1

Market jitters continue ahead of FOMC

September 19, 2021

Last week: September market weakness has continued and may have been nudged along by the post-US Earnings season lull and Friday’s quadruple witching: alignment of the four expirations of single stock options, single stock futures, index futures and index options. Three of the four major US stock indices, S&P500, DJIA and NASDAQ, closed with bearish weekly candles, with the S&P500 now joining the DJIA in breaking below an 18-month support trend line. The Russell-2000 bucked this bearish trend though and managed to close higher for the week which, like the warning on Copper and the Kiwi from last week, is divergence worth noting. The US$ index looks poised for a trend line breakout so watch to see how this week’s FOMC update impacts the index and overall market sentiment.

 

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: There were just a few breakouts last week. Articles released during the week can be found here, here, here and here.

 

  • AUD/JPY: a TL b/o for 70 pips.
  • Gold: a TL b/o for $30
  • EUR/USD: a TL b/o for over 50 pips.

 

This Week: (click on images to enlarge):

 

    • DXY: US$ Index: The DXY closed with a bullish weekly candle but remains in a weekly triangle on low momentum. The index is becoming increasingly squeezed into the apex of the weekly triangle and is nudging the upper trend line ahead of this week’s FOMC. Watch to see if news from this event triggers any momentum-based trend line breakout:

 

DXY weekly: watch for any new momentum-based TL b/o:

 

 

    • Catching trend line breakouts: I wrote an article on Friday about how to monitor for trend line breakout trading opportunities and this is available through the link here.

 

    • Central Bank Updates: there are three Central Bank rate updates this week: FOMC (USD), SNB (CHF) and BoE (GBP).

 

    • % Stocks above their 200 Day Moving Average Index: The Percentage of stocks above their 200 Day Moving Average continues to trade below the all time High 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. It is interesting to see the decent pullback here now despite the fact that the S&P500 is trading up near an all-time High.

 

% of US Stocks above the 200 Day Moving Average: still retreating after peaking 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 bearish weekly candle. It still looks like Copper is consolidating after its recent bullish run so watch the Bull Flag trend lines for any new breakout: up or down.

 

Copper weekly: Watch for any new breakout:

 

 

    • Emerging Markets: The Emerging market ETF, EEM, closed with a bearish weekly candle BUT there is still the look of sideways consolidation so watch for any trend line breakout: up or down.

 

EEM weekly: watch for any trend line breakout: up or down:

 

 

    • DJIA: The DJIA closed with a bearish-coloured Spinning Top-style weekly candle reflecting some indecision ahead of next week’s FOMC update.  Watch for any Bull Flag activity following the recent break of the 18-month support trend line but any failure at this key level, if bearish momentum develops, would bring the weekly 61.8% Fibonacci, near 25,000, into focus.

 

DJIA weekly: keep watch of 35,000 and the Flag trend lines:

 

 

    • NASDAQ composite: The NASDAQ Composite Index closed with a bearish weekly candle but still above the key 15,000 level and 18-month support trend line. Watch for any uptick with the ADX above 20 to offer clues about the next directional move.

 

NASDAQ weekly: keep an eye on ADX momentum here:

 

    • DAX weekly: The DAX closed with a bullish-coloured Doji weekly candle but remains below the 18-month support trend line. Momentum remains low so watch for any new Flag breakout: up or down.

 

DAX weekly: watch the Flag trend lines for any new b/o:

 

 

    • Russell-2000: The Russell-2000 is often viewed as the ‘Canary in the Coal Mine’ for US stocks and the index closed, rather surprisingly, with a bullish-coloured Spinning Top weekly candle reflecting indecision ahead of next week’s FOMC update.  The index continues to chop sideways within a trading channel so watch for any new breakout: up or down.

 

RUT weekly: watch the channel for any new b/o:

 

 

    • 10-yr T-Note Interest rate / TNX: This has closed with a bullish-coloured Spinning Top weekly candle. Watch for any new trend line breakout.

 

  • 10-yr T-Note Interest rate (weekly): watch for any trend line breakout: 

 

 

    • Bonds / TLT: The Bond ETF, TLT, closed with a bullish-coloured Doji weekly candle. Price has chopped sideways for weeks so note the revised trend lines: watch for any new breakout.

 

TLT weekly: watch for any new trend line b/o:

 

 

    • BTC/USD: I had warned to watch for any new reaction at the daily 61.8% Fibonacci, near $51,000, and this remains the case. Any new bullish close above $51,000 would bring the previous High, circa $65,000, back into focus. Just out of interest, note how the Elliott Wave Indicator has a bullish Wave 5 move in progress here!

 

BTC/USD: keep watch of the daily 61.8% Fibonacci, near $51,000, for any new reaction:

 

 

    • VIX: the Fear index closed with a bullish weekly candle and has held above 20 S/R.

 

VIX weekly: watch for any hold above 20 S/R:

 

 

Calendar: Courtesy of Forex Factory: a busy week!

 

 

Earnings: Courtesy of Earnings Whispers:

 

 

Market Analysis:

 

S&P500: The S&P500 closed with a bearish weekly candle and has now broken below an 18-month support trend line. Price action paused above 4,400 so this will be the horizontal Support to watch for any new make or break. Traders should monitor the broken 18-month support trend line for any potential sideways consolidation that might form a Bull Flag.

Trading volume was higher last week and has now edged up to the 200 MA so watch for any new breakout.

 

S&P500 ETF: SPY weekly: watch for any new 200 MA b/o:

 

Keep in mind that a Golden Cross remains valid for the time being and the index is holding near the 50 SMA. 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. As with the XJO, this Golden Cross was a great signal! I wrote an article recently evaluating the Golden Cross on both the SPX and XJO and this can be found through the following link.

 

SPX daily: the recent Golden Cross remains valid:

 

There are revised 4hr chart trend lines to monitor.

Bullish targets: any bullish bounce up from 4,400 would bring 4,450 and a recent bear wedge trend line into focus. After that, watch the recently broken 18-month support trend line, 4,500 (near the 4hr chart’s 61.8% Fibonacci), 4,550 and 4,600 as the latter is near the 200% Fibonacci retracement of the Covid swing Low (see the second weekly chart). Then watch whole numbers on the way up to the 5,000 level.

Bearish targets: any bearish break below 4,400 would bring 4,350 and 4,300 into focus. After that, whole-numbers on the way down to the weekly chart’s 61.8% Fibonacci retracement level, now near 3,100.

  • Watch 4,400 for any new make or break:

 

 

 

ASX-200: XJO: The XJO closed with a bearish-coloured Doji weekly candle and remains below the 18-month support trend line. I am somewhat surprised that this weekly close wasn’t lower given the ongoing Covid lock down in much of the two largest states but they do say markets are ‘forward looking’ so perhaps that is part of the reason? The lock down here in NSW has extended for around 16 weeks for some, me included, and I am certainly looking forward to better times once lock down ends.

Regardless of having ample reasons for bearish follow-through however, XJO traders need to remain open minded over the coming weeks and watch for any potential sideways consolidation that might form a Bull Flag.

The 4hr chart still shows price action trading near the 61.8% Fibonacci of the recent swing High move, near 7,350, keeping this as a level to monitor in coming sessions.

 

As mentioned over recent weeks:

  • It has taken a long time for the XJO to break and hold above the pre-GFC High region and, in this regard, it has lagged well behind most other global stock indices. However, any continued hold above this 7,200 region could well mark the beginning of a new trading range for the index and put it in catch-up mode with its peers.
  • S&P upgraded the Australian outlook from ‘Negative’ to ‘Stable’ recently so watch for any impact this may have on market sentiment for the XJO.

 

Trading volume spiked higher last week so watch to see if this continues and underpins any sell-off. Last week’s volume seemed to balance sellers and buyers though judging by the Doji close.

 

XJO weekly: note the spike higher with trading volume:

 

Keep in mind that the recent Golden Cross remains valid here as well although the index is holding below the 50 SMA. 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. This current Golden Cross proved to be great signal BUT watch for any move down to the 200 SMA.

 

XJO daily: the recent Golden Cross remains valid for the time being:

 

The index closed near 7,350 keeping this as the level to watch for any new make or break.

Bullish targets: Any bullish break back above 7,350 would bring 7,400 and a wedge trend line into focus. After that, watch 7,500, 7,600 and the recently broken 18-month support trend line.

Bearish targets: Any bearish hold below 7,350 would bring 7,300, a wedge support trend line and 7,200 into focus. After that watch the previous 2020 High of 7,197.20, the pre-2020 High of 6,893.70 and the pre-GFC High of 6,851.50. The weekly chart’s 61.8% Fibonacci is down near 5,600 so that would be the next support to monitor.

  • Watch 7,350 for any new make or break:

 

 

 

 

Gold: Gold closed with a bearish weekly candle and back down near $1,750 making this region to watch for any new make or break. It is worth noting that this is just above 61.8% Fibonacci retracement level of the last Aug- Sept 2021 swing High move.

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 break 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 $1,900 level over the coming sessions especially as the US$ 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.

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

Bullish targets: any bullish hold above $1,750 would bring $1,800, $1,850 and $1,900 into focus.

Bearish targets: any bearish break below $1,750 would bring $1,700 and the $1,670 support level into focus.

  • Watch $1,750 for any new make or break.

 

 

EUR/USD: The EUR/USD closed with a bearish weekly candle and back down near the 1.17 S/R level. This has been a significant S/R level over recent months so watch to see how this week’s FOMC impacts price action near this major support.

I mentioned last week that if the descending wedge failed to revive then it would be shelved and that is what I have done. Whilst not following through to the 61.8% Fibonacci, this wedge did give a bullish breakout for around about 150 pips before it stalled. Another revision this week, as with some of the other currency charts, is that the 18-month support trend line has been relaxed to capture recent price action.

As mentioned over recent weeks: I have included a second weekly chart and this shows the potential for a longer-term bearish Double Top pattern but, if the 1.17 continues to hold, then this would be a rather bullish signal. All of this suggests that, at the very least, traders should keep an open mind!

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

Bullish targets: Any bullish bounce up from the revised 18-month support trend line would bring 1.18 S/R back into focus followed by a bear trend line that aligns near the 4hr chart’s 61.8% Fibonacci. After that, watch the daily 200 EMA and whole-numbers on the way up to the 14-yr bear trend line.

Bearish targets: Any bearish break below the revised 18-month support trend line would bring the key 1.17 S/R back into focus. After that, watch 1.16 and other whole numbers on the way down to the daily chart’s 61.8% Fibonacci, near 1.13.

  • Watch 1.17 and for any new 4hr chart trend line breakout.

 

 

AUD/USD: The Aussie closed with a bearish weekly candle and below the weekly 200 EMA and 0.73 level. This pullback paused just above the 61.8% Fibonacci of the recent swing High, near 0.725, making this region to watch for any new make or break.

As with many of the other charts featured this week, the 18-month support trend line has been relaxed to capture recent price action.

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

Bullish targets: Any bullish bounce up from 0.725 would bring 0.73 and a recent bear trend line into focus. After that, watch the weekly 200 EMA, another bear trend line, 0.74 and the daily 200 EMA followed by 0.75 and whole numbers on the way up to the 11-yr bear trend line and 0.80 S/R.

Bearish targets: Any bearish break below 0.725 would bring 0.72 and the revised 18-month support trend line 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 (see daily chart).

  • Watch 0.725 and for any 4hr chart trend line breakout.

 

 

AUD/JPY: The AUD/JPY closed with a bearish weekly candle but spent much of the week chopping along 80 S/R making this the level to watch for any new make or break.

As with many of the charts this week, the 18-month support trend line has been relaxed to capture recent price action.

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.
  • The recent divergence on the chart below still has me wondering which of the two will yield? Will the S&P500 join the AUD/JPY in tracking lower or will the AUD/JPY recover and move higher to catch up with the S&P500?

 

AUD/JPY versus S&P500 (gold line): a high degree of positive correlation BUT note the recent divergence!

 

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

Bullish targets: Any bullish close back above 80 S/R would bring a bear channel trend line and 81 S/R into focus. After that, watch another recent 4hr chart bear trend line, the monthly 200 EMA and 82 S/R.

Bearish targets: Any bearish hold below 80 S/R would bring the weekly 200 EMA into focus as this is near the 4hr chart’s 61.8% Fibonacci. After that, watch the revised 18-month TL and whole-numbers on the way down to 70 as this is near the 61.8% Fibonacci of the March 2020 – March 2021 swing High move (see daily chart).

  • Watch 80 S/R and for any new 4hr chart trend line breakout;

 

 

NZD/USD: The Kiwi closed with a bearish weekly candle and down near the daily 200 EMA making this the level to watch for any new make or break.

As with many of the other charts, the 18-month support trend line has been relaxed to capture recent price action.

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

Bullish targets: Any bullish bounce up from the daily 200 EMA would bring a bear wedge trend line, 0.71 and another recent bear trend line into focus. After that, watch for any push up to 0.75.

Bearish targets: Any bearish break below the daily 200 EMA would bring 0.70 and the 4hr chart’s 61.8% Fibonacci region, near the monthly 200 EMA, into focus. After that, watch 0.69 and the revised 18-month support trend line followed by whole-number levels on the way down to 0.63 as this is near the 61.8% Fibonacci of the daily chart’s March 2020 – Feb 2021 swing High move.

  • Watch the daily 200 EMA for any new make or break.

 

 

GBP/USD: The Cable closed with a bearish weekly candle and down near the daily 200 EMA. As with many of the other charts this week, the 18-month support trend line has been relaxed to capture recent price action and this is where the Cable closed for the week.

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

Bullish targets: Any bullish bounce up from the revised 18-month support TL would bring a recent bear trend line 1.38 into focus. After that, watch 1.39 and 1.40 and other whole number levels on the way up to the 15-yr bear trend line.

Bearish targets: Any bearish break below the revised 18-month support TL would bring 1.37 and 1.36 into focus. After that, watch 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 (see daily chart).

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

 

 

USD/JPY:  The USD/JPY closed with a bullish-coloured Spinning Top / Doji weekly candle reflecting indecision as price dipped during the week but ended up back near the 110 S/R level.

Bullish targets: Any bullish 4hr chart trend line breakout would bring a longer-term bear trend line and 111 into focus followed by whole-numbers on the way up to 115.

Bearish targets: Any bearish 4hr chart trend line breakout would bring a longer-term support trend line and 109 S/R into focus followed by whole numbers down to 106 as the latter is near the weekly chart’s 61.8% Fibonacci.

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

 

 

GBP/JPY: The GBP/JPY closed with a bearish weekly candle as price action continued to struggle under a multi-month bear trend line. The GBP/JPY closed just under 151 S/R making this the 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.

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

Bullish targets: Any bullish break back above 151 would bring 152 into focus as this is near the 4hr chart’s 61.8% Fibonacci. After that, watch the long-term bear trend line and whole-number levels on the way up to the weekly chart’s 61.8% Fibonacci, near 170.

Bearish targets: Any bearish hold below 151 would bring the 18-month support trend line into focus. After that, watch whole-number levels on the way down to 136 as this is near the daily chart’s 61.8% Fibonacci of the March 2020 – March 2021 swing High move (see daily chart).

  • Watch 151 and for any new 4hr chart trend line breakout: