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New stock highs despite rising Delta

August 8, 2021

Last week: It was another relatively slow week for trend line breakout opportunities and I suspect that the wait for Friday’s NFP may have been the reason. The US monthly jobs report was better than expected and this helped to lift the US$ and US yields triggering some sharp movement on Gold and the commodity currencies. All four of US stock Index majors, S&P500, DJIA, NASDAQ and Russell-2000 closed higher on hopes of an improving US economy, despite the rising global case load of Covid Delta, with the first two of these printing new all-time Highs. These four index majors also continue to hold above 18-month support trend lines but momentum is waning so only time will tell if rising US yields undermines this trend. Traders may have to wait for more guidance until the Federal Reserve meets at the annual Jackson Hole conference, due at the end of August, but this week’s US CPI data will be closely watched as well. Declining momentum is a feature across a number of trading instruments and so the long-term trend lines on many charts have been revised. I note, with some interest, that the bullish BTC/USD breakout I flagged some weeks ago has continued in, spite of the stronger US$.

 

Website issues: my website issues have been resolved for the time being so I hope this situation holds.

 

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: It was a relatively slow week for trend line breakout trades. Articles released during the week can be found here, here, here and here.

 

  • NZD/USD: a wedge TL b/o for 70 pips.
  • EUR/USD: a wedge TL b/o for 70 pips.
  • GBP/JPY: a channel TL b/o for 50 pips.
  • AUD/JPY: a channel TL b/o for 50 pips.

 

This Week: (click on images to enlarge):

 

    • DXY: US$ Index: The DXY closed with a bullish weekly candle as the upbeat NFP resulted helped to boost the US$. However, this candle was almost an Inside indecision candle and price action remains constrained within a weekly triangle pattern and on declining and contracting momentum. Watch for any new momentum-based trend line breakout; especially with this week’s US CPI data release.

 

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

 

 

    • % 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.

 

% of US Stocks above the 200 Day Moving Average: watch for any further reaction 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 at 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 large, bearish weekly candle. Momentum is declining here so the Flag trend lines have been revised.

 

Copper weekly: Watch for any new Bull Flag b/o:

 

 

    • Emerging Markets: The Emerging market ETF, EEM, closed with a bearish-coloured Spinning Top weekly candle, reflecting indecision, but higher than last week’s candle due to the gap up at market open; the reverse of last week. The Flag breakout to the down side remains open for now so watch for any bearish continuation:

 

EEM weekly: watch for any push lower:

 

 

    • DJIA: The DJIA closed with a small bullish weekly candle, above the key 35,000 level and at a new all-time High. Traders should monitor for any failure at this level and, if bearish momentum evolves, watch for any pullback to the weekly 61.8% Fibonacci, near 25,000.

 

DJIA weekly: keep watch of 35,000:

 

 

    • NASDAQ composite: The NASDAQ Composite Index closed with a bullish-coloured Spinning Top weekly candle, reflecting indecision.  Watch the whole-number 15,000 level and the support trend line for any new make or break

 

NASDAQ weekly: watch 15,000 and the support trend line for any new make or break:

 

    • DAX weekly: The DAX closed with a bullish weekly candle and remains above the 18-month support trend line. Watch for any new momentum breakout: up or down.

 

DAX weekly: the trend remains ‘up’ for now:

 

    • Russell-2000: The Russell-2000 is often viewed as the ‘Canary in the Coal Mine’ for US stocks and the index closed with another bullish coloured Spinning Top weekly candle reflecting indecision. Note the revised 18-month support trend line so watch to see how price action moves from here.

 

RUT weekly: watch the 18-month support trend line:

 

 

    • 10-yr T-Note Interest rate / TNX: This has closed with a with a bearish-reversal Hammer weekly candle. Note, also, how there is a wedge-like breakout in progress on the daily chart so watch for any push back up to the key 15 level:

 

  • 10-yr T-Note Interest rate (weekly): watch for any continued hold above the 50% Fibonacci: 

 

10-yr T-Note Interest rate (daily): watch for any recovery up to the 61.8% Fibonacci, near the key 15 level:

 

 

    • Bonds / TLT: The Bond ETF, TLT, closed with a bearish weekly candle but watch for any trend line breakout continuation.

 

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

 

 

    • BTC/USD: The bullish wedge breakout continues and this was noted in my update from 2 weeks ago. I had previously mentioned that the 61.8% Fibonacci, near the whole-number $30,000 and, more precisely $27,700, were the two key levels to monitor and this seems to have been spot on advice. Watch for any continued bullish follow-through.

 

BTC/USD: the b/o was signaled by the TL and Volume breakout two weeks ago:

 

 

    • VIX: the Fear index closed with a bearish weekly candle.

 

VIX weekly: watch for any push back to 20 S/R:

 

 

Calendar: Courtesy of Forex Factory:

 

 

Earnings: Courtesy of Earnings Whispers: Earnings season continues this week:

 

 

 

Market Analysis:

 

S&P500: The S&P500 closed with a bullish weekly candle, at a new all-time High and just above the whole-number 4,400 level.

Trading volume was a bit lower last week so watch for any new break back above the bear trend line and 200 MA.

 

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

:

There are revised 4hr chart trend lines to monitor.

Bullish targets: any bullish break above 4,450 would bring 4,500 into focus. After that, watch 4,600 as this is near the 200% Fibonacci retracement of the Covid swing Low and, then, the whole-number 5,000 level.

Bearish targets: any bearish 4hr chart trend line breakout would bring 4,400 and the 18-month support trend line back into focus.  After that, watch whole-numbers on the way down to the weekly chart’s 61.8% Fibonacci retracement level, near 3,000.

  • Watch 4,450 and for any new 4hr chart trend line breakout.

 

 

 

ASX-200: XJO: It defies some belief but the XJO closed with a bullish weekly candle, at a new all-time High, above an 18-month support trend line and above the whole-number 7,500 level. I say ‘defies belief’ because 15 million people, more than half the population of the country, are currently in a crippling Covid lock-down.

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 was lower last week so watch for any new trend line and 200 MA breakout.

 

XJO weekly: keep watch for any new b/o back above the TL and 200 MA:

 

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

 

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

 

There are revised 4hr chart trend lines to monitor.

Bullish targets: Any bullish break above 7,550 would bring 7,600 into focus.

Bearish targets: Any bearish respect of 7,550 would bring a recent support trend line into focus. After that, watch 7,500, 7.400 and the 18-month support trend line followed by 7,200, 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 7,550 and for any 4hr chart trend line breakout:

 

 

 

Gold: Gold closed sharply lower following the better than expected US jobs report as the following charts reflect:

 

Gold 4hr: showing the sharp drop on Friday and trend line breakout following NFP:

 

Gold 30 min: the sharp mover lower with NFP is clear BUT note how a bearish Asian range breakout trade would have worked nicely:

 

The precious metal closed with a large, bearish engulfing weekly candle and just below $1,770 making 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.

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.

 

Bullish targets: any bullish break back above $1,770 would bring $1,800 into focus as this is near the 4hr chart’s 61.8% Fibonacci. After that, watch for any push to the key $1,900 level.

Bearish targets: any bearish hold below $1,770 would bring $1,750 into focus. After that, watch for any push down to the $1,670 support level.

  • Watch $1,770 for any new make or break:

 

 

EUR/USD: The EUR/USD closed sharply lower following Friday’s better than expected US jobs report.

Momentum has been declining on the monthly, weekly and daily time frames though and so trend lines on these charts have been revised to reflect this shift.

Bullish targets: Any bounce up from the revised 18-month support trend line would bring 1.18 and 1.85 into focus as the latter lies near the 4hr chart’s 61.8% Fibonacci. After that, watch the 4hr chart’s bear trend line and 1.19 followed by whole-numbers on the way up to a revised 14-yr bear trend line.

Bearish targets: Any bearish break of the revised 18-month support trend line would bring 1.17 into focus.

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

 

 

AUD/USD: The Aussie closed, somewhat surprisingly, with a bullish-reversal Inverted Hammer style weekly candle but still under 0.74 and down near a revised 18-month support trend line. Price action held up rather well on Friday, considering the US$ strength following NFP, so keep an open mind here! Recall that 0.74 had been an effective Support region for many months so watch to see if this region now turns into effective Resistance.

There are revised trend lines across all time frames to monitor for any new breakout.

Bullish targets: Any breakout above 0.74 would bring 0.75 and an upper 4hr chart trend line into focus. After that, watch 0.75 and whole-numbers on the way up to the revised 11-yr bear trend line and 0.80 S/R.

Bearish targets: Any break of the revised 18-month support trend line would bring 0.73 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 0.74 and for any new trend line breakout:

 

 

AUD/JPY: The AUD/JPY closed with a bullish-coloured Spinning Top weekly candle, reflecting indecision, as price action has spent much of the last two weeks snaking along either side of the 81 level.

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:

 

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

 

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

Bullish targets: Any bullish 4hr chart trend line breakout would bring 82 S/R into focus. After that, watch 85 S/R and other whole numbers on the way up to 90 S/R.

Bearish targets: Any bearish 4hr chart trend line breakout would bring 80 S/R into focus. After that, watch 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.

  • Watch for any 4hr chart trend line breakout:

 

 

NZD/USD: The Kiwi closed with a bullish-coloured Spinning Top weekly candle, reflecting indecision, but still near 0.70 keeping this the level to watch for any new make or break.

Momentum has been declining on the monthly, weekly and daily time frame and so trend lines on these charts have been revised to reflect this shift.

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

Bullish targets: Any bullish 4hr chart trend line breakout would bring 0.71, a bear trend line, 0,72 and 0.73 S/R into focus.

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

  • Watch 0.70 and for any 4hr chart trend line breakout:

 

 

 

GBP/USD: The Cable closed with a bearish-coloured Spinning Top, and almost Inside, weekly candle with both reflecting indecision after spending much of the week chopping around either side of 1.39 keeping this level to watch for any new make or break.

Momentum has been declining on the monthly, weekly and daily time frame and so trend lines on these charts have been revised to reflect this shift.

Bullish targets: Any bullish break back above 1.39 would bring the upper 4hr chart triangle trend line breakout into focus. After that, watch 1.41, the revised 15-yr bear trend line and 1.425.

Bearish targets: Any bearish break below 1.38 would bring the revised 18-month support trend line into focus. After that, watch 1.36 and 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.

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

 

 

 

USD/JPY:  The USD/JPY closed with a bullish-coloured Inside weekly candle reflecting indecision but managed to close above 110 S/R.

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

Bullish targets: Any bullish 4hr chart triangle breakout would bring 111 into focus followed by whole-numbers on the way up to 115.

Bearish targets: Any bearish 4hr chart triangle breakout would bring 110 and 109 S/R into focus.

  • Watch for any 4hr chart trend line breakout:

 

 

GBP/JPY: The GBP/JPY closed with a bullish weekly candle and back near 153 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 4hr chart trend lines to watch for any new breakout.

Bullish targets: Any bullish 4hr chart trend line breakout would bring 154 into focus. After that, watch whole-number levels on the way up to the weekly chart’s 61.8% Fibonacci, near 170.

Bearish targets: Any bearish 4hr chart trend line breakout would bring 152 into focus. After that, watch whole-number levels on the way down to 136 as this is near the 61.8% Fibonacci of the March 2020 – March 2021 swing High move.

  • Watch 153 and for any 4hr chart trend line breakout: