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Lots of Spinning Tops

December 13, 2020

Last week: There were lots of indecision-style Spinning Top weekly candles printed last week as US stimulus talks failed and US Covid cases continued to climb. There have now been more deaths in 9 months due to Covid than in 4 years of WW11. All four of the major US stock indices tested new all-time High levels throughout the week but only the Russell-2000 index, often regarded as the Canary in the Coal Mine, closed higher. This week brings four Central Bank rate updates, including FOMC, so watch to see how these events impact risk sentiment, if at all.

 

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 weren’t a lot of moves last week, outside of the Brexit-induced breakouts, and this isn’t too surprising given the number of indecision weekly candles that were printed. Articles published during the week can be found here, here, here, here and here:

 

  • Gold: the wedge TL b/o from last week continued for $55.
  • GBP/USD: a TL b/o for 200 pips and another for 100 pips.
  • GBP/JPY: a TL b/o for 150 pips and another for 80 pips.
  • AUD/USD: a TL b/o for 90 pips.
  • AUD/JPY: a TL b/o for 100 pips.

 

This Week: (click on images to enlarge):

    • DXY: US$ Index: The US$ index closed with a bullish-coloured Spinning Top weekly candle reflecting indecision as price action continues to consolidate within a bullish-reversal Descending Wedge. The next major horizontal support level is near the whole-number 88 so watch this region for any new make or break if the bottom wedge trend line fails.  Traders should watch to see how this week’s FOMC rate update impacts the Index:

 

DXY weekly: watch for any Descending Wedge mean-reversion activity:

 

 

    • 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 a few instruments last week: the DXY, DJIA, S&P500, NASDAQ, DAX, Copper, EEM, the Russell-2000, TLT, VIX, Gold, EUR/USD, NZD/USD and USD/JPY.

 

    • Stocks above their 200 Day Moving Average: The percentage of stocks above their 200 Day Moving Average remains above the 85% region. The chart below gives a perspective of this current level and shows how there often tends to be some mean-reversion once such lofty levels are reached. Thus, it might be prudent to watch for any pause or pullback with US stocks given their recent bullish run:

 

% of US Stocks above the 200 Day Moving Average: 

 

 

    • Central Bank updates: there are four Central bank rate updates next week: FOMC (USD), SNB (CHF), BoE (GBP) and BoJ (JPY).

 

    • Post-Brexit trade negotiations: this continues to be a vexed issue so GBP traders should keep abreast of news updates in this space.

 

    • 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 trades up near the 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-coloured Long Legged Doji weekly candle reflecting indecision as price action stalled under the weekly 61.8% Fibonacci. Watch this level for any new make or break and for any push to the whole-number 4 level:

 

Copper weekly: watch for any push past the weekly chart’s 61.8% Fib level, circa 3.6, up to the 4 level:

 

    • Emerging Markets: The Emerging market ETF, EEM, closed with a bearish-coloured Spinning Top weekly candle BUT watch for any push to the previous High, near 52.

 

EEM weekly: watch for any push to the 52 level:

 

 

    • DJIA: The DJIA closed with a bearish-coloured Spinning Top weekly candle after printing a new all-time High during the week and also held  above the key 30,000 level. Watch for any ascending triangle-style breakout move from this psychological 30,000 level.

 

DJIA weekly: holding above the psychological 30,000:

 

 

    • NASDAQ composite: The NASDAQ Composite Index closed with a bearish-coloured Spinning Top weekly candle after touching a new all-time High during the week.

 

NASDAQ weekly: a new all-time High during last week:

 

 

    • DAX weekly: The DAX closed with another bearish-coloured indecision weekly candle as it trades under the all-time High. Watch for any ascending triangle-style breakout.

 

DAX weekly: another indecision style weekly candle:

 

 

    • Commodities: The Commodity ETF, DBC, has made a bullish breakout from the bullish-reversal Descending Wedge that I have been monitoring for some months. The ADX has not broken above the threshold 20 level yet so watch this for any uptick and for any close above the $15 resistance level:

 

DBC weekly: a descending wedge b/o looks to have started:

 

 

    • 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 and at a new all-time High. The candle was a Spinning Top indecision style one though, in keeping with the general trend this week. Note how the 61.8% Fibonacci extension of the Covid-induced Swing Low is up near 2,200 and this would be one target for any continuation move.

 

RUT weekly: another new all-time High:

 

    • Bonds / TLT: The Bond ETF, TLT, closed with a bullish-coloured Inside weekly candle reflecting indecision. The Elliott Wave indicator is still suggesting an uptrend from here:

 

TLT weekly: 

 

 

    • VIX: the Fear index closed with a bullish-coloured Spinning Top weekly candle and is holding above the 20 level.

 

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

 

 

Calendar: Courtesy of Forex Factory: lots of scheduled new this week:

 

 

Earnings: Courtesy of Earnings Whispers: slowing down here:

 

 

Market Analysis:

 

S&P500: The S&P500 closed with a bearish-coloured Spinning Top and Inside weekly candle reflecting a good deal of indecision.

Trading volume was a bit lower last week and remains below both the 200 daily Moving Average and bear trend line so keep watch for any new breakout.

 

S&P500 ETF: SPY weekly: Volume remains subdued:

 

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

Note, on the weekly chart, 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 wedge breakout would bring 3,700 and 3,800 into focus.

Bearish targets: any bearish 4hr chart wedge trend line breakout would bring 3,600 and whole-number levels on the way down to 3,200 into focus. The 3,400 level is still near the 4hr chart’s 61.8% Fibonacci so that would be a key level to monitor if weakness sets in at all.

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

 

 

ASX-200: XJO: The ASX-200 closed with a bullish-coloured Gravestone Doji weekly candle after testing 6,700 during the week. The long upper shadow of the Gravestone Doji reflects a failed buying rally and this should be read with some caution. Also, a five-week support trend line was broken during last week but the 6,600 level managed to offer some support so this will be the support level to monitor in coming sessions.

As mentioned last week: The GFC High of 6,851.50 and 2020 High of 6,893.70 loom large and ahead of current price action and will be the resistance levels to negotiate in coming sessions.

Trading volume was back below the 200 Day Moving Average last week so the bear trend line has been revised here:

 

XJO weekly: watch for any new trend line breakout:

 

Keep in mind that the recent Golden Cross remains valid. This 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:

 

 

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

Bullish targets: Any bullish 4hr chart channel trend line breakout would bring 6,700 into focus followed by whole-number levels on the way up to the 2020 High of 6,893.70.

Bearish targets: Any bearish 4hr chart trend line break of 6,600 would bring whole-numbers on the way down to 6,000 into focus. Note how 6,200 is still near the daily chart’s 61.8% Fibonacci so that would be in focus as well.

  • Watch 6,600 and for any 4hr chart trend line breakout:

 

 

Gold:  Gold closed with a bullish-coloured Spinning Top weekly candle and just below $1,850 S/R. However, $1,900 remains in keen focus as it is the 61.8% Fibonacci target for any 4hr chart trend line breakout and remains as the neck line of the multi-week bullish chart pattern that has been monitored here for some time.

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 back trading below this neckline region!

$1,900 remains the region in focus for any bullish Cup or Inverse H&S breakout:

  • Any new move back above $1,900 would support the Cup pattern thesis.
  • Any hold 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.

The expanded view of the weekly chart below still shows a possible Bull Flag so keep an open mind.

Bullish targets: any bullish 4hr chart triangle breakout would bring $1,900 back into focus as this is near the 4hr chart’s 61.8% Fibonacci.

Bearish targets: any bearish 4hr chart triangle breakout would bring $1,800 into focus followed by the recent Low, near $1,770.

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

 

 

EUR/USD: The EUR/USD closed with a bearish-coloured Spinning Top weekly candle and still just below 1.22 and the monthly 200 EMA keeping this the region to watch for any new make or break.

Bullish targets: Any bullish 4hr chart breakout above the monthly 200 EMA and 1.22 would bring whole-numbers on the way up to a previous weekly chart High, circa 1.26, into focus.

Bearish targets: Any bearish 4hr chart break of the support trend line would bring 1.21, 1.20 and 1.19 back into focus.

  • Watch the monthly 200 EMA and 1.22 region for any new make or break; especially with this week’s FOMC rate update:

 

 

AUD/USD: The Aussie closed with a bullish weekly candle and just above 0.75 making this the support level to watch for any new make or break.

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

Keep in mind that price action continues to hold above the recently broken upper trend line of the multi-year bullish-reversal Descending Wedge.

Bullish targets: Any bullish 4hr chart trend line breakout would bring 0.76 followed by whole-number levels on the way up to the weekly chart’s Descending Wedge breakout target of 0.90 into focus.

Bearish targets: Any bearish 4hr chart bearish trend line breakout would bring 0.75 and the support trend line into focus followed by 0.74, 0.73, 0.72 and 0.71.

  • Watch 0.75 and for any new 4hr chart trend line breakout;

 

 

AUD/JPY:  The AUD/JPY closed with a bullish weekly candle, above a 7-yr bear trend line and just above 78 S/R making this the level to keep watch for any new make or break.

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

Bullish targets: Any bullish 4hr chart wedge trend line breakout would bring 79 into focus.

Bearish targets: Any bearish 4hr chart wedge trend breakout would bring the recent support trend line followed by the 7-yr trend line into focus.

  • Watch 78 and the wedge trend lines for any new 4hr chart momentum breakout;

 

 

NZD/USD: The Kiwi closed with another bullish-coloured Spinning Top weekly candle and just under the 0.71 level. Price action is still shaping up in a Bull Flag on the 4hr chart so watch these Flag trend lines for any new momentum-based breakout.

Bullish targets: Any bullish 4hr chart Bull Flag breakout above 0.71 would bring whole-number levels on the way up to 0.75 into focus as this is the next major horizontal S/R zone.

Bearish targets: Any bearish 4hr chart Flag breakout would bring 0.70 and 0.69 back into focus.

  • Watch the Bull Flag trend lines and 0.71 for any new breakout:

 

 

GBP/USD: The Cable closed with a bearish, essentially ‘engulfing’, weekly candle as price action rejected the key 1.35 S/R level; this being a weekly chart High and resistance zone for the last 12 months as well as being near a 14-year bear trend line.

The 7-month support trend line was tested again this week so will be the region, along with 1.32 S/R, to watch for any new make or break:

Post-Brexit trade negotiations continue to be a vexed issue so GBP traders should keep abreast of news updates in this space.

Bullish targets: Any bullish 4hr chart bounce up from 1.32 would bring 1.33, 1.34 and 1.35 into focus.

Bearish targets: Any bearish 4hr chart break of the 7-month support trend line and 1.32 would bring 1.31 and 1.30 into focus.

  • Watch 1.32 and the 7-month support trend line for any new make or break:

 

 

USD/JPY:  The USD/JPY closed with a bearish-coloured Spinning Top weekly candle reflecting ongoing indecision here as price action, again, trades back near 104 S/R. This remains the level to watch in coming sessions for any new make or break.

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

Bullish targets: Any bullish 4hr chart bounce up from 104 would bring the 4-month bear trend line followed by 105 into focus.

Bearish targets: Any bearish 4hr chart break below 104 would bring the support trend line followed by the recent Low, near 103.25, into focus.

  • Watch 104 S/R for any new make or break:

 

 

 

GBP/JPY: The GBP/JPY closed with a bearish, essentially ‘engulfing’, weekly candle as price action, once again, rejected the 40-yr bear trend line.

The GBP/JPY closed just above the weekly chart’s support trend line making this the region to watch for any new make or break.

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

Bullish targets: Any bullish 4hr chart bounce up from the weekly support trend line would bring 138 into focus followed by whole level numbers up to 140 and the 40-yr trend line.

Bearish targets: Any bearish 4hr chart break of the weekly chart’s support trend line would bring 136 and 137 into focus followed whole level numbers on the way down to 133.

  • Watch the the weekly chart’s support trend line for any new make or break.