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Keep an open mind

February 14, 2021

Last week: There were no trend line breakouts of note last week and I suspect this might have been due to the continued range-bound nature of the US$ index and the looming US holiday long weekend and Lunar New Year holiday week. The S&P500, NASDAQ, Russel-2000 and DJIA all closed last week with bullish candles and, again, at new all-time Highs and the VIX is back below 20. Other risk-sensitive metrics such as Copper and the Emerging markets (EEM) also closed strongly and with large bullish weekly candles. This could lead one to think that ‘all is right in the world‘ however the Index showing the percentage of stocks above their 200 Day Moving Average remains near an all-time High and this is keeping me cautious. Trends do not travel in straight lines forever and I consider that a pullback with stocks would be a healthier way to underpin any eventual bullish continuation. Traders need to keep an open mind for either event and watch for momentum-based trend line breakouts.

 

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.

 

 

This Week: (click on images to enlarge):

    • DXY: US$ Index: The US$ index closed with a bearish weekly candle and the lack of momentum on the daily time frame prompted me to revise the bearish-reversal descending wedge. Price action remains mired in the daily Ichimoku Cloud so watch for any momentum-based breakout from this resistance zone:

 

DXY weekly: watch for any new Descending Wedge b/o:

 

DXY daily: Price remains stuck in the daily Cloud:

 

    • Presidents’ Day: note that Monday 15th is a holiday in the USA for President’s Day.

 

    • Lunar New Year Holiday period: note, also, that the official Chinese public holiday period extends from Feb 12th to Feb 17th.

 

    • 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 continuing. Watch for any push to the 15 S/R region:

 

10-yr T-Note Interest rate:  the bullish breakout continues:

 

 

    • Financials XLF: The bullish nature of the 10-yr Treasury Interest rate chart above drew a Twitter comment about the implications for Financials. It might be worth keeping an eye on this ETF Financials chart, XLF, as it looks to be testing the upper resistance level of a potential Ascending Triangle. A new monthly close above 31 would have to be read as bullish.

 

XLF monthly: watch for any monthly Ascending Triangle breakout:

 

 

    • % 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 that the 92.50 has almost been tested. The next few weeks could be very interesting!

 

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

 

 

% of US Stocks above the 200 Day Moving Average (expanded): 92.50; almost there!

 

 

    • 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:

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 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 good-sized bullish weekly candle and well above the weekly 61.8% Fibonacci. Watch for any push to the whole-number 4 level:

 

Copper weekly: moving up from the weekly 61.8% Fib:

 

 

 

    • Emerging Markets: The Emerging market ETF, EEM, closed with a bullish weekly candle and above the previous all time High, near 56.

EEM weekly: watch 56 and the support trend line:

 

 

    • DJIA: The DJIA gapped higher at market open and closed with a bullish weekly candle, above the 31,000 level and at a new all time High. Watch the 11-month support trend line:

 

DJIA weekly: holding above 31,000:

 

 

    • NASDAQ composite: The NASDAQ Composite Index closed with a bullish weekly candle, above 14,000 and at another new all-time High.

 

NASDAQ weekly: a new all-time High:

 

 

 

    • DAX weekly: The DAX closed with a bearish-coloured Doji weekly candle but still above the 13,850 level.

 

DAX weekly: still above 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 closed with a bullish weekly candle. The ADX has broken above the threshold 20 level AND price action is still above the $15 resistance-turned-support level. The stronger US$ seems to be having more impact on metals than other commodities for the time being:

 

DBC weekly: gapped on open and closed with a bullish weekly candle:

 

 

    • 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 as it continues moving up from the 61.8% Fibonacci extension of the Covid-induced Swing Low. Watch now for any push to the 100% Fibonacci level, near 2,500.

 

RUT weekly: watch for any push to the 100% Fibonacci extension:

 

 

    • Bonds / TLT: The Bond ETF, TLT, closed with another bearish weekly candle and still below the recently broken support trend line. The Elliott Wave indicator is still suggesting an uptrend from here though:

 

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 bearish weekly candle and back below the 20 level. I note this Twitter comment about how high, and then, declining volatility has previously underpinned strong market gains. Something to keep in mind!

 

VIX weekly: Watch 20 for any new make or break:

 

 

Calendar: Courtesy of Forex Factory: Note the holiday Monday for the US and holidays for China:

 

 

 

Earnings: Courtesy of Earnings Whispers: a few big names report this week:

 

 

Market Analysis:

 

S&P500: The S&P500 closed with a small, bullish weekly candle and at a new all time High. The Index spent most of the week chopping sideways, on declining 4hr chart momentum, along 3,900 but popped late on Friday to close just below 3,950 making this the level to watch for any new make or break.

Note the late uptick with bullish +DMI momentum (green line) on the 4hr chart. Traders need to keep an open mind and watch for any new ADX momentum (black line) breakout; either up or down.

Trading volume was even lower last week and remains below the trend line and the 200 MA but keep watch for any new breakout. The lower participation may have been due to the looming US holiday long weekend and Lunar holiday period.

 

S&P500 ETF: SPY weekly: Volume still below the TL & 200 MA:

 

 

The Index closed the week just below 3,950 making this the horizontal level to watch for any new make or break.

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 breakout above 3,950 would bring 4,000, 4,100 and 4,150 into focus.

Bearish targets: any bearish 4hr chart hold below 3,950 would bring 3,900, 3,800 and 3,750 into focus as the latter is still near the 4hr chart’s 61.8% Fibonacci and is now also near the 11-month support trend line. Any longer-term sell-off would bring the weekly chart’s 61.8% Fibonacci retracement level, down near 2,800, into focus.

  • Watch 3,950 and for any 4hr chart Flag trend line breakout:

 

 

ASX-200: XJO: The ASX-200 closed with a small, bearish weekly candle having a bit of an upper shadow reflecting some indecision as price action hovers under some decent resistance.

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.

The index closed the week just above 6,800 so this will be the level to monitor for any new make or break. 

Trading volume was lower last week so keep watch for any new breakout:

 

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

 

 

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 and there is still the look of a possible Bull Flag.

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

Bullish targets: Any bullish 4hr chart bounce up from 6,800 would bring the upper 4hr Flag 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 break below 6,800 would bring whole-number levels on the way down to 6,500 into focus.

  • Watch 6,800 and for any new 4hr chart Flag breakout:

 

 

Gold:  Gold closed with a small, bullish-coloured weekly candle with a long upper shadow reflecting that sellers stepped up after some earlier buying. The $1,900 remains as key resistance above current price.

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.

 

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

Keep in mind that ADX momentum still remains low and declining on the 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 and this augers well with the Inverse Cup ‘n’ Handle / Cup pattern.

Bullish targets: any bullish 4hr chart trend line breakout would bring $1,850 and $1,900 into focus as the latter is still near the 4hr chart’s 61.8% Fibonacci.

Bearish targets: any bearish 4hr chart trend line breakout would bring $1,800 followed by a revised weekly support trend line 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 bullish-coloured Spinning Top, and almost Inside, weekly candle reflecting indecision as it remains pegged by the monthly 200 EMA.

There are revised 4hr chart 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. 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 triangle 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 to 1.40.

Bearish targets: Any bearish 4hr chart triangle breakout would bring 1.20 into focus followed by 1.19 as this is now near the 4hr chart’s 61.8% Fibonacci.

  • Watch the monthly 200 EMA and for any momentum-based trend line breakout:

 

 

AUD/USD: The Aussie closed with a bullish weekly candle but the 4hr chart is still showing broader, sideways consolidation and this is keeping the Bull Flag scenario open.

There are revised 4hr chart trend lines to monitor for any new momentum-based breakout but the monthly 200 EMA looks to be the resistance to beat above current price action.

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.

Bullish targets: Any bullish 4hr chart Flag breakout would bring 0.78, the monthly 200 EMA, 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 Flag breakout would bring 0.77 into focus followed by whole numbers on the way down to 0.73 as the latter still lies near the 4hr chart’s 61.8% Fibonacci.

  • Watch for any new 4hr chart Flag breakout;

 

 

AUD/JPY:  The AUD/JPY closed with a bullish weekly candle and above the 81 S/R level; one that had been strong resistance over the last 5 weeks. However, observation of the weekly and monthly charts reveal the importance of the 85 level so this will be the next major resistance level to watch for any new make or break.

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, or deeper pullback, with stocks might render similar for the AUD/JPY:

 

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

 

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

Bullish targets: Any bullish 4hr chart breakout above the monthly 200 EMA would bring whole numbers on the way up to 85 S/R into focus.

Bearish targets: Any bearish 4hr chart recent support trend line breakdown would bring 81 S/R back into focus followed by the revised 15-week support trend line. After that, watch whole-numbers on the way down to 76 as this is still near the 7-yr trend line and 4hr chart 61.8% Fibonacci.

  • Watch the monthly 200 EMA and for any new 4hr chart momentum-based trend line breakout;

 

 

NZD/USD: The Kiwi closed with another bullish-coloured Spinning Top weekly candle reflecting ongoing indecision and this is keeping the 4hr chart’s Bull Flag scenario open.

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

Bullish targets: Any bullish 4hr chart Flag breakout would bring 0.73 into focus. After that, watch 0.74 and 0.75 as the latter is the next major horizontal S/R zone (see weekly chart).

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

  • Watch for any new 4hr chart Flag breakout:

 

 

GBP/USD: The Cable closed with a bullish weekly candle and just under the 1.39 level so this will be the resistance to watch in coming sessions for any new make or break. However, it is the 1.40 level that will be the big one to watch: the daily, weekly and monthly charts all reveal the significance of this key S/R level.

I don’t know if this bullish close came in spite of or because of the largest decline in GDP since the beginning of modern records! The Guardian reported that “according to the Bank of England nothing like 2020 has been seen since Queen Anne was on the throne in the early 18th century“. This is just something for Cable traders to be mindful of.

 

 

 

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 is the monthly chart’s 61.8% Fibonacci, near 1.75. However, a test of this major breakout region would not surprise.

Bullish targets: Any bullish 4hr chart breakout above 1.39 would bring 1.40 into focus and, then, 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 break of the support trend line would bring 1.38 and 1.37 into focus followed by 1.365 and, after that, the 7-month support trend line.

  • Watch 1.39 and for any 4hr chart trend line breakout:

 

 

USD/JPY:  The USD/JPY closed with bearish-coloured Spinning Top, and almost Inside, weekly candle reflecting some indecision.

Price action closed near the 105 level making this the one to watch in coming sessions for any new make or break. There are also revised trend lines to monitor for any new breakout.

Bullish targets: Any bullish 4hr chart triangle breakout would bring the monthly 200 EMA and 106 into focus.

Bearish targets: Any bearish 4hr chart break triangle breakout would bring 104 back into focus.

  • Watch for any new 4hr chart triangle breakout.

 

 

GBP/JPY: It remains onward and upwards for the GBP/JPY since it broke above the 40-yr bear trend line 7 weeks ago. The GBP/JPY closed with another bullish weekly candle following the recent bullish close above the weekly 200 EMA.

The weekly candle closed just below 145.50 making this the new resistance level to monitor in coming sessions.

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

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 breakout above 145.50 would bring whole-number levels into focus on the way up to the weekly chart’s 61.8% Fibonacci, near 170.

Bearish targets: Any bearish 4hr chart hold below 145.50 would bring 145 and a recent support trend line into focus followed by 144 and, then, whole-number levels on the way down to 140 as the latter is near the 4hr chart’s 61.8% Fibonacci.

  • Watch 145.50 for any new make or break.