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Lots of small weekly candles.

August 23, 2020

Last week: There were only a few breakout trades across the Forex pairs I monitor as the US$ index hovered under the recently broken 10-yr bear trend line and this S/R level remains in focus this week; especially with the US Jackson Hole Symposium. The S&P500 has made a new all time closing weekly High but remains below the 3,400 whole-number level and this will be in focus in coming sessions. The GBP/JPY has been included in analysis this week given the current set up evident on the 4hr chart. One significant feature of last week’s trading was the large number of small and/or indecision style weekly candles being printed across a range of trading instruments. Whether this hesitation is due to the looming US election or ongoing concern about the economic impact due to Covid-19, or both, remains unclear. The best a trader can do is to manage their risk and trade size appropriately as they monitor 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.

 

Trend line breakouts and TC signals:  Articles published during the week can be found here, here, here, and here:

  • USD/JPY: a TL b/ for 100 pips.
  • AUD/USD: a TL b/o for 80 pips.
  • GBP/USD: a TL b/o for 100 pips.
  • EUR/USD: a TL b/o for 100 pips but the move remains up around 580 pips from the previous multi-week Flag pattern.
  • NZD/USD: a TL b/o for 50 pips.

 

  • This Week: (click on images to enlarge):
    • DXY: US$ Index: The US$ closed with a bullish-reversal Hammer weekly candle but still just below the recently broken 10-year support trend line. This is the first bullish coloured candle after 8 consecutive bearish weekly candles so some mean reversion here would not surprise, even if it’s only temporary.  Watch the 10-yr bear trend line for any new make or break.  

 

DXY weekly: 

 

    • Schedule for weekend Market Update posts: This 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 tales a full day to complete and I am attempting to shift this load away from my weekend time.

 

    • Jackson Hole Symposium: is scheduled for the coming week so watch for any impact on the US$ index.

 

    • Small and Indecision weekly candles: small and indecision-style weekly candles were printed on many instruments last week: the DXY, S&P500, the VIX, Gold, EUR/USD, AUD/USD, AUD/JPY, GBP/USD, NZD/USD, GBP/JPY and USD/JPY.
    • 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 and NZD/USD. 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 weekly closing 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:

 

    • VIX: the Fear index closed with a bullish-coloured Spinning Top weekly candle and the Index is still below the 30 level so watch this region for any new momentum based make or break. However, this is the first bullish-coloured candle in 10 weeks so watch for any relief rally / mean reversion here.

 

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

 

 

Calendar:    Courtesy of Forex Factory:

 

 

 

Earnings: Courtesy of Earnings Whispers:

 

 

 

Market Analysis:

 

S&P500: The S&P500 closed with a small, bullish-colored weekly candle but at a new all time High of 3,397.16. Trading volume remains relatively low however BUT note how there has been a second candle print above the bear trend line; watch for any continued uptick with volume:

 

S&P500 ETF: SPY weekly: Volume is still relatively low BUT note the second candle print above the bear trend line:

 

As noted last week: Given this new all-time High print I have added an Elliott Wave (EW) Extension tool to my charts to explore bullish targets above 3,400; should price action break through this region and keep running. This EW tool was applied to the swing High move from 2009 – 2020 and traders should note that whole-number regions would be in focus above 3,400 on the way to the 161.8% extension that lies near 5,000:

 

S&P500 weekly + Elliott Wave Extension: 

 

Price action is trading just below the whole-number 3,400 so this will be the resistance level to monitor for any bullish breakout but momentum remains low on the 4hr chart so keep an eye on this metric.

Bullish targets: any bullish 4hr chart breakout above 3,400 would bring whole number levels into focus on the way to 5,000 S/R.

Bearish targets: any bearish 4hr chart trend line breakout would bring 3,300 and 3,200 back into focus.

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

 

 

 

ASX-200: XJO: The ASX-200 closed with a bearish-coloured Spinning Top weekly candle and continues trading near the psychological 6,000 level and under the weekly 61.8% Fibonacci level as momentum remains low on the 4hr and weekly time frames. However, like with the S&P500, trading volume has made a subtle breakout above the bear trend line so watch for any new volume and momentum breakout above the 6,200 level.

 

XJO weekly: trading Volume has made a subtle break above the bear trend line:

 

The 6,000 level and weekly 200 EMA remain as the support to watch and 6,200 is the whole-number level resistance to watch for any new make or break. There are revised 4hr chart wedge trend lines to monitor as well.

Bullish targets: Any bullish 4hr chart triangle breakout would bring the recent High, near 6,200, into focus followed by whole number levels on the way back to the previous all time High, circa 7,200.

Bearish targets: Any bearish 4hr chart triangle break below the weekly 200 EMA would bring 6,000 into focus.

  • Watch the 4hr chart triangle trend lines  for any new momentum breakout:

 

 

 

Gold:  Gold closed with a bearish-coloured Spinning Top weekly candle reflecting indecision as the precious metal tries to hold above the key $1,900 level. One good thing about this recent choppy price action is that it has formed up into a 4hr triangle giving traders trend lines to watch for any momentum breakout; especially with this week’s Jackson Hole Symposium.

Weekly chart: 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.

As mentioned over recent weeks:  Traders need to watch this $1,900 level over the coming days / weeks especially as the US$ index is struggling at a 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.

Bullish targets: any bullish 4hr chart triangle breakout would bring $2,000 into focus as this is 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; especially with the Jackson Hole Symposium:

 

 

 

EUR/USD: The EUR/USD closed with a bearish-coloured Spinning Top weekly candle but this also has a bit of a bearish-reversal style Shooting Star look to it. However, to date, the EUR/USD has managed to hold above the recently broken 13-year bear trend line but some mean-reversion could be due here after this lengthy bullish run so watch for any such potential; especially with this week’s Jackson Hole Symposium. It is worth noting that this bearish coloured weekly candle follows after 8 consecutive bullish coloured weekly candles so a pause it not surprising.

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

Bullish targets: Any bullish 4hr chart triangle breakout would bring 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 and, then, whole-numbers on the way down to 1.12 S/R.

  • Watch for any 4hr chart triangle breakout and the 13-year bear trend line for any new make or break:

 

 

 

AUD/USD: The Aussie closed with yet another bullish-coloured Spinning Top weekly candle reflecting indecision as it holds 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 triangle breakout would bring 0.72 and the weekly 200 EMA and, then, whole-number levels on the way up 0.90 into focus.

Bearish targets: Any bearish triangle breakout 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 Spinning Top weekly candle and remains pegged below the 7-year bear trend line. The weekly support trend line has failed again but there is still support from the 75 S/R level below. Momentum remains in decline on the 4hr chart so watch 75 and the ADX for clues about the next major move. Any pause on the S&P500 might help to trigger a push lower here.

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 nears its all-time High so keep an eye on both!

Bullish targets: Any bullish 4hr chart move back above 76 would bring 77 and the 7-year bear trend line into focus.

Bearish targets: Any bearish 4hr chart break below 75 would bring whole-numbers on the way down to 65 into focus.

  • Watch 75 S/R below and 76 S/R above for any new make or break:

 

 

 

NZD/USD: The Kiwi closed with a bullish-coloured Doji weekly candle as price action continues chopping around near the recently broken 7-year bear trend line. This level clearly remains in focus in coming sessions.

There are revised 4hr chart trend lines to monitor for any new breakout. Monday brings NZD Retail Sales data so watch to see how this impacts price action to start the week.

Bullish targets: Any bullish 4hr chart triangle breakout would bring the 7-year bear trend line followed by 0.67 and, eventually, 0.70 S/R into focus.

Bearish targets: Any bearish 4hr chart triangle breakout would bring 0.65 into focus followed by 0.64, 0.63 and 0.625.

  • Watch for any new 4hr chart triangle breakout; especially with Monday’s NZD Retail Sales data:

 

 

 

GBP/USD:  Not a lot has changed here again this week with the GBP/USD closing with a bullish coloured Doji weekly candle reflecting ongoing indecision as price struggles at the weekly 200 EMA.

The breakout from the daily / weekly chart triangle has not gained much more but the target for this breakout move remains as the previous daily chart High, circa 1.35.

Price action is trading just below 1.31 so this is the level to watch for any new make or break:

Bullish targets: Any bullish 4hr chart trend line breakout above 1.31 would bring the weekly 200 EMA and 1.32 followed by whole-number levels on the way to the recent daily chart high, circa 1.35, into focus.

Bearish targets: Any bearish 4hr chart trend line breakout below 1.31 would bring 1.30 followed by whole-number levels on the way down to 1.26 into focus.

  • Watch 1.31 for any new make or break:

 

 

 

USD/JPY: The USD/JPY closed with a bearish weekly candle but back above 105 S/R and the monthly 200 EMA.

The weekly chart does not hold much appeal but the 4hr chart pattern looks more promising: watch for any new momentum-based 4hr chart trend line 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 followed by 105 back into focus.

  • Watch for any new 4hr chart triangle breakout:

 

 

 

GBP/JPY: The GBP/JPY closed with a bearish-coloured almost Inside weekly candle reflecting indecision. However, it is the 4hr chart that caught my eye this week. Price action has been in an uptrend for much of the last 8 weeks but is starting to look a bit tired and heavy after failing to keep going above 140. Watch the support trend line for any new make or break. As always though, if there is a break below the support trend line traders need to watch out for any potential Bull Flag activity. The 138 level might be worth monitoring for any new make or break if this support trend line does give way.

Bullish targets: Any bullish 4hr chart bounce off the support trend line would bring 140 back into focus.

Bearish targets: Any bearish 4hr triangle breakout below 138 would bring 135 into focus as this is near the 4hr chart’s 61.8% Fibonacci.

  • Watch for any new 4hr chart triangle breakout: