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Markets rattled

December 5, 2021

Last week: Markets were rattled again last week following the emergence of Omicron in the USA and increased global spread of the variant and this was then compounded by Friday’s weaker than expected NFP jobs report. This resulted in a volatile week for stocks and so it is of no surprise to see the VIX now above 30.  All four of the US index majors, the S&P500, DJIA, NASDAQ and Russell-2000, closed lower for the week BUT, essentially, remain in an uptrend with the print of higher Highs and higher Lows. The big question for now, though, is whether this latest Omicron situation will be the catalyst that triggers a reversal from this 20-month US stock market uptrend? There is not enough scientific data available just yet to make accurate assessments of the impact of the Omicron variant so markets are likely to remain jittery until there is some clarification. One bit of divergence I think is worth keeping in mind is how little the US$ gained in this latest risk-off setting and so this week’s US CPI data will be in keen focus, especially given that rising inflation has been another concern for market participants.

 

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 no 4hr chart trend line breakouts of merit to note from last week. Articles released during the week can be found here, here, here and here.

 

This Week: (click on images to enlarge):

 

    • DXY: US$ Index: The DXY closed with another bullish-coloured Long Legged Doji weekly candle reflecting continued indecision. The index is holding above the 95 breakout region of a bullish-reversal Double Bottom or W Bottom on the weekly chart and remains near the weekly 50% Fibonacci retracement so watch for any recovery and potential push to the key 61.8% level; especially with this week’s US CPI release.

 

DXY weekly: watch for any potential push to the 61.8% Fibonacci:

 

 

    • Central Bank Updates: there are two Central bank updates this week: RBA (AUD) and BoC (CAD).

 

    • S&P500: Perspective: 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 the bigger picture in perspective:

 

 

    • DJIA: The DJIA closed with a bearish weekly candle and just above 34,000 level so watch this for any new make or break.

 

DJIA weekly: watch 34,000 for any new make or break.

 

 

    • NASDAQ composite: The NASDAQ Composite Index closed with a large, bearish weekly candle following the previous week’s bearish engulfing weekly candle BUT momentum remains low. Note the revised support trend line so watch this for any new make or break.

 

NASDAQ weekly: watch the TL 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 with a bearish weekly candle. Note how price action has continued its retreat following the recent test of the 200% retracement of the Covid-19 swing low move BUT watch 2,100 for any new make or break.

 

RUT weekly: watch 2,100 for any new make or break.

 

 

    • DAX weekly: The DAX closed with a bearish weekly candle and looks to be shaping up in a potential bearish Double Top so watch 14,800 for any new make or break.

 

DAX weekly: watch 14,800 for any potential Double Top:

 

 

    • BTC/USD: The weekly chart of BTC/USD continues shaping up in a bullish-continuation pattern of a Cup or, potentially, Cup ‘n’ Handle although the ‘Handle‘ is currently being stretched! The technical theory here is that the extent of the breakout, from either the neck line of the Cup or from the Handle, will extend by the same order of magnitude as the Height of the Cup. The height of the Cup on BTC/USD is around $40,000 so, IMHO, this is a pattern well worth monitoring!

 

BTC/USD weekly: watch for any bullish Cup or Handle breakout:

 

 

    • Copper: Copper is often viewed as one metric of economic health and closed with a bearish-coloured Spinning Top weekly candle. Watch for any new momentum-based trend line breakout as the ADX is still on the decline here.

 

Copper weekly: watch for any new breakout:

 

 

    • Emerging Markets: The Emerging market ETF, EEM, closed with a bearish-coloured Spinning Top weekly candle BUT watch for any trend line breakout: up or down.

 

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

 

 

    • 10-yr T-Note Interest rate / TNX: This has closed with a large, bearish weekly candle so watch for any new trend line breakout.

 

    • 10-yr T-Note Interest rate (weekly): Watch for any new TL b/o:

 

 

    • Bonds / TLT: The Bond ETF, TLT, closed with a large, bullish weekly candle so watch for any push to the 61.8% Fibonacci.

 

TLT weekly: watch for any push to the 61.8% Fibonacci.

 

 

    • VIX: the Fear index closed just above 30 S/R so watch this for any new make or break.

 

VIX weekly: watch 30 S/R 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 bearish weekly candle following the previous week’s bearish-engulfing weekly candle. Price action ended the week just above 4,500 making this the one to watch for any new make or break. 

I urge readers to note the revised daily /weekly chart support trend line showing that, for the time being, the index is still printing higher Highs and higher Lows so keep this support zone in focus as well. I have included a monthly chart this week as well and any bearish break of this trend line would bring the 4,300 level into primary focus as this level seems to have experienced the most price reaction over recent months.

NB: Keep in mind that the 4,600 level has been in focus of late as it is the whole-number level near the 200% Fibonacci retracement of the Covid swing Low (see the second weekly chart) and so this is a significant level to watch over coming sessions for any new make or break.

Trading volume was markedly higher last week and has moved above the 200 MA so watch for any continuation.

 

S&P500 ETF: SPY weekly: watch for any increase in trading volume:

 

Keep in mind that a Golden Cross remains valid for the time being BUT the index is back 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 and, 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 Golden Cross remains valid:

 

 

There are revised 4hr chart trend lines to monitor.

Bullish targets: any bullish hold above 4,500, and revised 20-month support trend line, would bring 4,650 into focus, as this is near the 4hr chart’s 61.8% Fibonacci, followed by whole-number levels on the way up to the 5,000 level.

Bearish targets: any bearish break below 4,500, and revised 20-month support trend line, would bring the 4,300 S/R region into focus as this is a significant reaction zone. After that, watch whole-numbers on the way down to the weekly chart’s 61.8% Fibonacci retracement level, near 3,150.

  • Watch 4,500 and the revised 20-month support trend line for any new make or break:

 

 

 

ASX-200: XJO: The XJO closed with a bearish-coloured Spinning Top weekly candle reflecting indecision but managed to hold above the key 7,200 level and so this remains the one to watch in coming sessions for any new make or break. Friday was a rather bearish day for US stocks though and so this 7,200 may come under increased pressure on Monday during the Asian session.

As mentioned over recent weeks:

  • Recall that the 7,200 region was resistance prior to 2021 and any hold above this region would be a bullish signal as it would suggest that this old Resistance has evolved into new Support.

  • I do wonder if the XJO might just chop along sideways, above 7,200 and under the resistance of the previous high of 7,632.8, until after the next Australian Federal election, likely sometime in the first quarter of 2022? A change of Government might just be the catalyst needed to invigorate market confidence and get the index moving to tackle this 7,650 region.

  • The second weekly chart shows the Fibonacci retracement of the Covid swing low move and projects bullish levels that are worth monitoring. The most interesting level would have to be the 200% retracement, a level the S&P500 has just passed, but for the XJO this level lies up at the whole-number level of 10,000; a nice round number to monitor!

 

Trading volume on the XJO jumped higher last week and broke above the 200 MA so watch for any continuation:

 

XJO weekly: trading volume now above the 200 MA:

 

Keep in mind that the recent Golden Cross remains valid here BUT the index is below the 50 SMA and only just holding above the 200 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 and this current Golden Cross proved to be great signal.

 

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

 

Note that I have included a monthly chart of the XJO as well this week and whilst the Bull Flag on the weekly chart was recently broken, note how the monthly chart still has a potential Bull Flag in play.

Bullish targets: Any hold above 7,200 would bring the recently broken weekly chart’s Bull Flag lower trend line and 7,300 level into focus. After that watch whole-number levels, the previous all-time High region of 7,632.8, the 161.8% retracement of the Covid swing low (near 9,000) followed by the 200% level (near 10,000).

Bearish targets: Any break and hold below 7,200 would bring the previous 2020 High of 7,197.20 into focus followed by 7,100, 7,000, 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 7,200 for any new make or break;

 

 

 

Gold: Gold closed with a bearish-coloured Spinning Top weekly candle and still below $1,800 keeping this the level to watch for any new make or break.

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.

The daily chart reveals the importance of the $1,670 level and this continues to be a ‘line in the sand’ support level. 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 wedge trend lines to monitor for any new breakout.

Bullish targets: any bullish 4hr chart wedge trend line breakout would bring $1,800 into focus. After that, watch $1,850 and the 16-month bear TL followed by $1,900 S/R.

Bearish targets: any bearish 4hr chart wedge trend line breakout would render a break below $1,770 and the daily/weekly chart’s 4-month support trend line and would bring $1,700 and the $1,670 support level into focus.

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

 

 

 

EUR/USD: The EUR/USD bucked the risk-off trend again last week to close slightly higher with a bullish-coloured Spinning Top following last week’s bullish-reversal Hammer weekly candle. Note how price has closed back above the 1.13, the daily/weekly chart’s 61.8% Fibonacci, keeping this as the level to watch for any new make or break.

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

Bullish targets: Any bullish hold above 1.13 and 4hr chart triangle breakout would bring 1.15 into focus as this is near the 4hr chart’s 61.8% Fibonacci. After that, watch the weekly 200 EMA, 1.17, the daily 200 EMA and whole-numbers on the way up to the 14-yr bear trend line.

Bearish targets: Any bearish break back below 1.13 and 4hr chart triangle breakout would bring 1.12 into focus.

  • Watch 1.13 and the 4hr chart triangle trend lines for any new make or break:

 

 

 

AUD/USD: The Aussie closed with a bearish weekly candle and just below 0.70 making this the level to watch for any new make or break.

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

Bullish targets: Any bullish bounce up from 0.70 would bring 0.71 and the upper 4hr chart channel trend line into focus. After that, watch the area of the daily 200 EMA, recently broken 19-month support trend line and 0.74 as these lie just above the 4hr chart’s 61.8% Fibonacci. After that, watch 0.75 and other whole numbers on the way up to the 11-yr bear trend line and 0.80 S/R.

Bearish targets: Any bearish hold below 0.70 would bring 0.69 into focus followed by 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 0.70 and the 4hr chart’s channel trend lines for any new make or break; especially with this week’s RBA rate update.

 

 

 

AUD/JPY: The AUD/JPY closed with a bearish weekly candle and down near a recent low region of 79 making this the level to watch for any new make or break. 

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

Bullish targets: Any bullish recovery above 79 would bring the region of the daily 200 EMA, monthly 200 EMA and recently broken 19-month support trend line into focus. After that watch 86 S/R as there hasn’t been a weekly chart close above this level since Feb 2018. Then watch whole-number levels up to 90 and the 9-yr bear trend line.

Bearish targets: Any hold below 79 would bring 78 S/R into focus followed by 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 79 for any new make or break; especially with this week’s RBA rate update.

 

 

 

NZD/USD: The Kiwi closed with a bearish weekly candle and just above 0.675 making this the region to watch for any new make or break. The 0.675 may seem like a random number but check on the weekly chart just how often this level features as a trigger for price reaction.

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

Bullish targets: Any bullish recovery above 0.675 would bring 0.68 and the 4hr chart upper channel trend line into focus. After that, watch the region of the daily 200 EMA, 50% Fibonacci and 0.70 level followed by the recently broken 19-month support trend, 0.71 and the 9-month bear trend line.

Bearish targets: Any bearish hold below 0.675 would bring 0.67 and the 4hr chart lower channel trend line into focus. After that, watch whole-number levels on the way down to 0.62 as this is near the 61.8% Fibonacci of the daily chart’s March 2020 – Feb 2021 swing High move.

  • Watch 0.675 and the 4hr chart channel trend lines for any new make or break;

 

 

 

GBP/USD: The Cable closed with a bearish weekly candle and remains in a descending trading channel. Price action finished the week just above 1.32 making this the level to watch for any new make or break.

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

Bullish targets: Any bullish break above 1.33 and 4hr chart channel trend line breakout would bring 1.34 into focus. After that watch 1.36, as this is near the daily chart’s 200 EMA and 4hr chart’s 61.8% Fibonacci, followed by whole-number levels on the way up to the 15-yr bear trend line.

Bearish targets: Any bearish 4hr chart channel trend line breakout and move below 1.32 would bring 1.31 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 the 4hr chart channel trend lines for any new make or break;

 

 

 

USD/JPY:  The USD/JPY closed with a bearish weekly candle and back down near 112.30 making this the level to watch for any new make or break.

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

Bullish targets: Any bullish hold above 112.30 and 4hr chart wedge breakout would bring 113 into focus. After that, watch whole-number levels on the way to 120 S/R.

Bearish targets: Any 4hr chart wedge breakout below 112.30 would bring 112 S/R into focus followed by whole numbers down to 107.50 as the latter is near the weekly chart’s 61.8% Fibonacci.

  • Watch 112.30 for any new make or break.

 

 

 

GBP/JPY: The GBP/JPY closed with a bearish weekly candle and down near a recent low, at 149, making this the level to watch for any new make or break.

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

Bullish targets: Any bullish hold above 149 would bring an upper 4hr chart wedge trend line into focus. After that, watch 153, the recently broken the 19-month support trend line and the recent high region of 158 followed by whole-number levels on the way up to the weekly chart’s 61.8% Fibonacci, near 170.

Bearish targets: Any bearish break below 149 would bring 148 into focus. After that, watch whole-number levels on the way down to 137 as this is near the daily chart’s 61.8% Fibonacci of the March 2020 – current swing High move (see daily chart).

  • Watch 149 for any new make or break: