1

Lots of indecision weekly candles

September 6, 2020

Last week: It was a quieter week for trend line breakouts but this wasn’t surprising given the many moves of the week before. The US$ index recovered some ground towards the end of the week but still remains range-bound in a 4hr wedge pattern and this helped to peg activity on many USD-based Forex pairs. The strong uptrend with US stocks moderated and all of the major US stock indices closed with bearish-coloured indecision style weekly candles. Whether this move marks a pause or the start of a deeper pullback remains to be seen. Gold remains range-bound as well but the August monthly candle close was bearish and a new bearish-reversal monthly pattern could be brewing here.

 

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 were fewer breakouts last week. Articles published during the week can be found here, here, here, and here:

 

  • AUD/JPY: a TL b/o for 60 pips.
  • EUR/USD: a TL b/o for 100 pips.
  • GBP/USD: a TL b/o for 100 pips.
  • S&P500: an 80 point breakout from last week’s 3,500 focus level.

 

This Week: (click on images to enlarge):

    • DXY: US$ Index: The US$ closed with a bullish-coloured Spinning Top weekly candle as it continues to struggle under the recently broken 10-year support trend line. There is still the look of a bullish-reversal Descending Wedge here though so watch for any relief rally; even if it’s only temporary. Also keep watch of the 10-yr bear trend line as this previous Support will likely become Resistance. This week brings the ECB rate update so watch to see how this data update might impact the US$:

 

DXY weekly: 

 

 

    • 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.

 

    • Indecision-style weekly candles: indecision-style weekly candles were printed on many instruments last week: the DXY, S&P500, DJIA, NASDAQ, Russell-2000, DAX, EEM, Gold, EUR/USD, AUD/USD, AUD/JPY, GBP/USD, NZD/USD and GBP/JPY.

 

    • Central Bank Updates: there are two Central Bank updates this week for the BoC (CAD) and ECB (EUR).

 

    • Multi-year trend lines: As noted recently and the caution remains valid: multi-year trend lines have been tested / broken on a number of instruments: The FX Indices (DXY and EURX) and the EUR/USD, AUD/USD, NZD/USD, AUD/JPY and GBP/JPY.  The GBP/USD is fast approaching a multi-year trend line as well. Caution is still required here though as trend lines of such duration are often not given up easily so traders should watch for any potential choppiness / consolidation as these levels are negotiated.

 

    • 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 has printed a new 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 has closed with another bullish weekly candle above the 3 level. The break above the 10-year bear trend line is holding as well:

Copper weekly: another weekly close above the 3 level:

 

    • Emerging Markets: The Emerging market ETF, EEM, has closed back below the 45 level with a bearish coloured Spinning Top weekly candle BUT watch for any Bull Flag activity:

EEM weekly: back below the 45 level:

 

 

    • DJIA weekly: The DJIA closed with a bearish-coloured Spinning Top weekly candle under the previous all time High. There is a new trend line to monitor although there are only two touches of this support thus far. Traders should watch for any break of this trend line and, if so, they should then watch for any Bull Flag activity in the first instance.

 

DJIA weekly: 

 

 

    • NASDAQ composite: The NASDAQ Composite Index closed with a bearish weekly candle after reaching at a new all-time High. The candle here looks a bit like an indecision Spinning Top-style weekly candle however the body is a bit larger than for a true Spinning Top but, at the very least, the long upper and lower shadows reflects indecision from the tussle between Bulls and Bears. As with the DJIA index, there is a new trend line to monitor although there are only two touches of this support thus far. Traders should watch for any break of this trend line and, if so, they should then watch for any Bull Flag activity in the first instance. A test of the psychological 10,000 level would still not surprise.

 

NASDAQ weekly: 

 

 

    • DAX weekly: The DAX closed with a bearish-coloured Spinning Top weekly candle:

 

DAX weekly:

 

 

    • Russell-2000: The Russell-2000 is often viewed as the ‘Canary in the Coal Mine’ for US stocks and closed with a bearish-coloured Spinning Top-style weekly candle however, here too, the body here is a bit large for a true Spinning Top. There has been a break of the recent support trend line and, like with the other indices, traders should first watch for any Bull Flag activity. The horizontal 1,460 level would be one ‘line in the sand’ level to monitor:

 

RUT weekly:

 

 

    • Bonds / TLT: The Bond ETF, TLT, closed with a small bullish weekly candle but note the long upper shadow reflecting that sellers took control for part of the week. The Elliott Wave indicator has adjusted and is now suggesting an uptrend from here. Any sell-off with stocks would likely underpin the Bonds ETF:

 

TLT weekly:

 

 

    • VIX: the Fear index closed with a bullish weekly candle and back above the key 30 level so watch for any continuation move. There has been a bullish-reversal Descending Wedge on display here so watch to see if this pattern evolves. Any sell off with stocks would likely help to underpin the index:

VIX weekly: watch for any bullish continuation:

 

 

Calendar:    Courtesy of Forex Factory:

 

 

 

Earnings: Courtesy of Earnings Whispers:

 

 

 

Market Analysis:

 

S&P500: The S&P500 index closed with a bullish-coloured Spinning Top-style weekly after printing a new all-time High. This bearish weekly candle is somewhat ominous as a similar pattern was observed at the start of the Global Financial Crisis as I discussed in an earlier post this week.  Ryan Detrick points out though that a similar pause was seen at the start of previous Bull markets and so it will be important to keep an open mind (see his chart below).

 

Ryan Detrick’s S&P500 comparison chart: 1982, 2009 and 2020.

 

Trading volume spiked higher with this sell off though which some might dismiss as just profit taking ahead of this week’s Labor Day long weekend but I think it should be read as a cautionary warning. Here, too, a support trend line has broken but traders should also watch for any Bull Flag activity:

 

S&P500 ETF: SPY weekly: Volume spiked above the moving average line last week:

 

Price action on the S&P500 is now just above the whole-number 3,400 so this will be the first support level to monitor for any new make or break.

The weekly S&P500 chart below shows that the 61.8% Fibonacci level of this recent swing-High move (March 2020- September 2020) is down near the 2,700 region. Technical analysts would suggest that a pullback to this 61.8% level would be in order; even if there is to be ultimate bullish continuation. Trends do not travel in straight lines unabated so traders should be aware of this zig-zag potential.

Bullish targets: any bullish 4hr chart hold above 3,400 would bring 3,500 back into focus followed by other whole-number levels.

Bearish targets: any bearish 4hr chart break below 3,400 would bring the 3,200 level into focus as this is near the 4hr chart’s 61.8% Fibonacci level. Beyond that, the weekly chart’s 61.8% Fibonacci, down near 2,700, would come into focus.

  • Watch 3,400 for any new make or break:

 

 

 

 

ASX-200: XJO: The ASX-200 closed with a bearish weekly candle and below the psychological 6,000 level. There has not been any significant spike higher with trading volume although volume is holding above a recently broken bear trend line:

 

XJO weekly: trading Volume is holding above the bear trend line:

 

The index closed near 5,900 so the 6,000 level is now whole-number level resistance above current price and 5,800 is whole-number support below to watch for any new make or break. 

Bullish targets: Any bullish 4hr chart move above 5,900 would bring 6,000 into focus followed by the recent High, near 6,200, and, after that, whole number levels on the way back to the previous all time High, circa 7,200.

Bearish targets: Any bearish 4hr chart move below 5,900 would bring 5,800 into focus.

  • Watch 5,900 for any new make or break:

 

 

Gold:  There has not been a lot of change here again as Gold closed with another Spinning Top style weekly candle but this one was bearish-coloured. There is clearly some indecision as the precious metal tries to hold above the key $1,900 level.

The other point worth noting is that the August monthly candle closed as a bearish-coloured Long legged Doji; adding to this this theme of indecision. The monthly chart has a sort of bearish-reversal Evening Star style pattern forming up as well so traders will need to watch to see how the September monthly candle does close.

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 trading 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 new move 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 struggling under the recently broken 10-year support trend line:

  • any US$ hold below this multi-year support trend line could help send Gold much higher.
  • any US$ recovery 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 triangle trend lines to monitor for any new breakout.

NB: Traders should watch for any increased bullish flows into stocks as this could compete against flows into Gold.

Bullish targets: any bullish 4hr chart triangle breakout would bring $2,000 into focus as this is still near the 4hr chart’s 61.8% Fibonacci.

Bearish targets: any bearish 4hr chart triangle breakout would bring $1,900 back into focus.

  • Watch for any new 4hr chart triangle breakout:

 

 

 

 

EUR/USD: The EUR/USD closed with a bearish-coloured Spinning Top, and almost ‘Inside’, weekly candle with both reflecting indecision but continues to hold above the recently broken 13-year bear trend line. It is worth noting that the August monthly candle closed as bullish and above the multi-year bear trend line.

I’m not seeing much of interest by way of patterns on the 4hr chart but have scribbled in some trend lines to monitor for any new breakout. Things might become clearer after this week’s ECB rate update meeting.

Bullish targets: Any bullish 4hr chart triangle breakout would bring 1.19 and 1.20 S/R into focus followed by whole-number levels on the way up to the previous weekly chart High, circa 1.26.

Bearish targets: Any bearish 4hr chart triangle breakout would bring the 13-year bear trend line into focus followed by 1.15 S/R and, then, whole-numbers on the way down to 1.12 S/R.

  • Watch for any 4hr chart trend line breakout; especially with this week’s ECB rate update:

 

 

AUD/USD: The Aussie closed with a bearish-coloured Spinning Top weekly candle but printed a bullish monthly candle for August. Price action continues to hold above the recently broken upper trend line of the multi-year bullish-reversal Descending Wedge.

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

Bullish targets: Any bullish trend line breakout would bring 0.73 and 0.74 into focus followed by whole-number levels on the way up 0.90 S/R.

Bearish targets: Any bearish breakout below 0.72 would bring 0.71 into focus followed by 0.70 and, then, the 9-11 year bear trend line.

  • Watch for any new 4hr chart triangle breakout;

 

 

 

AUD/JPY:  The AUD/JPY closed with a bearish-coloured Long Legged Doji weekly candle and these candles reflect a great deal of indecision; there was a decent tussle between Bulls and Bears but price ended up little changed.

The AUD/JPY continues holding near a 7-year bear trend line and the August monthly candle closed as bullish and right on top of this multi-year trend line.

As mentioned over recent weeks: How the AUD/JPY reacts at the 7-year bear trend line above might depend on how the S&P500 reacts as it trades near the all-time High so keep an eye on both!

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

Bullish targets: Any bullish 4hr chart triangle breakout would bring 78 into focus followed by 79 and, then, 80 S/R.

Bearish targets: Any bearish 4hr chart triangle breakout, below the 7-yr bear trend line, would bring 76 into focus followed by whole-numbers on the way down to 65 S/R.

  • Watch for any new 4hr chart triangle breakout;

 

 

 

NZD/USD: The Kiwi also closed with a bearish-coloured Long Legged Doji weekly candle reflecting indecision as price holds up near the recently broken 7-year bear trend line.

Price action closed just above 0.67 so this will be the one to watch for any new make or break.

Bullish targets: Any bullish 4hr chart hold above 0.67 would bring 0.68 and, then, 0.70 S/R into focus.

Bearish targets: Any bearish 4hr chart break below 0.67 would bring 0.66 into focus as this is near the 4hr chart’s 61.8% Fibonacci followed by the recently broken 7-yr trend line.

  • Watch 0.67 for any new make or break:

 

 

 

GBP/USD: The Cable closed with a bearish-coloured Spinning Top weekly candle after reaching up to the 1.35 level, a level that had been in focus as the first target following the recent weekly chart triangle breakout.

The monthly candle for August was bullish and price action is now edging towards a 12-year bear trend line so some hesitation is not surprising. The monthly chart shows this bear trend line aligns very near the key 1.35 level so this will be an upper resistance level to keep in mind.

Price action closed the week just above 1.32 so this is the level to watch for any new make or break.

Bullish targets: Any bullish 4hr chart continuation above 1.32 would bring the weekly chart’s triangle breakout target of 1.35 back into focus followed by the 12-yr bear trend line.

Bearish targets: Any bearish 4hr chart break and hold below 1.32 would bring the weekly 200 EMA and 1.30 into focus and, then, whole-number levels on the way down to 1.26.

  • Watch 1.32 for any new make or break:

 

 

 

 

USD/JPY: The USD/JPY closed with a bullish weekly candle and a bullish-coloured Doji monthly candle with the latter reflecting indecision.

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

Bullish targets: Any bullish 4hr triangle breakout would bring 107 into focus followed by 107.5 as the latter is still near the 4hr chart’s 61.8% Fibonacci.

Bearish targets: Any bearish 4hr triangle breakout would bring the monthly 200 EMA and 105 back into focus followed by the recent Low, near 104.

  • Watch for any new 4hr chart triangle breakout:

 

 

 

GBP/JPY: The GBP/JPY closed with a bullish-coloured Spinning Top weekly reflecting some indecision as it holds above the key 140 level; a level that had pegged it thus far for the year! The important feature to note however is that the August monthly candle was bullish and printed a close above this key S/R level.

This 140 region remains in focus in coming sessions as well as the 40-year bear trend line above but there are also revised 4hr chart trend lines to monitor. Note the hold above the 10-week support trend line.

Bullish targets: Any bullish 4hr chart trend line breakout would bring 141.50 and the 40-yr bear trend line into focus.

Bearish targets: Any bearish 4hr trend line breakout below 140 and the support trend line would bring whole-numbers on the way down to 136 into focus as this is near the 4hr chart’s 61.8% Fibonacci.

  • Watch for any 4hr chart trend line breakout: