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New Stocks Highs despite rising Delta

August 15, 2021

Last week: The US$ closed lower last week following the rather modest US inflation report and as concern increased due to the expanding global impact of the Delta Covid variant. The S&P500 and DJIA managed to carve out new weekly all-time Highs, as did the Australian XJO, but the risk sensitive Russell-2000, Emerging markets (EEM) and NASDAQ closed lower for the week. US$ weakness helped to support Gold and the commodity currencies and was the main driver behind some great trend line breakout opportunities. This week features US Retail Sales and FOMC Meeting Minutes, the RBNZ rate update and Aussie Employment data so watch to see how these items impact overall risk sentiment. I continue to note that the bullish BTC/USD breakout, flagged here some weeks ago, has continued higher.

 

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 a few decent trend line breakouts last week but two of the best came on Friday and are illustrated below with charts. Articles released during the week can be found here, here, here and here.

 

  • EUR/USD: a wedge TL b/o after US CPI for 30 pips and another triangle breakout on Friday for 60 pips. The breakout on Friday was a great example of stalking a breakout on the 4hr time frame BUT trying to catch the move on the lower time frame, as the series of charts below reveal:

 

EUR/USD 4hr chart from the Friday 13th update:

 

EUR/USD 4hr chart after breakout:

 

EUR/USD 30 min chart after b/o: note how short-term traders could have easily caught this trend line breakout for a great Return on Risk trade opportunity worth around 3 R:

 

  • Gold: a TL b/o after US CPI for $25 and another on Friday 13th for $25. The breakout on Friday was a great example of stalking a breakout on the 4hr time frame BUT trying to catch the move on the lower time frame, as the series of charts below reveal:

 

Gold 4hr chart from my Friday 13th update:

 

Gold 4hr chart after breakout:

 

Gold 30 min chart after b/o: note how short-term range breakout traders could have easily caught this trend line breakout:

 

  • GBP/JPY: a TL b/o for 100 pips.
  • USD/JPY: a TL b/o for 80 pips.

 

This Week: (click on images to enlarge):

 

    • DXY: US$ Index: The DXY closed with a bearish-coloured, almost Inside, weekly candle reflecting indecision as price action remains constrained within a weekly triangle pattern. Watch for any new momentum-based trend line breakout.

 

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 bullish-coloured Spinning Top weekly candle, reflecting indecision, but still within a weekly Bull Flag.

 

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

 

 

    • Emerging Markets: The Emerging market ETF, EEM, closed with a bearish weekly candle and the Flag breakout to the down side remains open so watch for any bearish continuation.

 

EEM weekly: watch 52 for any new make or break:

 

 

    • DJIA: The DJIA closed with a bullish weekly candle, above the key 35,000 level and at a new all-time High. Traders should monitor for any failure at this key level though 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 bearish-reversal Hanging Man-style weekly candle. 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: watch 16,000 for any new make or break:

 

 

    • 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-coloured Spinning Top weekly candle, reflecting indecision, but still above the 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 small bullish weekly candle. Note the revised trend lines here.

 

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

 

 

    • Bonds / TLT: The Bond ETF, TLT, closed with a small bullish weekly candle, having a long lower shadow. 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, first noted in my update from 3 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: 

 

 

 

Market Analysis:

 

S&P500: The S&P500 closed with another bullish weekly candle, at a new all-time High and above the  4,450 level. Thursday’s upbeat Earnings report for Disney is reported to have helped offset Friday’s slide with US Consumer Confidence. For those of you convinced a pullback has to be in store here I urge some caution and to read this article where this current rally is put into greater context.

Trading volume was 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 hold 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 (see the second weekly chart).

Bearish targets: any bearish 4hr chart trend line breakout, below 4,450, 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: There is a saying that ‘markets are forward looking’ and that must certainly be the case with the Aussie markets right now. The XJO closed with a bullish weekly candle, at another new all-time High and above the whole-number 7,600 level. All of this while great swathes of the country remain under Covid-induced 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 slightly higher last week, edging above the trend line, so watch for any new 200 MA breakout.

 

XJO weekly: keep watch for any new b/o above the 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 hold above 7,600 would bring 7,700 into focus.

Bearish targets: Any bearish 4hr chart trend line breakout, and break of 7,600, would bring 7,500 into focus. After that, watch 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 7,600 and for any 4hr chart trend line breakout; especially with this week’s Australian Employment data:

 

 

 

Gold: Gold closed with a bullish weekly candle having a small body but a long lower shadow reflecting how buyers stepped up at the end of the week.

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 trend lines to monitor on the 4hr chart following Friday’s great bullish trend line breakout move.

Bullish targets: any bullish 4hr chart trend line breakout, above $1,800, would bring $1,850 and $1,900 into focus.

Bearish targets: any bearish 4hr chart trend line breakout would bring $1,750 into focus. After that, watch for any push down to the $1,670 support level.

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

 

 

 

EUR/USD: The EUR/USD closed with a bullish-coloured Inside candle reflecting indecision, but recovered to close back above the 18-month support trend line that was pierced during last week.

Price action dropped, midweek, to just above the 1.17 level and the second weekly chart reveals the importance of this region for the last two years. There is also the look of a bearish-reversal Double Top on this cleaner weekly chart with the 1.17 forming up an effective neck line so this is worth keeping in mind. The EUR/USD closed back up near 1.18 so that will be the level in focus at the start of this week.

There are revised trend lines to monitor on the 4hr chart following Friday’s recovery move.

Bullish targets: Any break above 1.18 would bring a 4hr chart bear trend line and the 1.183 region into focus as the latter lies near the 4hr chart’s 61.8% Fibonacci. After that, watch 1.19 followed by whole-numbers on the way up to the 14-yr bear trend line.

Bearish targets: Any bearish hold below 1.18 would bring the 18-month support trend line and a recent 4hr chart trend line into focus followed by 1.17; the neck line of a potential weekly chart Double Top pattern.

  • Watch 1.18 and for any new 4hr chart trend line breakout:

 

 

 

AUD/USD: The Aussie closed with a bullish-coloured Spinning Top-style weekly candle, reflecting indecision, and still under 0.74 but above the 18-month support trend line. 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.

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

Bearish targets: Any break of the 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; especially with this week’s Australian Employment data:

 

 

 

AUD/JPY: The AUD/JPY closed with a bearish-coloured, almost Inside, weekly candle, reflecting indecision, as price action spent another week, making three now, snaking along the 81 level.

The 4hr chart shows a new, but rather subtle, break of the 18-month support trend line so this brings the 80 level into greater focus for next week.

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!

 

Bullish targets: Any recovery above 81 and the 18-month TL would bring a 4hr chart bear trend line and 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 hold below 81 and the 18-month TL 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 80 and 81 S/R for any new make or break; especially with this week’s Australian Employment data:

 

 

 

NZD/USD: The Kiwi closed with another bullish-coloured Spinning Top weekly candle, reflecting indecision, and still within a recent 4hr chart triangle pattern.

Momentum remains in decline on the monthly, weekly and daily time frames ahead of this week’s RBNZ rate update.

Bullish targets: Any bullish 4hr chart trend line breakout would bring 0.71, another 4hr chart bear trend line, 0.72 and 0.73 S/R into focus.

Bearish targets: Any bearish break below 0.70 would bring the 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; especially with this week’s RBNZ rate update:

 

 

GBP/USD: The Cable closed with a bearish-coloured Doji weekly candle reflecting indecision after spending the week range-bound between 1.38 and 1.39.

Momentum remains in decline on the monthly, weekly and daily time frames.

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

Bullish targets: Any bullish 4hr chart trend line breakout would bring 1.39 and an upper 4hr chart triangle trend line into focus. After that, watch 1.40, 1.41, the 15-yr bear trend line and 1.425.

Bearish targets: Any bearish 4hr chart trend line breakout would bring 1.38 and the 18-month support trend line into focus. After that, watch 1.37 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 bearish, almost engulfing, weekly candle and back below 110 S/R.

Note the pullback to the 4hr chart’s 61.8% Fibonacci region so that will be the level to watch for any new make or break.

Bullish targets: Any bullish bounce up from 4hr chart’s 61.8% Fibonacci would bring 110 and 111 into focus followed by whole-numbers on the way up to 115.

Bearish targets: Any bearish break below the 4hr chart’s 61.8% Fibonacci would bring 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 the 4hr chart’s 61.8% Fibonacci region for any new make or break.

 

 

GBP/JPY: The GBP/JPY closed with a bearish, almost engulfing, weekly candle after making a trend line breakout to end up back near 152 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.

Bullish targets: Any bounce back above 152 would bring 153 and 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 continued bearish 4hr chart trend line breakout, below 152, would bring 151 and 150 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.

  • Watch 152 and for any continued 4hr chart trend line breakout: