedge on the weekly time frame.

There are revised 4hr chart trend lines to monitor for any new breakout, including the potential Bull Flag.

Bullish targets: Any bullish 4hr chart bounce off the bottom Flag trend line (near 0.71) would bring 0.72 into focus followed by the upper Flag trend line. After that, watch whole-number levels on the way up to 0.75 as this is the next major horizontal S/R zone.

Bearish targets: Any bearish 4hr chart Flag breakout below 0.71 would bring 0.70 and 0.69 into focus with the latter being near the 4hr chart’s 61.8% Fibonacci.

Watch 0.71 and for any new 4hr chart Flag breakout:

GBP/USD: The Cable closed with a bullish-coloured Spinning Top weekly candle after price action, once again, rejected the 1.37 level and, then, chopped sideways under 1.365.

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 and note how this multi-year trend line lies near the 4hr chart’s 61.8% Fibonacci; for some added confluence!

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

Bullish targets: Any bullish 4hr chart triangle breakout would bring 1.365 and 1.37 into focus followed by whole-number levels on the way up to 1.50, 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 triangle breakout would bring 1.35 into focus followed by a 7-month support trend line and the previously broken 14-year bear trend line as these lie near the 4hr chart’s 61.8% Fibonacci.

Watch for any 4hr chart triangle breakout:

USD/JPY: The USD/JPY closed with a bearish-coloured Long Legged Doji weekly candle reflecting indecision as it holds near 104 S/R keeping this the 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 AND note the decline in 4hr momentum late last week.

NB: There is still the the look of a bullish-reversal Descending Wedge on the weekly chart.

Bullish targets: Any bullish 4hr chart trend line breakout would, effectively, trigger the weekly chart’s Bull Flag breakout and then bring 105 into focus.

Bearish targets: Any bearish 4hr chart trend line breakout would bring 103 back into focus.

Watch for any new 4hr chart trend line breakout:

GBP/JPY: The GBP/JPY closed with a bullish-coloured Spinning Top-style weekly candle and, whilst price action has broken below a recent 4hr chart support trend line, this is giving the chart a bit of a Bull Flag appearance.

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 wedge breakout would bring 141.50 into focus followed by whole-number levels on the way up to the weekly chart’s 61.8% Fibonacci, near 170.

Bearish targets: Any bearish 4hr chart wedge breakout below 141 would bring 140 into focus followed by 139 level as the latter is near the recently broken 40-yr trend line and 4hr chart 61.8% Fibonacci.

Watch 141 and the 4hr chart’s wedge trend lines for any new breakout.

Indecision ahead of Earnings season and Presidential Inauguration