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Jobs report helps US stocks

March 7, 2021

Last week: The rise with US bond yields and the US$ continued to dominate market commentary last week and this kept pressure on US tech stocks with the NASDAQ under-performing other US stock indices for the week.The stronger US$ also hampered some commodities and commodity currencies and the Emerging markets ETF, EEM, also closed lower with the souring of risk sentiment but here was still no flight to safety movement into Gold or the Yen. However, the much better than expected NFP jobs report on Friday helped to boost US stocks so that the four major stock indices, S&P500, DJIA, NASDAQ and Russell-2000, all closed off their weekly Lows and the DJIA even managed to close green for the week.

The coming week will be rather important to see which way market sentiment moves following Friday’s recovery. There has also been positive weekend news about the US Covid stimulus relief Bill and this is likely to boost sentiment but Covid is back featuring with new headlines as global cases rise for the first time in seven weeks. Added to these news items, there have been some technical signals to factor into the mix. The Index of % Stocks above their 200 Day MA has been flashing warning signals about a potential market pause for many weeks now and regular readers, therefore, won’t be surprised by the recent souring of risk sentiment, increased volatility and pullbacks seen with many US stocks. I think it would be rather foolish to expect stocks to remain on an unfettered, upward trajectory and wonder if this heightened volatility might be a function of the start of a potential ‘Distribution‘ phase? I have been reminding traders for weeks now that this most recent stock rally, off the Covid-inspired March 2020 Lows, has run for around 12 months and trends do not travel in straight lines forever; they tend to zig and zag along the way. It is my continued belief that a pullback should be anticipated and would be a healthier way to underpin any eventual bullish continuation.

 

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 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:  There were some decent trend line breakouts last week. Updates posted throughout last week can be found through the links here, here, here and here:

 

  • SPX: a TL b/o for 60 points and another for 150 points.
  • ASX-200: a TL b/o for 100 points.
  • AUD/USD: a TL b/o for 80 pips and another for 65 pips.
  • AUD/JPY: a TL b/o for 100 pips.
  • USD/JPY: a TL b/o for 150 pips after breaking above last week’s focus level of 107:

 

This Week: (click on images to enlarge):

 

    • DXY: US$ Index: The US$ index closed with a large, bullish weekly candle and has broken up and out from the 12-month bearish-reversal descending wedge. Price action has also broken free of the daily Ichimoku Cloud so watch for any bullish continuation. However, the previously broken 10-yr trend line is just above and lies near the weekly Cloud so watch this region for any resistance, should price reach up that far:

 

DXY weekly: a new Descending Wedge b/o BUT note the weekly Cloud & previous TL above:

 

DXY daily: Price has broken free of the daily Cloud:

 

    • 10-yr T-Note Interest rate: The chart of the 10-yr Treasury Interest rate shows the recent bullish breakout from the triangle congestion pattern is moving along. The 15 level has been taken out so now watch the weekly 200 EMA region for any new make or break and for any continuation move up to the weekly 61.8% Fibonacci, near 21.50. This latest rise has put pressure on stocks however Ryan Detrick notes that, historically, higher 10-yr Treasury Interest rates are not necessarily bad for stocks; just something else to keep in mind.

 

  • 10-yr T-Note Interest rate:  the bullish breakout continues but now watch the weekly 200 EMA region for any potential resistance:

 

 

    • Financials ETF: XLF weekly: As mentioned last week: Financial stocks often fare well in an environment of rising yields so this ETF might be worth considering given the monthly close above the previous all time High region of $31. Price action has marched higher to start this month:

 

Financials ETF: XLF weekly: watch for any continuation above $31:

 

 

    • % Stocks above their 200 Day Moving Average Index: 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 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 index is struggling under the 92.50% level. The next few weeks continue to be very interesting!

 

% of US Stocks above the 200 Day Moving Average: watch for any further reaction at the 92.50% region:

 

% of US Stocks above the 200 Day Moving Average (expanded): still struggling under 92.50%; 

 

    • Central Bank update: there are two Central Bank rate updates this week: BoC (CAD) and ECB (EUR).

 

    • 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 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:

 

 

    • S&P500 and prior trends: Ryan Detrick compares the current S&P500 to previous markets and also suggests a pause might be in store before any potential continuation.

 

    • Copper: Copper is often viewed as one metric of economic health and closed with a bearish-coloured Long Legged Doji-style weekly candle reflecting the indecision that abounds at the moment.

 

Copper weekly: note the indecision-style weekly candle:

 

 

    • Emerging Markets: The Emerging market ETF, EEM, closed with a bearish-coloured Spinning Top weekly candle reflecting indecision. Keep watch for any deeper pullback following this lengthy 12-month rally.

EEM weekly: watch the 12-month TL:

 

 

    • DJIA: The DJIA closed with a bullish weekly candle and remains above the 12-month support trend line so watch this for any new make or break. Any serious sell-off following a break of this support trend line would bring the weekly chart’s 61.8% Fibonacci, circa 23,350, into focus.

 

DJIA weekly: watch the 12-month support trend line for any new make or break.

 

 

    • NASDAQ composite: The NASDAQ Composite Index closed with a bearish weekly candle and broke below the 12-month support TL. Traders need to watch for any potential Bull Flag formation, but, any serious sell off would bring the weekly chart’s 61.8% Fibonacci, circa 9,500, into focus.

 

NASDAQ weekly: watch for any potential Bull Flag:

 

 

    • Growth versus Value: this pullback seen on the NASDAQ is reflected in the weekly chart below of Growth versus Value. Whether this rotation is going to be temporary or sustained remains to be seen but one investor’s view is that the tech rally might be over.

 

Growth versus Value weekly: watch for any push down to the weekly 61.8% Fibonacci, near 1.78:

 

    • DAX weekly: The DAX closed with a bullish weekly candle and back above the 13,850 level. Watch the 12-month support trend line for any new make or break.

 

DAX weekly: watch the 12-month support TL:

 

 

    • 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 closed with a large, bullish weekly candle; bucking the trend of some other commodities. The ADX remains above the threshold 20 level AND price action continues higher above the $15 resistance-turned-support level.

 

DBC weekly: closed with a large bullish-weekly candle; despite the stronger US$; 

 

 

    • 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 Long Legged Doji reflecting the indecision that exists at the moment. The index continues to hold near the 61.8% Fibonacci extension of the Covid-induced Swing Low, for the time being, BUT watch for any pause following this lengthy rally.

 

RUT weekly: watch for any pause:

 

 

    • Bonds / TLT: The Bond ETF, TLT, closed with a bearish-coloured Spinning Top weekly candle BUT still above the weekly chart’s 61.8% Fibonacci.The Elliott Wave indicator is still suggesting an uptrend from here though so watch the 61.8% Fibonacci for any potential ongoing support:

 

TLT weekly: still holding above the 61.8% Fibonacci so watch for any bounce here:

 

 

    • 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: a TL b/o BUT keep watch of 6.50 for any new break:

 

 

    • VIX: the Fear index closed with a bullish-coloured Spinning Top-style weekly candle. Watch for any new break above 30:

 

VIX weekly: watch for any new break back above 30:

 

 

Calendar: Courtesy of Forex Factory:

 

 

Earnings: Courtesy of Earnings Whispers:

 

 

Market Analysis:

 

S&P500: The S&P500 closed with a bearish-coloured Doji weekly candle reflecting indecision after breaking down through a 12-month support trend line during the week. Price recovered on Friday though, following the upbeat NFP jobs report, to close back above this trend line region making this the area to watch for any new make or break.

A pause or pullback here would not surprise, even if there is to be eventual bullish continuation. A serious sell-off following any new decisive break of this 12-month support trend line would bring the weekly chart’s 61.8% Fibonacci, circa 2,800, into focus.

Trading volume was higher last week and is holding above the bear trend line and 200 MA so watch for any follow-through. 

 

S&P500 ETF: SPY weekly: Volume was higher last week:

 

The Index closed the week just below 3,850 making this the horizontal level to watch for any new make or break but there are revised 4hr chart trend lines to also monitor for any new breakout.

NB: The second weekly chart shows 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 breakout, above 3,850, would bring 3,900 into focus followed by 3,950.

Bearish targets: any bearish 4hr chart break back below the 12-month trend line would bring 3,800 into focus followed by the 4hr chart triangle trend line and 3,750. After that, watch whole-numbers on the way down to the weekly chart’s 61.8% Fibonacci retracement level, near 2,800. Traders need to watch for any potential weekly chart Bull Flag activity around this 12-month support trend line.

  • Watch 3,850 and the 12-month support TL for any new make or break:

 

 

 

ASX-200: XJO: The ASX-200 managed to close the week with a small, bullish candle but one having a long upper shadow revealing that sellers stepped up after some initial buying. The index closed the week just above 6,700 so this remains the level to monitor for any new make or break. 

As mentioned over recent weeks: The pre-GFC High of 6,851.50, pre-2020 High of 6,893.7 and 2020 High of 7,197.2 loom large and ahead of current price action and are proving to be strong resistance levels for the index.

Trading volume was not as high as the previous week but is still above the 200 MA and bear trend line so watch for any follow-through volume with this selling.

 

XJO weekly: still above the TL and 200 MA:

 

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:

 

XJO daily: the recent Golden Cross remains valid for the time being:

 

There are revised 4hr chart trend lines to monitor for any new breakout BUT is is the horizontal S/R levels that will likely be more of a focus.

Note how ADX momentum still remains low on the daily chart so watch for any new ADX breakout over 20.

Bullish targets: Any bullish breakout above 6,800 would bring the 4hr chart triangle trend line and the pre-GFC high of 6,851.50 into focus. After that, watch the pre-2020 High of 6,893.70, the whole-number 7,000 and, then, the 2020 High of 7,197.20.

Bearish targets: Any bearish 4hr chart triangle breakout would bring 6,700 and 6,600 into focus.

  • Watch 6,800 and for any new 4hr chart triangle breakout;

 

 

 

Gold:  Gold closed with another bearish weekly candle and broke below the $1,700 support level which seems to have quashed the recent hopes for any weekly Bull Flag. The stronger US$ has put pressure on the precious metal and the latest US$ breakout means there could be more retracement to come. All of this, though, is only helping to support my thesis for a developing bullish Inverse H&S pattern.

As mentioned over recent months: This price action and hold 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. 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 $1,900 level over the coming sessions especially as the US$ 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.

 

Price action closed the week just below $1,700 so this is the horizontal level to watch for any new make or break.

Keep in mind that ADX momentum still remains low on the weekly time frame but is edging higher, along with the bearish DMI, so watch this metric for any new uptick to give clues about the next momentum move; either up or down!

Placing Fibonacci retracement on the weekly chart shows the 61.8% level to be down near $1,500 so that would be the longer term target if selling continues in the face of the stronger US$. It is worth noting that the $1,500 level is the at the lower end range for any potential Right Shoulder of the developing Inverse H&S pattern so keep this in mind as well!

There are revised 4hr chart trend lines to monitor too and these actually show a descending wedge so keep an open mind and watch for any momentum based trend line breakouts: up or down. Remember, trends do not travel in straight lines.

Bullish targets: any bullish 4hr chart wedge breakout would bring $1,750 and $1,770 back into focus as the latter has been a recent S/R level and is near the 4hr chart’s 61.8% Fibonacci. After that watch $1,800, $1,850 and $1,900.

Bearish targets: any bearish 4hr chart hold below $1,700 would bring the $1,670 recent S/R level into focus.

  • Watch $1,700 and for any 4hr chart wedge breakout:

 

 

EUR/USD: The EUR/USD closed with a large, bearish weekly candle and back down near 1.19 making this the level to monitor for any new make or break.

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

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. This trend line breakout was flagged back in a post on August 2nd 2020. Price at the breakout was around 1.17 and has reached up as far as 1.23, a move of around 600 pips, so this has been a breakout worth monitoring.

Bullish targets: Any bullish 4hr chart channel trend line breakout would bring 1.20 and 1.21 followed by the monthly 200 EMA and 1.22 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 to 1.40.

Bearish targets: Any bearish 4hr chart break below 1.19 would bring 1.18 into focus followed by 1.17.

  • Watch 1.19 for any new 4hr chart momentum-based trend line breakout; especially with this week’s ECB rate update.

 

 

AUD/USD: The Aussie closed with a bearish-coloured Spinning Top weekly candle and back below 0.77 keeping this as the level to watch for any new make or break.

I have included a daily chart here this week and note the close below a 12-month support trend line. I have added this on to the 4hr chart as well. This will be worth monitoring and, as with any new support trend line break; watch out for a potential Bull Flag.

There are revised 4hr chart trend lines to monitor for any new momentum-based breakout and note the look of a descending wedge so keep an open mind here; in spite of the strengthening US$.

NB: The longer-term target for any bullish continuation from the weekly/monthly chart’s Descending Wedge breakout is the weekly 61.8% Fibonacci, near 0.90. This monthly wedge trend line breakout was also flagged back in the post on August 2nd 2020. Price at the breakout was around 0.71 and has reached up as far as 0.80, a move of around 900 pips, so has been another breakout worth monitoring.

Bullish targets: Any bullish break above 0.77 would bring the 4hr chart’s bear wedge trend line followed by the 12-month TL into focus. After that, watch 0.78 and 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 hold below 0.77 would bring 0.76 and 0.75 into focus.

  • Watch 0.77 for any new make or break; 

 

 

AUD/JPY:  The AUD/JPY managed to close with a bullish weekly candle despite the souring risk sentiment. This was probably more of a function of Yen weakness than AUS strength though. Price action closed back down near 83 so this will be the level to watch for any new make or break.

As mentioned over recent weeks: 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 with stocks might render similar for the AUD/JPY but note the bit of divergence that has crept in here of late:

 

AUD/JPY versus S&P500 (gold line): a higher degree of positive correlation BUT some recent divergence:

 

 

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

Bullish targets: Any bullish 4hr chart triangle breakout would bring 84 and 85 S/R into focus.

Bearish targets: Any bearish 4hr chart triangle breakout would bring the 19-week support trend line into focus. After that, watch the monthly 200 EMA and whole-numbers on the way down to 76 as this is still near the recently broken 7-yr bear trend line.

  • Watch for any new 4hr chart momentum-based trend line breakout;

 

 

NZD/USD: The Kiwi closed with a closed with a bearish weekly candle following last week’s bearish-reversal Shooting Star-style weekly candle.

Price action tested 0.71 last week making this the support level to watch for any new make or break.

As with the Aussie, I have included a daily chart and note the close below a 12-month support trend line. I have added this on to the 4hr chart as well. This will be worth monitoring and, as with any new support trend line break; watch out for a potential Bull Flag.

Bullish targets: Any bullish hold above 0.71 would bring the 12-month TL, the 4hr chart wedge TL and 0.72 into focus. After that, watch 0.73, 0.74 and 0.75 as the latter is the next major horizontal S/R zone (see weekly chart). Then watch 0.76 as this is near a monthly chart 61.8% Fibonacci target of an earlier monthly chart triangle breakout.

Bearish targets: Any bearish 4hr chart break below 0.71 would bring 0.70 into focus.

  • Watch 0.71 for any new make or break:

 

 

GBP/USD: The Cable closed with a bearish weekly candle following last week’s bearish-reversal Shooting Star-style weekly candle. Price struggled to break back above the major 1.40 level and closed just above 1.39 making this the support to watch for any new make or break.

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

NB: The longer-term target for any bullish continuation above the previously broken 14-yr trend line, noted here in my article on December 20th, is the monthly chart’s 61.8% Fibonacci, near 1.75. Price action at the initial breakout was around 1.35 and has reached to 1.42, a move of 700 pips, so this trend line breakout was a great clue about things to come and the target for this move has not even been reached yet!

Bullish targets: Any bullish bounce up from 1.38 would bring 1.39 into focus followed by the 4hr chart’s bear trend line and 1.40. After that watch whole-number levels on the way up to 1.50 as this is 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 break below 1.38, would bring the 7-month support trend line into focus followed by 1.37.

  • Watch 1.38 and 4hr chart trend lines for any new breakout:

 

 

USD/JPY:  The USD/JPY closed with a large, bullish weekly candle and added around 150 pips after breaking above last week’s focus level of 107. Price closed just below 108.50, a previous S/R zone, making this the one to watch for any new make or break.

NB: The bullish weekly descending wedge breakout continues here and this was first noted in my article of January 31st. Price action at the initial breakout was around 104.5 and has reached to 108.50, a move of around 400 pips, so this trend line breakout was a great clue about things to come!

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

Bullish targets: Any bullish 4hr chart breakout above 108.5 would bring whole-numbers on the way up to 115 into focus.

Bearish targets: Any bearish 4hr chart break below the support trend line would bring 108, 107 and 106 back into focus.

  • Watch 108.50 and for any new 4hr chart trend line breakout.

 

 

GBP/JPY:  The GBP/JPY closed with a bullish weekly candle and just under the key 150 S/R level making this one to watch for any new make or break.

There are revised 4hr chart trend lines to monitor for any new momentum breakout. Note how ADX momentum is trending upwards on the weekly chart and has now made a breakout above the 20 threshold.

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 to 150, a move of around 900 pips, and so is another trend line breakout that has proven to be worthwhile monitoring.

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

Bearish targets: Any bearish 4hr chart triangle breakout would bring 149 and 148 into focus followed by the 11-week support trend line. After that, watch whole-number levels on the way down to 140 S/R.

  • Watch 150 and 4hr chart trend lines for any new breakout: