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New US stocks highs ahead of Earnings season

July 11, 2021

Last week: There were new all-time closing highs again for the S&P500, DJIA and NASDAQ despite some mid-week jitters. The DXY faded towards the end of the week to close lower which helped to support commodities and commodity currencies. It is worth noting the emerging divergence with the risk-sensitive Russell-2000 index and the Emerging Markets ETF, EEM, as both closed lower. The Bond market continues to recover and this may be flashing a warning signal as well. There are three Central Bank updates next week and quite a bit of high-impact news as US Earnings seasons starts up again so watch to see how these events impact risk 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 some decent trend line breakouts but the larger ones evolved from the sharp midweek moves with the Yen. Updates posted throughout last week can be found through the links here, here, here and here:

 

  • Gold: a TL b/o for $40.
  • AUD/USD: a TL b/o trade for 70 pips.
  • NZD/USD: a TL b/o trade for 70 pips.
  • GBP/USD: a TL b/o trade for 70 pips and another currently at 50 points.
  • GBP/JPY: a TL b/o trade for 160 pips.
  • AUD/JPY: a TL b/o trade for 120 pips.
  • USD/JPY: a TL b/o trade for 70 pips.
  • S&P500: a TL b/o for up to 20 points.
  • EUR/USD: a TL b/o trade currently at 30 points.

 

 

This Week: (click on images to enlarge):

 

    • DXY: US$ Index: The US$ index closed with a small, bearish weekly candle and the long upper shadow reflects the failed buying effort of last week. The weekly triangle trend lines have been revised again given that momentum continues to decline. Resistance remains ahead from the weekly Cloud so watch this region for any new make or break.

 

DXY weekly: watch for any new TL b/o:

 

    • Central Bank Update: there are three Central Bank updates next week: RBNZ (NZD), BoC (CAD) and BoJ (JPY).

 

    • % Stocks above their 200 Day Moving Average Index: The Percentage of stocks above their 200 Day Moving Average is still below the 85% 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 as price holds below the S/R region of 4.60. Note the continued look a Bull Flag here though!

 

Copper weekly: Note the look of a Bull Flag here:

 

 

    • Emerging Markets: The Emerging market ETF, EEM, closed with a bearish weekly candle as ADX momentum remains low. Keep watch for any new momentum breakout.

 

EEM weekly: watch for any Flag breakout:

 

 

    • DJIA: The DJIA closed with a bullish weekly candle and at a new weekly all-time high but still just under the recently broken 16-month support trend line. The 35,000 level is the main resistance above to monitor in coming sessions. Traders should watch for any failure at this resistance and, if bearish momentum evolves, watch for any pullback to the weekly 61.8% Fibonacci, near 25,000.

 

DJIA weekly: watch 35,000 for any continued Bull Flag:

 

 

    • NASDAQ composite: The NASDAQ Composite Index closed with a small, bullish weekly candle and at a new weekly all-time High. Note that the Bull Flag breakout continues and momentum is edging higher so watch for any continuation.

 

NASDAQ weekly: watch for any continued Flag breakout:

 

 

    • DAX weekly: The DAX closed with a small, bullish weekly candle and remains above the 16-month support trend line.

 

DAX weekly: the trend remains ‘up’:

 

 

    • 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. Caution is still needed here though as the ADX remains below 20, although it is now trending up, so watch for any new momentum breakout.

 

RUT weekly: watch the 16-month support trend line:

 

 

    • 10-yr T-Note Interest rate / TNX: This has closed with a bearish weekly candle and remains below the Resistance turned Support region of 15. Note the trend line breakout so watch for any pullback to the 61.8% Fibonacci.

 

  • 10-yr T-Note Interest rate: watch for any pullback to the 61.8% Fibonacci: 

 

 

    • Bonds / TLT: The Bond ETF, TLT, closed with a small, bullish weekly candle and note the trend line breakout so watch for any continuation.

 

TLT weekly: a new TL b/o:

 

 

    • BTC/USD: I continue to view this latest pullback as a well-due technical correction following the recent rally. I have previously mentioned that the 61.8% Fibonacci, near $30,000, is the line-in-the-sand level to monitor and this remains the case. IMHO: any hold above the 61.8% Fibonacci level would simply further legitimise BTC/USD and any of the other cryptos in the stable that might similarly hold above this support region.

 

BTC/USD: the whole-number $30,000 remains the level to watch:

 

 

    • VIX: the Fear index closed with a bullish-reversal Inverted Hammer weekly candle so watch for any recovery.

 

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

 

 

Calendar: Courtesy of Forex Factory:

 

 

Earnings: Courtesy of Earnings Whispers:  Earnings season ramps up over coming weeks with the banks being first cab off the rank:

 

 

Market Analysis:

 

S&P500: The S&P500 closed with a small, bullish weekly candle and at a new all-time High.

Trading volume was a bit higher last week BUT still remains below the 200 MA and bear trend line.

 

S&P500 ETF: SPY weekly: volume was a bit higher but still remains below trend:

:

There are revised 4hr chart trend lines to monitor.

Bullish targets: any bullish break above 4,400 would bring 4,450 into focus.

Bearish targets: any bearish break of a recent support trend line would bring 4,300 and the 16-month support trend line 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 for any new 4hr chart trend line breakout.

 

 

 

ASX-200: XJO: The index closed with a bearish weekly candle amid a worsening Covid situation for NSW and as the lock-down was extended for at least another week. However, despite this bearish weekly candle, the index continues to hold above a 16-month support trend line.

Price action has spent much of the last four weeks chopping, in a rather broad band, around the 7,300 level and this is keeping a 4hr chart wedge pattern in focus.

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 little changed again 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 is still a broad 4hr chart wedge to monitor.

Bullish targets: Any bullish 4hr chart wedge trend line breakout would bring 7,400 into focus.

Bearish targets: Any bearish retreat would bring 7,300 and the lower 4hr chart wedge trend line into focus followed by the previous 2020 High of 7,197.20 and the 16-month support TL. After that, watch, the pre-2020 High of 6,893.70, the pre-GFC High of 6,851.50 followed by 6,800 and 6,700. The weekly chart’s 61.8% Fibonacci is down near 5,600 so that would be the next support to monitor.

  • Watch 7,300 and for any 4hr chart wedge trend line breakout:

 

 

 

Gold: Gold closed with a bullish weekly candle and just below the 4hr and daily chart’s 200 EMAs making these the levels to watch for any new make or break.

The recent 4hr chart bullish-reversal descending wedge breakout is currently up around $40 and remains in focus.

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 is a 4hr chart descending wedge breakout in progress here.

Bullish targets: any continued bullish 4hr chart wedge trend line breakout would bring $1,850 into focus as this intersects near the 4hr chart’s 61.8% Fibonacci. After that, watch for any push to the key $1,900 level.

Bearish targets: any bearish retreat would bring $1,800, $1,770 and $1,750 into focus. After that, watch whole-numbers down to the $1,670 support level.

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

 

 

 

EUR/USD: The EUR/USD closed with a bullish-coloured Spinning Top / Doji style weekly candle reflecting indecision as price looks to be attempting a bullish breakout from the descending wedge that has been brewing on the 4hr chart for the last few weeks. The EUR/USD closed just below 1.19 making this the level to watch for any new make or break.

NB: Note that the longer-term target for any continued bullish movement following the previous break of the 13-yr trend line is the monthly chart’s 61.8% Fibonacci, near 1.40. This trend line breakout was flagged back in a post on August 2nd 2020. Price at the breakout was around 1.17 and has reached up as far as 1.23, a move of around 600 pips, so this has been a breakout worth monitoring.

Bullish targets: Any continued bullish 4hr chart wedge breakout would bring 1.19 and the recently broken 16-month support trend line into focus. After that, watch whole-numbers and the recent High of 1.235 on the way up to a previous weekly chart High, circa 1.26, and for any continued push up to 1.40.

Bearish targets: Any bearish retreat at 1.19, would bring 1.18 and 1.17 into focus.

  • Watch 1.19 and for any continued 4hr chart wedge trend line breakout:

 

 

 

AUD/USD: The Aussie closed with a bearish-coloured Spinning Top weekly candle, reflecting ongoing indecision, and just under 0.75 keeping this the level to watch for any new make or break.

NB: The longer-term target for any bullish continuation from the weekly/monthly chart’s Descending Wedge breakout is the weekly 61.8% Fibonacci, near 0.90. This monthly wedge trend line breakout was also flagged back in the post on August 2nd 2020. Price at the breakout was around 0.71 and has reached up as far as 0.80, a move of around 900 pips, so has been another breakout worth monitoring.

There are revised 4hr chart trend lines to watch for any new breakout and note the look of another bullish-reversal descending wedge here too so keep an open mind. Note, also, that momentum is declining on the daily and weekly time frame.

Bullish targets: Any break above 0.75 would bring the upper 4hr chart wedge trend line into focus. After that, watch whole-numbers on the way back to the weekly chart’s Descending Wedge breakout target of 0.90.

Bearish targets: Any retreat from 0.75 would bring the lower 4hr chart wedge trend line into focus. After that, watch 0.74 and 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 0.75 and the 4hr chart wedge trend lines for any new breakout:

 

 

 

AUD/JPY: The AUD/JPY closed with a bearish weekly candle and just above 82 making this the level to watch for any new make or break. Remember that the June candle was the first bearish candle after 7 bullish monthly candles.

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 4hr chart trend lines to watch for any new breakout.

Bullish targets: Any bullish 4hr chart trend line breakout would bring 83 S/R into focus. After that, watch 84 and 85 S/R and whole numbers on the way up to 90 S/R.

Bearish targets: Any bearish 4hr chart trend line breakout would bring 82 S/R into focus. After that, watch whole-numbers on the way down to 76 as this is still near the recently broken 7-yr bear trend line, and then 70 as this is now near the 61.8% Fibonacci of the March 2020 – March 2021 swing High move.

  • Watch 82 and for any 4hr chart trend line breakout:

 

 

 

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

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

Bullish targets: Any bullish break above 0.70 would bring the upper 4hr chart trend line into focus followed by 0.71, 0.72 and 0.73 S/R.

Bearish targets: Any bearish 4hr chart trend line breakout would bring 0.69 into focus. After that, watch 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 bullish weekly candle and made a breakout on Friday from the 4hr chart triangle congestion pattern that had evolved during last week. The GBP/USD closed just above 1.39 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 14-yr trend line, noted here in my article on December 20th, is the monthly chart’s 61.8% Fibonacci, near 1.75. Price action at the initial breakout was around 1.35 and has reached up as far as 1.42, a move of 700 pips, so this trend line breakout was a great clue about things to come and the target for this move has not even been reached yet!

Bullish targets: Any continued bullish 4hr chart trend line breakout above 1.39 would bring would bring 1.40 S/R into focus. After that, watch 1.41. 1.42, the recently broken 16-month TL, 1.425 and 1.50 as the latter is a previous S/R region on the weekly chart. Any bullish continuation after that would bring whole-number levels on the way up to 1.75 into focus.

Bearish targets: Any bearish retreat at 1.39 would bring 1.38 back 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.

  • Watch 1.39 and for any continued 4hr chart trend line breakout:

 

 

 

USD/JPY:  The USD/JPY closed with a bearish, almost ‘engulfing‘, weekly candle and below an 11-week support trend line but at least price recovered to close back above 110 making this the horizontal level to watch for any new make or break.

NB: The bullish weekly-chart descending wedge breakout was first noted in my article of January 31st. Price action at the initial breakout was around 104.5 and has reached up as far as near 111, a move of around 650 pips, so this trend line breakout was a great clue about things to come!

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

Bullish targets: Any bullish 4hr chart triangle breakout would bring the recently broken 11-week trend line into focus followed by 111 and, then, whole-numbers on the way up to 115.

Bearish targets: Any bearish 4hr chart triangle breakout, below 110, would bring 109 and 108 S/R into focus.

  • Watch 110 and for any 4hr chart trend line breakout:

 

 

GBP/JPY: The GBP/JPY closed with a small, bearish weekly candle having a long lower shadow reflecting the recovery that evolved here last week. Price had dipped to test 151, a level I’ve had on my daily charts for some time, but then bounced right back up. The GBP/JPY closed on top of 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 155 and 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: