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Relief after Jackson Hole

August 29, 2021

Last week: I had warned last week that ‘One Swallow does not a Summer Make‘ and this proved to be rather prudent. Despite the fact that this market rally has extended for 18-months and knowing that trend lines don’t travel in straight lines unabated, the US stock index majors continue to hold above long-term support trend lines meaning that the current uptrend remains intact. In reverse fashion to the previous week, the S&P500, DJIA, NASDAQ, Russell-2000, DAX, XJO, Copper and EEM all closed with bullish weekly candles and there were flows out of the US$ and Yen. This helped to develop the bullish-reversal pattern I had brewing on the EUR/USD daily chart, a view contrary to a lot of other public opinion, and it also helped to trigger some great trend-line breakout trading opportunities. Market participants seem to have been encouraged by the commentary out of the Jackson Hole Symposium such that the S&P500 and NASDAQ closed at new all-time Highs however many other trading instruments closed with indecision-style weekly candles. Next week brings the end of month and US monthly jobs report so watch to see how NFP might impact market sentiment and the US$.

 

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 great trend-line breakout opportunities from chart patterns profiled in last week’s analysis. Most were all aligned for US$ weakness but each offered a great Risk to Reward trading opportunity. Articles released during the week can be found here, here, here and here.

 

  • S&P500: a TL b/o for 70 points.
  • EUR/USD: a TL b/o for up to 100 pips:

 

  • AUD/USD: a TL b/o for up to 170 pips:

 

  • AUD/JPY: a TL b/o for up to 170 pips:

 

  • NZD/USD: a TL b/o above 0.69 for over 100 pips:

 

This Week: (click on images to enlarge):

 

    • DXY: US$ Index: The DXY closed with a bearish-coloured Inside weekly candle reflecting a pause, or indecision, following last week’s bullish breakout candle. Fed Chairman Powell indicated that, although advocating a 2021 start to winding back bond purchases, he didn’t foresee a rise in interest rates any time soon and this translated as bearish for the US$. Next week brings the US monthly jobs report so watch to see how this impacts the US$ index.

 

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

 

 

    • Currency Strength Indicator: The 4hr chart of my CSI shows last week’s reversal with currencies. Note the reversal for the JPY and USD from the peaks of the week prior:

 

Currency Strength Indicator 4hr: note the recovery with the commodity currencies:

 

 

    • Indecision weekly candles: there were plenty of indecision-style weekly candle printed last week and these were found on: DXY, DJIA, DAX, XJO, Copper, AUD/USD, AUD/JPY, NZD/USD, GBP/USD, USD/JPY and GBP/JPY.

 

    • % 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. It is interesting to see the decent pullback here now despite the fact that the S&P500 is trading up at an all time High.

 

% 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, almost Inside, weekly candle reflecting indecision. It still looks like Copper is consolidating after its recent bullish run so watch the revised Flag trend lines for any new breakout.

 

Copper weekly: Watch for any new breakout:

 

 

    • Emerging Markets: The Emerging market ETF, EEM, closed with a bullish weekly candle and note the revised Flag trend lines. Watch for any pullback to the 61.8% Fibonacci region, near the whole-number 40 level.

 

EEM weekly: watch for any push down to the 40 region:

 

 

    • DJIA: The DJIA closed with a bullish coloured, almost Inside, weekly candle reflecting a pause, or indecision, as price action holds above the key 35,000 level and 18-month support trend line. Any failure at this key level, if bearish momentum evolves, would bring the weekly 61.8% Fibonacci, near 25,000, into focus.

 

DJIA weekly: keep watch of 35,000:

 

 

    • NASDAQ composite: The NASDAQ Composite Index closed with a bullish weekly candle, at a new all-time High and above the key 15,000 level. Watch the whole-number 15,000 level and the 18-month 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-coloured Spinning Top weekly candle but 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 bullish, almost engulfing, weekly candle and back above the 18-month support trend line. The Flag pattern reveals that price continues to chop sideways for now so watch for any new breakout.

 

RUT weekly: watch the Flag for any new b/o:

 

 

 

    • 10-yr T-Note Interest rate / TNX: This has closed with a bullish weekly candle. Watch for any new trend line breakout. Kathy Lien put out a short video last week showing how she uses bond yields in her Forex day trading which some of you may find of use and it is available through this link.

 

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

 

 

    • Bonds / TLT: The Bond ETF, TLT, closed with a bearish weekly candle BUT watch for any trend line breakout bullish 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 5 weeks ago. I had previously mentioned that the weekly 61.8% Fibonacci, near the whole-number $30,000, was a key level to monitor and this seems to have been spot-on advice. Watch for any new reaction at the daily 61.8% Fibonacci, near $51,000.

 

BTC/USD: watch the daily 61.8% Fibonacci, near $51,000, for any new reaction:

 

 

    • VIX: the Fear index closed with a bearish weekly candle but watch for any push back above 20 S/R.

 

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

 

 

Calendar: Courtesy of Forex Factory:

 

 

Earnings: Courtesy of Earnings Whispers: still winding down:

 

 

Market Analysis:

 

S&P500: The S&P500 closed with a bullish weekly candle, at a new all-time High and continues to hold above an 18-month support trend line. Traders should monitor this trend line for any bearish break and, if this support does give way, they should then watch for any potential sideways consolidation that might form a Bull Flag.

Trading volume was lower last week BUT watch for any new break above the 200 MA.

 

S&P500 ETF: SPY weekly: watch for any new 200 MA b/o:

 

There are revised 4hr chart trend lines to monitor.

Bullish targets: any bullish hold above 4,500 would bring 4,600 into focus as this is near the 200% Fibonacci retracement of the Covid swing Low (see the second weekly chart). After that, watch whole numbers on the way up to the 5,000 level.

Bearish targets: any bearish break back below 4,500 would bring 4,450 and the 18-month support trend line into focus. After that, watch 4,400 and other whole-numbers on the way down to the weekly chart’s 61.8% Fibonacci retracement level, near 3,000.

  • Watch 4,500 for any new make or break.

 

 

 

ASX-200: XJO: The XJO closed with a bullish-coloured Inside weekly candle reflecting a pause, or indecision, after last week’s bearish candle. As with the S&P500, the index is holding above an 18-month support trend line and, if this support does give way, traders should then watch for any potential sideways consolidation that might form a Bull Flag.

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 a bit higher again last week and has edged above the 200 MA so watch for any push higher.

 

XJO weekly: watch for any push higher:

 

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 4hr chart trend line breakout would bring 7,550 and 7,600 into focus.

Bearish targets: Any bearish 4hr chart trend line breakout would render a break of the 18-month support trend line and bring 7,400 into focus. After that, watch 7,300 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 7,500 and for any 4hr chart trend line breakout:

 

 

 

Gold: Gold closed with a large, bullish weekly candle, has broken above the $1,800 S/R level and made a bullish triangle breakout that will remain in focus to start 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.

 

A new 4hr chart trend line breakout triggered on Friday that remains in progress.

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

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

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

 

 

 

EUR/USD: The EUR/USD closed with a bullish Railway Track weekly candle pattern above the key 1.17 S/R level:

 

 

I had pointed out last week that there was a bullish-reversal Descending Wedge brewing on the EUR/USD daily / 4hr chart and there has now been a bullish breakout from this pattern that remains in focus.

Price action closed the week just near 1.18 so this will be the horizontal level to monitor for any new make or break. Note how the 4hr chart’s ADX shows that momentum has yet to make a new breakout above 20 so use this as a guide as price tests this 1.18 level.

I have included a second weekly chart again and this shows the potential for a longer-term bearish Double Top pattern but, if the 1.17 continues to hold, then this would be a rather bullish signal. All of this suggests that, at the very least, traders should keep an open mind!

Bullish targets: Any bullish break above 1.18 would bring 1.19 and the recently broken 18-month support trend line into focus. After that watch 1.20, as this is near the 4hr chart’s wedge 61.8% Fibonacci, followed by whole-numbers on the way up to the 14-yr bear trend line.

Bearish targets: Any bearish retreat from 1.18 would bring 1.17 S/R back into focus. After that, watch for any push to the daily chart’s 61.8% Fibonacci, near 1.13.

  • Watch 1.18 for any new make or break.

 

 

 

AUD/USD: The Aussie closed with a bullish-coloured, essentially Inside, weekly candle and these candles reflect a pause, or indecision, following the previous week’s sell-off and break of an 18-moth support trend line.

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

Bullish targets: Any bullish 4hr chart trend line breakout would bring the recently broken 18-month TL and 0.75 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 bearish 4hr chart trend line breakout would bring 0.72 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 for any new 4hr chart trend line breakout:

 

 

 

AUD/JPY: The AUD/JPY closed with a bullish-coloured Inside weekly candle and these candles reflect a pause, or indecision, following the previous week’s sell-off and break of an 18-moth support trend line.

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.
  • The recent divergence on the chart below still has me wondering which of the two will yield? Will the S&P500 join the AUD/JPY in tracking lower or will the AUD/JPY recover and move higher to catch up with the S&P500?

 

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

 

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

Bullish targets: Any bullish 4hr chart trend line breakout would bring 81 S/R into focus. After that, watch the recently broken 18-month TL followed by whole numbers on the way up to 85 and 90 S/R.

Bearish targets: Any bearish 4hr chart trend line breakout would bring 79 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 new 4hr chart trend line breakout:

 

 

NZD/USD: The Kiwi closed with a bullish-coloured Inside weekly candle and these candles reflect a pause, or indecision, following the previous week’s sell-off and break of an 18-moth support trend line.

Price action closed back near 0.70 S/R and the recently broken 18-month support trend line so these will be in focus to start the week.

Bullish targets: Any bullish 4hr chart trend line breakout would bring 0.71 and a 4hr chart bear trend line into focus. After that, watch 0.72 and 0.73.

Bearish targets: Any bearish 4hr chart trend line breakout would bring 0.69 into focus and other 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 for any new 4hr chart trend line breakout:

 

 

 

GBP/USD: The Cable closed with a bullish-coloured Inside weekly candle and these candles reflect a pause, or indecision, following the previous week’s sell-off and break of an 18-moth support trend line. Note how the 1.36 level is proving to be decent Support though.

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

Bullish targets: Any bullish break above 1.38 would bring a 4hr chart bear trend line and 1.39 into focus. After that, watch 1.40 and the 15-yr bear trend line.

Bearish targets: Any bearish retreat from 1.38 and break back below the 18-month support TL would bring 1.37 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 1.38 and for any 4hr chart trend line breakout:

 

 

USD/JPY:  The USD/JPY closed with a bullish coloured Doji weekly candle reflecting indecision as price holds within a revised 4hr chart triangle and just below the 110 S/R level.

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

Bearish targets: Any bearish 4hr chart trend line breakout 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 for any new 4hr chart trend line breakout:

 

 

GBP/JPY: The GBP/JPY closed with a bullish-coloured Inside weekly candle and these candles reflect a pause, or indecision, following the previous week’s sell-off.

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 trend lines to monitor for any new breakout.

Bullish targets: Any bullish 4hr chart trend line breakout would bring 152 into focus as this is near the 4hr chart’s 61.8% Fibonacci. 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 150 and the 18-month support trend line 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 for any new 4hr chart trend line breakout: