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Record close for SPX, DJIA, NASDAQ and XJO!

July 25, 2021

Last week: Traders and investors shrugged off any concern they had about inflation and the expanding impact of the Delta strain of Covid and bought last week’s dip resulting in the print of impressive new all-time Highs for many stock indices. The S&P500, DJIA, NASDAQ, and even the Aussie XJO, all closed with impressive weekly candles and at new Highs; the DJIA even printed a close above the psychological 35,000 level. Divergence, that had been evident over recent weeks, was absent last week with the risk-sensitive instruments of Copper and Russell-2000 also closing higher for the week but the Emerging Markets (EEM) closed lower. The US$ closed higher for the week which kept pressure on Gold and commodity currencies. This week brings the FOMC update as well as Earnings reports for many high-profile US tech names so watch to see how these news items might 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: The main trend line breakout last week came from Yen strength with the risk-off shift from earlier in the week:

 

  • GBP/JPY: a TL b/o below 151 for over 200 pips. The 30 minute chart below shows how this move got going after Monday’s Asian session:

 

GBP/JPY 30 min:

 

 

This Week: (click on images to enlarge):

 

    • DXY: US$ Index: The US$ index closed with a bullish weekly candle and has made a new breakout from a weekly triangle pattern, although, price action remains within the congestion zone of the weekly Cloud. Note how the +DMI momentum and the ADX are now both above the 20 threshold and trending up so watch for any bullish continuation. This week brings the FOMC rate update so watch to see if this news impacts the DXY at all.

 

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

 

 

    • Central Bank Update: there is one Central Bank update next week: FOMC (USD).

 

    • % 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, almost engulfing, weekly candle as price holds below the S/R region of 4.60 BUT note the look a Bull Flag breakout here though!

 

Copper weekly: Note the look of a Bull Flag b/o here:

 

 

    • Emerging Markets: The Emerging market ETF, EEM, closed with a bearish-coloured Spinning Top weekly candle, reflecting indecision, as ADX momentum remains below 20. Keep watch for any new momentum breakout.

 

EEM weekly: watch for any Flag breakout:

 

 

    • DJIA: The DJIA closed with a bullish weekly candle, at a new weekly all-time high and above the key 35,000 level. Traders should monitor 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: a new close above 35,000:

 

 

    • NASDAQ composite: The NASDAQ Composite Index closed with a bullish Engulfing weekly candle, at a new all-time High and above the 14,800 level. 

 

NASDAQ weekly: a new all-time High:

 

 

    • DAX weekly: The DAX closed with a bullish weekly candle and remains above the 17-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 bullish coloured Spinning Top and, essentially, Inside weekly candle with both reflecting indecision. Note how the weekly candle has closed back up near the recently broken 17-month support trend line so watch to see how price action moves from here.

 

RUT weekly: watch the 17-month support trend line:

 

 

    • 10-yr T-Note Interest rate / TNX: This has closed with a bullish-reversal Hammer weekly candle after testing the 50% Fibonacci BUT 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, gapped higher at market open but closed closed with a bearish weekly candle. Watch for any trend line breakout continuation.

 

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

 

 

    • BTC/USD: Is this going to be the breakout week? 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 the whole-number $30,000 and, more precisely $27,700, are the two key levels 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. Note the subtle trend line breakout on price and volume so watch for any bullish follow-through.

 

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

 

 

    • VIX: the Fear index closed with a bearish weekly candle and back below the 20 level.

 

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 with some big tech names reporting:

 

 

Market Analysis:

 

S&P500: The S&P500 tested the 17-month support trend line early last week, however, this dip was rather aggressively bought and the index eventually closed with a bullish engulfing weekly candle, at a new all-time High and above the resistance of the whole-number 4,400 level.

This buying came with some increased volume and resulted in a subtle break above the bear trend line BUT volume still remains below the 200 MA.

 

S&P500 ETF: SPY weekly: volume was a bit higher but still remains below the 200 MA:

:

There are revised 4hr chart trend lines to monitor.

Bullish targets: any bullish hold above 4,400 would bring 4,450 into focus. After that, watch 4,500 and 4,600 as the latter is near the 200% Fibonacci retracement of the Covid swing Low and, then, the whole-number 5,000 level.

Bearish targets: any bearish break back below 4,400 and break of a recent support trend line would bring the 17-month support trend line and 4,300 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 4,400 and for any new 4hr chart trend line breakout.

 

 

 

ASX-200: XJO: The index closed with a small, bullish weekly candle but, more importantly, at a new weekly all-time High despite the escalating Covid situation for NSW. The 17-month support trend line remains intact after being tested last week and remains in focus as price action becomes increasingly wedge above this support but below the 7.400 whole-number resistance.

Price action has spent much of the last six weeks chopping, in a rather broad band, between 7,200 and 7,400 and the index closed the week just below the upper level of this range. (NB: The 4hr chart shows that overnight trading pushed above the upper resistance.)

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 is still a broad 4hr chart wedge to monitor.

Bullish targets: Any bullish 4hr chart wedge breakout above 7,400 would bring 7,450 and 7,500 into focus.

Bearish targets: Any bearish retreat from 7,400 would bring the 17-month support TL and 7,300 into focus. After that, watch 7,200 and the previous 2020 High of 7,197.20 followed by 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 7,400 and for any 4hr chart wedge breakout:

 

 

 

Gold: Gold closed with a bearish-coloured Spinning Top weekly candle as price action continues to consolidate around the $1,800 level. There is a 4 hr chart triangle in focus and this may well remain the case until this week’s FOMC update.

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 bounce up from $1,800 would bring the upper 4hr chart triangle trend line into focus. After that, watch $1,850 as this intersects near the 4hr chart’s 61.8% Fibonacci followed by any push to the key $1,900 level.

Bearish targets: any bearish 4hr chart triangle trend line breakout would bring $1,770 and $1,750 into focus. After that, watch whole-numbers down to the $1,670 support level.

  • Watch $1,800 and for any 4hr chart triangle trend line breakout:

 

 

 

EUR/USD: The EUR/USD closed with a bearish-coloured Spinning Top weekly candle, reflecting indecision, as price continues to consolidate within a bullish-reversal descending wedge; a pattern that has been brewing on the 4hr chart for the last seven weeks.

The EUR/USD closed just below 1.18 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 bullish 4hr chart wedge breakout would bring 1.19, 1.20 and the recently broken 17-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 4hr chart wedge breakout would bring 1.17 into focus.

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

 

 

 

AUD/USD: The Aussie closed with a bearish weekly candle and just under 0.74 making this the level to watch for any new make or break. This is a significant bearish close given that 0.74 had been an effective Support region for many months so watch to see if this region now turns into effective Resistance.

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 channel trend lines to watch for any new breakout. Note, also, that bearish momentum is on the rise on the daily and weekly time frame.

Bullish targets: Any break above 0.74 would bring the upper 4hr chart channel trend line into focus. After that, watch 0.75 and whole-numbers on the way back to the weekly chart’s Descending Wedge breakout target of 0.90.

Bearish targets: Any retreat from 0.74 would bring 0.73 and the lower 4hr chart channel trend line 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 the 4hr chart channel trend lines for any new breakout:

 

 

 

AUD/JPY: The AUD/JPY closed with a bullish-reversal Hammer weekly candle as price holds above 81 but remains within a 4hr chart triangle pattern.

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 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 81 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 for any 4hr chart trend line breakout:

 

 

 

NZD/USD: The Kiwi closed with a small, bearish weekly candle, having a long lower shadow, but still near 0.70 keeping this the level to watch for any new make or break.

There are 4hr chart descending wedge trend lines to watch for any new breakout.

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

Bearish targets: Any bearish retreat from 0.70 would bring 0.69 and the bottom 4hr chart wedge trend line 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 wedge trend line breakout:

 

 

 

GBP/USD: The Cable closed with a bearish-coloured weekly candle having a long lower shadow reflecting that buyers stepped up to buy some of the dip. Price action recovered to close back above 1.37 and is still within a 4hr chart descending channel.

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 bullish 4hr chart channel trend line breakout would bring would bring 1.39 and 1.40 S/R into focus. After that, watch 1.41. 1.42, the recently broken 17-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 support trend line breakout would bring 1.37 and 1.36 back into focus. After that, watch the bottom 4hr chart channel trend line 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 channel trend line breakout:

 

 

 

 

USD/JPY:  The USD/JPY closed with a bullish weekly candle but still below a recently broken 11-week support trend line. Price had dipped below 110 during the week but recovered to close back above this region.

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 111 and the recently broken 11-week trend line 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-reversal Hammer-style weekly candle following last week’s dip to 149. Price had dipped below 151, a level I’ve had on my daily charts for some time, but bounced back up again to close above this region. The GBP/JPY closed just above 152 making this the new 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 153 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 151 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 152 and for any 4hr chart trend line breakout: