Last week: I’d mentioned last week my surprise with the paradoxical moves across stock markets and this theme continues. Hence the heading for this week’s article Mind the Gap: that being the gap between what is happening on Wall St versus what is happening on Main Street. I’m on the lookout for any new alignment here though and wonder if this weeks bearish candles across the US major stock indices might be an early warning; especially given the bullish-reversal weekly candle that formed on the VIX Fear index. Any developing stock market weakness from here would undermine the theory of this recent bullish move being a V-shaped recovery and would rather support the notion of it being a dead cat bounce. There were only a few trend line breakout trades last week and the best one came from Gold: there had been a wedge brewing on the 4hr Gold chart that finally gave a great $30 trend line breakout along with a great trade entry on the lower time frame 15 min chart. There was a good trend line breakout for Oil traders as well, worth up to $3.50, which is still in progress.
Technical Analysis: As noted over recent weeks, 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:
- Gold: a TL wedge b/o for $30 and a short-term trade signal that has given up to $45 and 12 R:
Gold 4hr: this 4-week wedge finally gave a great momentum-based TL b/o for $30:
Gold 15 min: there was a great Asian-range b/o opportunity that is currently at 12 RoR:
- Oil: there has been a trend line breakout worth up to $3.50 that evolved from the chart that was posted in last week’s update:
Oil weekly: chart from last week:
Oil weekly: current chart with following the $3.50 TL b/o:
This Week: (click on images to enlarge):
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- DXY: US$ Index: The US$ index closed with a bullish weekly candle but remains range-bound near the key 100 level and still trading on low levels of momentum.
DXY weekly:
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- Updates next week: I am away from next Friday to Sunday so there will be no update on Friday 22nd May and a streamlined weekly update will be issued on Sunday.
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- S&P500: Keep the bigger picture in perspective with this recent pullback:
S&P500 yearly: keep this latest move in perspective:
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- Currency Strength Indicator: seems like it is back to bunching:
Currency Strength Indicator (daily):
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- Gold: This gave a great 4hr chart wedge breakout last week, however, recall that over recent weeks I have been warning about the bigger picture chart pattern shaping up on the weekly chart of an Inverse H&S. Price action is currently near the $1,750 S/R level so watch for any push to the $1,800 ‘neck line’ breakout level of this pattern.
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- DJIA weekly: The DJIA closed with a bearish weekly candle and under the 50% Fibonacci so watch this level for any new make or break:
DJIA weekly:
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- NASDAQ composite: The NASDAQ Composite Index also closed with a bearish-coloured Spinning Top weekly candle reflecting indecision. Watch for any push to the previous all-time High, circa 10,000:
NASDAQ weekly:
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- DAX weekly: The DAX closed with a bearish weekly candle and remains under the 50% Fibonacci level so keep watch of this region for any new make or break:
DAX weekly:
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- Russell-2000: The Russell-2000 is often viewed as the ‘Canary in the Coal Mine’ for US stocks. The index closed with a bearish weekly candle and back down near the 38.2 % fib so watch this region for any new make or break:
RUT weekly:
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- Bonds / TLT: The Bond ETF, TLT, closed with a bullish weekly candle. However, note the pullback that is still being suggested by the Elliott Wave indicator:
TLT weekly:
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- VIX: the Fear index closed with a bullish-reversal Inverted Hammer weekly candle at the key 30 S/R level. Watch this region for any new make or break:
VIX weekly: watch 30 S/R for any new make or break:
Calendar: Courtesy of Forex Factory: keep an eye on all the various PMIs this week:
Earnings: Courtesy of Earnings Whispers: some more big names reporting this week:
Market Analysis:
S&P500: SPX: The S&P500 closed with a bearish weekly candle and still under the weekly chart’s 61.8% Fibonacci level. Is this the beginning of a big unwind? Back in 2007 /2008 there was a bearish weekly candle, following a bullish one, right under a test of a weekly 61.8% Fibonacci following a new swing Low move and this precipitated a 17-month bearish sell off that was to become known as the Global Financial Crisis (GFC). There has now been a bearish weekly S&P500 index candle, as well as a continued hold below the 61.8% Fibonacci, and so the next couple of weekly candles remain key to aid our understanding about whether this current price action will mirror what was seen back in the GFC.
S&P500 weekly & Covid-19: note there has now been a bearish weekly candle following the bullish test of the 61.8% region:
S&P500 weekly & GFC: note how the next weekly candle was bearish after the bullish weekly candle test of the 61.8% Fibonacci during the GFC:
Back in the GFC era, the S&P500 eventually moved much lower after this test of the 61.8% fib as the following statistics and chart reveal:
- S&P 500 high: 1565.15, Oct. 9, 2007
- S&P 500 low: 682.55, March 5, 2009
- S&P 500 loss: 56.4 percent
- Duration: 17 months
S&P500 weekly & GFC: price action moved lower after the first bounce and test of the 61.8% fib with the GFC:
As mentioned over recent weeks:
- The big question remains: Will current price action mirror that seen during the GFC? That is, will price action fall away now that there has been a hold below this 61.8% Fibonacci? No one can know for sure but the next couple of weekly candles remain critical to aid our understanding of what might be to follow.
- I am still watching for any broader pullback down to the 61.8% Fibonacci of the 2009-2020 swing High move and this level is down near 1,700 / 1,600. This is a region of some confluence as it is the previous upper level from the 2013 channel breakout. The 61.8% Fibonacci zone was also tested in the 1987 and GFC market pullbacks, as described in this post. For the moment though, the index has only pulled back to around 45% of this 2009-2020 swing High move so keep this move in perspective as technical theory would suggest the uptrend is intact until the 61.8% fib is broken!
There are revised triangle trend lines on the 4hr chart to monitor for any new breakout.
The upper resistance line in the sand for me with the S&P500 is the 3,000 whole-number and psychological level near this weekly 61.8% Fibonacci level: any weekly hold and close above this level would be bullish for the index.
Bullish targets: any bullish 4hr chart triangle breakout would bring 2,900 and 3,000 into focus followed by whole-numbers on the way back to 3,400.
Bearish targets: any bearish 4hr chart triangle breakout would bring the recently broken 11-yr support TL back into focus as this is also near the 4hr chart’s 61.8% fib and, after that, the recent Low, near 2,200.
- Watch for any momentum-based 4hr chart triangle breakout:
ASX-200: XJO: The ASX-200 closed with a bullish-coloured Doji weekly candle reflecting the indecision that still exists here and, also, that there has yet again been little change: the index continues to struggle under the 5,450 S/R level and recently broken 11-year support trend line.
As a result, the broader picture remains such that the two scenarios, described over recent weeks, remain valid again this week:
- Bullish: any breakout and hold above 5,450 would support a V-shaped recovery.
- Bearish: the daily chart could still be viewed as a potential Bear Flag. The Flag pole here is large and would predict the index falling to down near 2,000 so let’s hope this pattern fails! However, the impact from the economic fallout due to Covid-19 is still uncertain but could take an enormous toll if the situation continues out to the end of the year. Recall though that the index continues to hold above the support from the weekly 61.8% fib; a key S/R region that was previously highlighted in articles here and here.
An important point to keep in mind is that momentum on the 4hr and daily charts continue to decline so traders need to watch out for any uptick with ADX momentum. There are revised 4hr chart triangle trend lines to monitor for any new momentum breakout.
Bullish targets: Any bullish 4hr chart triangle breakout above 5,450 would bring the daily chart’s 61.8% fib level, near the psychological and whole-number 6,000 level, into focus.
Bearish targets: Any bearish 4hr chart triangle breakdown would bring the 5,000 level into focus and, then, weekly chart’s 61.8% fib, near 4,600/4,700, followed by the recent Low, near 4,400.
- Watch for any new momentum-based 4hr chart triangle trend line breakout:
Gold: Gold closed with a bullish weekly candle and has finally escaped the $1,700 level and, in doing so, triggered a great trend line breakout trade that gave up to $30. The precious metal closed just above $1,750 making this the new level to watch for any new make or break.
Weekly chart: As mentioned over recent weeks, the weekly chart 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 $700 so it is a longer-term pattern worth monitoring. The upper breakout region for this pattern is $1,800 which is still a way off yet.
There are revised 4hr chart trend ascending triangle trend lines to monitor in the mean time until this $1,800 breakout region might be reached.
Bullish targets: any bullish 4hr chart ascending triangle breakout above $1,750 would bring $1,800 S/R into focus.
Bearish targets: any bearish 4hr chart ascending triangle breakout would bring $1,650, $1,600 and, then, $1,550 into focus as the latter remains near the 4hr chart’s 61.8% Fibonacci level.
- Watch for any 4hr chart ascending triangle breakout:
Oil: Oil closed with another bullish weekly candle near $30 and made a bullish momentum breakout from last week’s featured triangle pattern. This move has given up to $3.50 thus far but watch for any continuation up to the $41 / $43 region as this would fulfill a Gap Fill and it is also near the 61.8% fib of the recent swing Low move.
Bullish targets: any continued bullish daily chart triangle breakout above $30 would bring the $41 / $43 region into focus as this represents a Gap Fill region and is near the 61.8% fib of the recent swing Low move.
Bearish targets: any bearish retreat from $30 would bring $20 followed by the recent Low, near $6.50, into focus.
- Watch the $30 level and for any continued daily chart triangle breakout:
EUR/USD: The EUR/USD closed with a bearish-coloured Spinning Top weekly candle and still down near the 20-year support trend line.
Price action remains in a 4hr chart triangle giving traders trend lines to monitor for any momentum breakout.
Bullish targets: Any bullish 4hr chart triangle breakout would bring 1.10 into focus followed by whole-number levels on the way up to 1.15.
Bearish targets: Any bearish 4hr chart triangle breakout would bring the recent Low, near 1.065, into focus.
- Watch for any 4hr chart triangle breakout:
AUD/USD: The Aussie closed with a bearish weekly candle and and broke below a 4hr chart support trend line. However, price action currently is shaping up in a Bull Flag style pattern so watch these Flag trend lines for any new breakout.
Traders need to keep an open mind here and keep an eye on the US$ index. Any developing weakness of the US$ index (DXY) at the key 100 level would underpin the Aussie. However, a risk-off equity shift could trigger a flight to safety move into the US$ which would likely punish this pair. Remember to trade what you see and not what you think! Recall, also, the monthly chart still shows a rather bullish pattern developing; that of a bullish-reversal Descending Wedge.
Bullish targets: Any bullish 4hr chart Flag trend line breakout would bring 0.65 into focus followed by the recent High, near 0.67 S/R.
Bearish targets: Any bearish 4hr chart Flag trend line breakdown would bring 0.64 and 0.625 S/R into focus followed by whole-numbers on the way down to the recent Low, near 0.55 S/R.
- Watch for any 4hr Flag trend line breakout:
AUD/JPY: The AUD/JPY closed with a small bearish weekly candle and still just under the 70 S/R level making this the region to keep watch of for any new make or break. The monthly chart reveals just how significant this 70 S/R level is for this currency pair and price action may continue to chop around this region until there is a decisive new move across stock markets; any continued stock market recovery would support the AUD/JPY moving above 70 but any stock sell-off would be bearish for this pair.
There are revised 4hr chart trend lines to monitor for any momentum breakout.
Bullish targets: Any 4hr chart trend line breakout above 70 S/R would bring whole-number levels up to 75 S/R into focus.
Bearish targets: Any bearish 4hr chart support trend line breakdown would bring 65 S/R back into focus followed by 60 S/R.
- Watch for any 4hr chart trend line breakout:
NZD/USD: The Kiwi closed with a large bearish weekly candle and broke below a 4hr chart support trend line.
Price action is trading within a 4hr chart Flag or Channel style pattern giving traders trend lines to monitor for any new momentum breakout.
Bullish targets: Any bullish 4hr chart Flag / Channel breakout would bring 0.60 into focus followed by whole number levels, plus 0.625, on the way up to the recent High, near 0.64 S/R.
Bearish targets: Any bearish Flag / Channel breakout would bring 0.57 S/R back into focus as this is still near the 4hr chart’s 61.8% fib.
- Watch for any 4hr chart Flag / Channel breakout:
GBP/USD: The GBP/USD closed with a large bearish weekly candle and Friday’s featured 4hr chart Descending Wedge pattern failed to develop.
Price action has now closed out and down from a 6-week channel, bound by 1.265 above and 1.22 below, and the 1.21 level is the new one to watch for any new make or break. News was released over the weekend that the BoE are considering negative interest rates and I would expect this would be bearish for the Cable.
Bullish targets: Any bullish 4hr chart hold above 1.21 would bring 1.22 S/R into focus followed by whole-number levels on the way back up to 1.265 S/R.
Bearish targets: Any bearish 4hr chart triangle breakout below 1.21 would bring whole-number levels on the way down to the 2016 Low, near 1.145, into focus.
- Watch 1.21 S/R for any new make or break:
USD/JPY: The USD/JPY closed with a bullish-coloured Spinning Top weekly candle and still near 107 keeping this as the S/R level to watch for any new make or break.
There is a revised triangle pattern on the 4hr chart giving traders trend lines to watch for any new momentum breakout.
Bullish targets: Any bullish 4hr triangle breakout would bring 108, 108.5, 109 and, then, whole-numbers on the way to 112 into focus.
Bearish targets: Any bearish triangle breakout would bring 105 S/R back into focus as this is near the 4hr chart’s 61.8% Fibonacci and the monthly 200 EMA.
- Watch for any 4hr chart triangle breakout:
GBP/JPY: The GBP/JPY closed with a bearish weekly candle and below the 130 level making this the one to watch for any new make or break. The recent six week channel, bound by 136 above and 132 below, seems to have been voided.
Looking at the weekly chart makes me think a test of 125 could be on the cards.
Bullish targets: Any bullish 4hr chart recovery back above 130 would bring 132 into focus followed by whole-numbers on the way to 136.
Bearish targets: Any bearish 4hr chart hold below 130 would bring 125 S/R back into focus.
- Watch 130 for any new make or break:
