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Key levels in focus

May 30, 2021

Last week: The large number of Spinning Top weekly candles reflect the indecisive and choppy action that defined much of last week and meant that there were only a couple of decent trend line breakout trades. Many trading instruments are chopping around key horizontal levels which, at least, gives traders level to watch for any new momentum breakout move. Despite this indecisive price action there was a rather subtle shift last week with fear subsiding, as the VIX closed back below 20, and with all four of the major US stock indices, plus the risk-sensitive Emerging Markets (EEM) and Copper, closing higher. Down under, in Australia, the XJO will be in great focus in the coming week as the index trades just below an all-time High region. Gold is also back in focus as it closed the week above the key $1,900 with two bullish chart patterns now in play. Monday is the Memorial Day holiday in the USA so it might be a slow start to the trading week but keep in mind that the monthly US NFP jobs report will be in focus at the end of the week.

 

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 Covid-19, 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: The only two decent trend line breakouts that triggered did so at the end of the week on the back of some Yen weakness. Updates posted throughout last week can be found through the links here, here, here and here:

 

  • GBP/JPY: a TL b/o for 160 pips.
  • USD/JPY: a TL b/o for 60 pips.

 

This Week: (click on images to enlarge):

 

    • DXY: US$ Index: The US$ index closed with a bullish-coloured Long Legged Doji weekly candle, reflecting indecision, as price held above the weekly support trend line. Watch this, and the recent support from the 89.70 level, for any new make or break BUT note the look of a bullish-reversal Descending Wedge on the daily chart.

 

DXY weekly: watch the support TL and 89.70 for any new make or break:

 

DXY daily: watch the wedge trend lines for any new b/o:

 

    • BTC/USD: the crypto space was a bit quieter last week. I continue to view this pause as a well-due technical correction following the recent rally. I have previously mentioned that the 61.8% Fibonacci, near $30,000, is the line-in-the-sand level to monitor and this remains the case. IMHO: any hold above the 61.8% Fibonacci level would simply further legitimise BTC/USD and any of the other cryptos in the stable that might similarly hold above this support region.

 

BTC/USD: the 61.8% Fibonacci, circa $30,000, remains the level to watch:

 

 

 

    • Central Bank Update: there is one Central Bank Rate update next week: RBA (AUD).

 

    • 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 remains paused under the weekly 200 EMA region but above the Resistance turned Support region of 15.

 

  • 10-yr T-Note Interest rate:  the sideways consolidation continues:

 

 

    • % Stocks above their 200 Day Moving Average Index: The Percentage of stocks above their 200 Day Moving Average is below 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 continued struggle under the 92.50% level.

 

% 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): holding below 92.50%:

 

 

    • 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:

 

 

    • Copper: Copper is often viewed as one metric of economic health and closed with a bullish weekly candle and back above the all-time High region of circa 4.65. Watch this S/R region for any new make or break:

 

Copper weekly: back above 4.65 BUT keep watch for any new make or break:

 

 

    • Emerging Markets: The Emerging market ETF, EEM, closed with a bullish weekly candle following last week’s bullish-reversal Inverted Hammer weekly candle. The ETF has made a new Bull Flag breakout however momentum remains low but watch for any continued push higher.

 

EEM weekly: watch for any developing Bull Flag breakout:

 

 

    • DJIA: The DJIA closed with a small, bullish weekly candle and continues to hold above the 15-month support trend line so the trend still remains UP but keep watch for any shift.

 

DJIA weekly: holding above a support TL but still pegged by 35,000:

 

 

DIA weekly: lower volume last week BUT may be due to the upcoming holiday Monday:

 

 

    • NASDAQ composite: The NASDAQ Composite Index closed with a bullish weekly candle but continues to chop sideways after breaking a 15-month support trend line. There isn’t a lot of supporting bullish momentum on the weekly chart just yet but this sideways action continues shaping up in a potential Bull Flag style pattern.  Watch for any new momentum breakout. 

 

NASDAQ weekly: watch for any new Flag breakout:

 

 

    • DAX weekly: The DAX closed with another Doji weekly candle making this three consecutive such candles reflecting ongoing indecision. As with the DJIA, the trend remains UP for now, given the print of higher Highs and higher Lows, but keep watch for any shift:

 

DAX weekly: the trend remains ‘up’:

 

    • 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. The Index continues to hold above the 61.8% Fibonacci extension of the Covid-induced Swing Low and the 2,200 level and this sideways action is shaping up the look of a Bull Flag so watch for any new momentum based trend line breakout.

 

RUT weekly:  watch for any new momentum based trend line breakout:

 

 

    • Bonds / TLT: The Bond ETF, TLT, closed with a bullish weekly candle.

 

TLT weekly: still holding above the 135 level and near the 61.8% Fibonacci:

 

    • VIX: the Fear index closed with a bearish weekly candle and back below the 20 level.

 

VIX weekly: watch the 20 S/R level for any new make or break:

 

 

Calendar: Courtesy of Forex Factory:

 

 

Earnings: Courtesy of Earnings Whispers:

 

Market Analysis:

 

S&P500:  The S&P500 closed with a bullish weekly candle and is holding above the 15-month support trend line for the time being. Traders should watch for any new break below this support trend line but, if such a break triggers, then watch for any potential Bull Flag activity.

Trading volume was lower last week and is back below the bear trend line. This may have been a function of the looming holiday Monday.

 

S&P500 ETF: SPY weekly: lower volume last week:

:

The index closed just above the 4,200 level keeping this as the level to monitor 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 so watch to see if this region continues to offer support.

Bullish targets: any bullish hold above 4,200 would bring 4,250 into focus followed by 4,300.

Bearish targets: any bearish break back below 4,200 would bring 4,150, the 15-month support trend line and 4,100 into focus.  After that, watch whole-numbers on the way down to the weekly chart’s 61.8% Fibonacci retracement level, near 3,000.

  • Watch 4,200 for any new make or break.

 

 

 

 

ASX-200: XJO: The ASX-200 closed with a bullish weekly candle and right up under the previous all-time High printed last year, just prior to Covid-19. That means that price remains above the pre-GFC High of 6,851.50, pre-2020 High of 6,893.7 and the whole-number 7,000 level.

This could be a defining week for the ASX-200 as it negotiates this previous all-time High region; a new weekly close above this resistance would set the path for the index to negotiate new and uncharted trading territory!

Price has again closed just below 7,200 so that will be the whole-number resistance to monitor next week.

Trading volume was higher last week and has edged above the bear trend line BUT is still below the 200 MA so watch for any 200 EMA breakout.

 

XJO weekly: keep watch for any new b/o above the 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.

Bullish targets: Any bullish 4hr chart trend line breakout above 7,200 would bring 7,300 into focus.

Bearish targets: Any bearish 4hr chart trend line breakout would bring the previous 15-month TL and 7,100 into focus. After that watch the pre-2020 High of 6,893.70, the pre-GFC High of 6,851.50 followed by 6,800 and 6,700.

  • Watch for any new 4hr chart trend line breakout:

 

 

 

Gold: Gold closed with a bullish weekly candle and just above the key $1,900 which is a significant outcome. Regular readers will know that the $1,900 level has been the defining level for Gold over recent months BUT whether this marks the Inverse H&S b/o is not certain. A new monthly close above this key level would be encouraging so watch to see where the May candle does eventually close.

The recent weekly chart trend line breakout, aligning with the break of the $1,850 level, marks what could be the start of a weekly chart-based Bull Flag breakout. However, whilst bullish +DMI weekly momentum is above 20, ADX momentum remains below 20 so traders should watch to see if the ADX can rise above 20. The Flag pole here is worth around $900 so this is a chart pattern worth stalking.

As mentioned over recent months: The activity 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 – $900. Keep watch of $1,900 now that price action is trading back above 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.

The daily chart reveals the importance of the $1,670 level so this continues to be a ‘line in the sand’ support level to monitor. Any new weekly close below the $1,670 level would bring $1,500 into greater focus. The two weekly charts show that $1,500 is:

  • near the 61.8% Fibonacci of the Aug 2018 – Aug 2020 swing High move.
  • forms the lower boundary of the Inverse H&S pattern I have had on my charts for many months.

 

Just to summarise, there have been two bullish chart patterns evolving here over recent weeks/months and both have now triggered:

  1. A bullish-reversal Inverse Cup ‘n’ Handle or Cup pattern with a neckline of $1,900. Bullish projection for this pattern is $800.
  2. A weekly chart Bull Flag that recently triggered with the break above $1,850. Bullish projection for this pattern is $900.

 

Bullish targets: any bullish hold above $1,900 would bring $1,950 and $2,000 into focus.

Bearish targets: any bearish break back below $1,900 would bring $1,850 back into focus. After that, watch $1,800 and the $1,670 support level.

  • Watch $1,900 for any new make or break.

 

 

 

EUR/USD: The EUR/USD closed with a bearish-coloured Spinning Top weekly candle and still near the 1.22 level keeping this the level to watch for any new make or break.

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 break back above 1.22 would bring 1.23 into focus followed by the recent High of 1.235. After that, watch whole-numbers on the way up to a previous weekly chart High, circa 1.26. and for any continued push up to 1.40.

Bearish targets: Any bearish hold below 1.22 would bring the monthly 200 EMA and 1.21 into focus.

  • Watch 1.22 for any new make or break.

 

 

 

AUD/USD: The Aussie closed with another bearish-coloured Spinning Top weekly candle and still near 0.77 keeping this as the 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 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.

Note the revised daily chart trend lines and how this is giving the chart a Bull Flag appearance.

Bullish targets: Any bullish hold above 0.77 would bring 0.78, the daily chart’s bear trend line and 0.79 into focus. After that, watch whole-numbers on the way back to the 12-month TL and, then, whole-number levels on the way up to the weekly chart’s Descending Wedge breakout target of 0.90.

Bearish targets: Any bearish break below 0.77 would bring the daily chart’s support trend line and 0.76 into focus. After that, watch whole-number levels on the way down to 0.65 as this is near the 61.8% Fibonacci of the March 2020 – Feb 2021 swing High move.

  • Watch 0.77 for any new make or break:

 

 

 

AUD/JPY:  The AUD/JPY closed with a bullish-coloured Spinning Top, and almost Inside, weekly candle reflecting indecision as it holds below the key 85 level and the 14-month support trend line. However, there is also still the look of a potential Bull Flag on the 4hr chart, albeit with revised trend lines.

As noted over recent weeks:

  • The weekly chart reveals that the 85 level has been a significant reaction zone for the AUD/JPY and has been resistance for the last three years; this level was peppered many times throughout 2018 but could not be broken. The next major level above 85 is 90 so watch this target level if 85 is broken.
  • 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 serious pullback with stocks might render similar for the AUD/JPY:

 

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

 

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

Bullish targets: Any bullish 4hr chart Flag breakout would be a break above 85 S/R and bring the recently broken 15-month TL back into focus followed by whole numbers on the way up to 90 S/R.

Bearish targets: Any bearish 4hr chart Flag breakout would bring 84 into focus. After that, watch whole-numbers on the way down to 76 as this is still near the recently broken 7-yr bear trend line, and then 70 as this is now near the 61.8% Fibonacci of the March 2020 – March 2021 swing High move.

  • Watch for any 4hr chart Flag breakout:

 

 

 

NZD/USD: The Kiwi closed with a bullish weekly candle but seems stuck in a range between the 0.72 and 0.73 levels making these the ones to watch for any new breakout. There are also 4hr chart triangle trend lines to monitor for any new breakout.

Note, also, the revised daily chart trend lines and how this is giving the chart a Bull Flag appearance.

Bullish targets: Any bullish 4hr chart triangle breakout would bring the daily chart’s bear trend line, 0.73, 0.74 and 0.75 back into focus.

Bearish targets: Any bearish 4hr chart triangle breakout would bring the daily chart’s support trend line and 0.72 into focus. After that, watch whole-number levels on the way down to 0.63 as this is near the 61.8% Fibonacci of the March 2020 – Feb 2021 swing High move.

  • Watch 0.72 and 0.73 and for any 4hr chart triangle breakout:

 

 

 

GBP/USD: The Cable closed with a bullish-coloured Spinning Top and still under 1.42 keeping this as the next horizontal resistance level to watch for any new make or break.

As per recent weeks: the recent breakout from a multi-week sideways consolidation triangle is giving the daily and weekly charts the appearance of a Bull Flag 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 up as far as 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 breakout above 1.42 would bring the recent High of 1.425 into focus. After that, watch the recently broken 15-month support trend line and 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 retreat from 1.42 would bring 1.41 into focus. After that, watch 1.40 and whole-number levels on the way down to 1.25 as this is near the 61.8% Fibonacci of the March 2020 – Feb 2021 swing High move.

  • Watch 1.42 for any new make or break.

 

 

 

USD/JPY:  The USD/JPY closed with a bullish, almost engulfing, weekly candle after making a great triangle breakout during the week for 80 pips. Price closed the week just below 110 making this the next horizontal resistance level to watch for any new make or break.

NB: The bullish weekly-chart descending wedge breakout was first noted in my article of January 31st. Price action at the initial breakout was around 104.5 and has reached up as far as near 111, a move of around 650 pips, so this trend line breakout was a great clue about things to come!

Bullish targets: Any bullish break above 110 would bring the recent High, near 111, into focus. After that, watch whole-numbers on the way up to 115.

Bearish targets: Any bearish hold below 110  would bring 109 and 108 into focus.

  • Watch 110 for any new make or break.

 

 

 

GBP/JPY: The GBP/JPY closed with a bullish weekly candle after making a great wedge breakout during the week for 160 pips. Price closed the week just below 156 making this the next horizontal resistance level to watch for any new make or break.

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 as far as 156, a move of around 1,500 pips, and so is another trend line breakout that has proven to be worthwhile monitoring.

Bullish targets: Any bullish breakout above 156 would bring whole-number levels on the way up to the weekly chart’s 61.8% Fibonacci, near 170.

Bearish targets: Any bearish hold below 156 would bring 155 and 154 back into focus. After that, watch whole-number levels on the way down to 136 as this is near the 61.8% Fibonacci of the March 2020 – March 2021 swing High move.

  • Watch 156 for any new make or break.