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September: poor for markets

October 3, 2021

Last week: September lived up to its reputation for been a challenging month for stocks with many global stock indices, including Copper and EEM, printing bearish monthly candles. Friday was the first trading day for October and optimism, fueled by news of Merck’s new oral Covid drug that’s said to reduce hospitalisations by half, helped to lift US stock to start the new month. Merck gained almost 10% on Friday and this is a most significant one day gain for such a large-cap stock, as I heard Colin Cieszynski report on ABC radio after the US market close, reflecting how enthusiastically this news was embraced by the market. Ryan Detrick noted that Thursday marked the worst final-day of September trading in 10 years yet Friday’s recovery marked the best first-day for October trading in 14 years so it’s no surprise to see a bullish weekly candle close for the VIX. Despite this positive tone on Friday, the four major US stock indices, the S&P500, DJIA, NASDAQ and Russell-2000, all closed lower for the month and lower for the week but the US$ pushed higher which kept pressure on the commodity currencies. Traders will need to monitor how this Merck news, as well as next week’s US NFP monthly jobs report, impacts market sentiment given that October is an historically weak period for stocks as well. Monthly charts have been included for consideration this week and these were captured at the end of market close after September 30th.

 

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 risk-off mood and stronger US$ helped to trigger a few decent trend line breakout trading opportunities last week. Articles released during the week can be found here, here, here and here.

 

  • GBP/JPY: a TL b/o for 60 pips.
  • S&P500: a TL b/o for 90 points and another for 55 points.
  • ASX-200: a TL b/o for 140 points.
  • Gold: a TL b/o for $16.
  • GBP/USD: a TL b/o for 260 pips.
  • NZD/USD: a TL b/o for 130 pips.
  • USD/JPY: a TL b/o for 100 pips.
  • EUR/USD: a TL b/o below 1.17 for up to 130 pips.
  • AUD/USD: a TL b/o for 50 pips.

 

This Week: (click on images to enlarge):

 

    • DXY: US$ Index: The DXY closed with bullish weekly and monthly candles and at highs not seen since October 2020. Price remains stuck in the weekly Ichimoku Cloud though so watch this resistance zone for any new breakout. The other feature that stood this week was the look of a bullish-reversal Double Bottom or W Bottom on the weekly (see second chart). I’ve been rather conservative with the neck line here but watch for any close and hold above 95 to potentially bring the psychological and whole number 100 region back into focus. I note that the 95 region aligns with the top of the weekly Cloud so watch for any resistance from this region of confluence.

 

DXY weekly: watch for any resistance from the top of the weekly Cloud, circa 95:

 

DXY weekly: watch for any break and hold > 95 to potentially target 100:

 

DXY monthly: a bullish monthly candle:

 

 

    • Central Bank Updates: there are two Central Bank rate updates this week: RBA (AUD) and RBNZ (NZD).

 

    • 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 just under 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 bearish weekly candle and a bearish monthly candle. It still looks like Copper is consolidating after its recent bullish run though so watch the Bull Flag trend lines for any new breakout: up or down.

 

Copper weekly: Watch for any new breakout:

 

Copper monthly: a bearish monthly candle:

 

 

    • Emerging Markets: The Emerging market ETF, EEM, closed with a bearish-coloured Spinning Top weekly candle and a bearish monthly candle BUT there is still the look of sideways consolidation so watch for any trend line breakout: up or down.

 

EEM weekly: watch for any trend line breakout: up or down:

 

EEM monthly: almost a bearish engulfing monthly candle:

 

 

    • DJIA: The DJIA closed with a bearish weekly candle and, essentially, a ‘bearish engulfing‘ monthly candle. Watch for any Bull Flag activity following the recent break of the 18-month support trend line but, if bearish momentum accelerates, this would bring the weekly 61.8% Fibonacci, near 25,000, into focus.

 

DJIA weekly: keep watch of the 35,000 resistance level and the Flag trend lines:

 

DJIA monthly: essentially a ‘bearish engulfing’ monthly candle:

 

 

    • NASDAQ composite: The NASDAQ Composite Index closed with a bearish weekly candle and a ‘bearish engulfing’ monthly candle and back below the key 15,000 level. The 18-month support trend line remains broken but momentum is still low on the weekly time frame so caution is needed with reading too much into this break just yet. As with the other indices, watch for any potential Bull Flag.

 

NASDAQ weekly: keep an eye on ADX momentum here:

 

NASDAQ monthly: a ‘bearish engulfing’ monthly candle:

 

 

    • DAX weekly: The DAX closed with a bearish weekly candle and, essentially, a ‘bearish engulfing’ monthly candle. Price action remains below the 18-month support trend line but ADX momentum is still below 20. Watch for any new Flag breakout: up or down.

 

DAX weekly: watch the Flag trend lines for any new b/o:

 

DAX monthly: essentially a ‘bearish engulfing’ monthly candle:

 

 

    • 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 and a bearish monthly candle. The index continues to chop sideways within a trading channel so watch for any new breakout: up or down.

 

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

 

RUT monthly: a bearish monthly candle:

 

 

    • 10-yr T-Note Interest rate / TNX: This has closed with a bearish-reversal Shooting Star weekly candle under the key 15 level but only after testing and breaking a weekly chart bear trend line. Watch the 15 level for any new make or break,

 

  • 10-yr T-Note Interest rate (weekly): Watch the 15 level for any new make or break:
  • : 

 

 

    • Bonds / TLT: The Bond ETF, TLT, closed with a bearish-coloured Spinning Top weekly candle but keep watch for any new breakout.

 

TLT weekly: watch for any new trend line b/o:

 

    • VIX: the Fear index closed with a bullish weekly candle and back above 20 S/R.

 

VIX weekly: watch 20 S/R for any new make or break:

 

 

Calendar: Courtesy of Forex Factory:

 

 

 

Earnings: Courtesy of Earnings Whispers:

 

 

Market Analysis:

 

S&P500: The S&P500 closed with a bearish weekly candle and a bearish engulfing monthly candle. However, despite these bearish signals, traders should keep monitoring the recently broken 18-month support trend line for any potential sideways consolidation that might form a Bull Flag.

Trading volume was higher again last week so watch for any hold above the 200 MA.

 

S&P500 ETF: SPY weekly: watch for any hold above the 200 MA b/o:

 

Keep in mind that a Golden Cross remains valid for the time being but the index is now down between the 50 and 200 SMA. 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. As with the XJO, this Golden Cross was a great signal! I wrote an article recently evaluating the Golden Cross on both the SPX and XJO and this can be found through the following link.

 

SPX daily: the recent Golden Cross remains valid:

 

There are revised 4hr chart trend lines to monitor.

Bullish targets: any bullish 4hr chart trend line breakout would bring 4,400 into focus as this is near the 4hr chart’s 61.8% Fibonacci. After that, watch 4,450 that intersects near the daily charts Bull Flag upper trend line followed by 4,500, 4,550, the recently broken 18-month support trend line and 4,600 as the latter is near the 200% Fibonacci retracement of the Covid swing Low (see the second weekly chart). Then watch whole numbers on the way up to the 5,000 level.

Bearish targets: any bearish 4hr chart trend line breakout would bring 4,300 into focus. After that, watch the daily charts Bull Flag support trend line followed by whole-numbers on the way down to the weekly chart’s 61.8% Fibonacci retracement level, now near 3,100.

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

 

 

 

 

ASX-200: XJO: The XJO closed with a bearish weekly candle and a bearish-reversal Hanging Man monthly candle, the first such bearish-coloured candle in 12 months.

The monthly candle closed on Thursday of last week and managed to hold above the key 7,200 region but Friday’s candle, the first day of the new trading month, closed below this all-important psychological region. Traders will need to see where the October candle ends up closing with respect to this key region. The 7,200 region was resistance prior to 2021 and any recovery and hold above this region would be a bullish signal as it would suggest this old Resistance has evolved into new Support.

As mentioned over recent weeks:

  • despite having ample reasons for bearish follow-through XJO traders need to remain open minded over the coming weeks and watch for any potential sideways consolidation that might form a Bull Flag.
  • The other metric to keep in mind here over the coming weeks and months is that of iron ore; Australia’s single largest export commodity. Price action has been under pressure for the last few months but is currently poised just above the 61.8% Fibonacci of the 2016 – 2021 swing High move. Any recovery from this level may help to underpin the ASX-200:

 

Iron ore monthly: managed to close for September above the 61.8% Fibonacci:

 

Trading volume on the XJO was higher last week and is back above the 200 MA:

 

XJO weekly: trading volume above the 200 MA:

 

Keep in mind that the recent Golden Cross remains valid here as well although the index is trading down near the 200 SMA. 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. This current Golden Cross proved to be great signal BUT watch for any move BELOW the 200 SMA.

 

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

 

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

Bullish targets: Any bullish recovery above 7,200 (near the previous 2020 High of 7,197.20), would bring 7,300 and a 4hr chart bear trend line into focus. After that, watch 7,400 and the daily chart’s Bull Flag upper trend line followed by 7,500 and 7,600.

Bearish targets: Any bearish hold below 7.200 would bring a 4hr chart support trend line and 7,100 into focus. After that watch the daily chart’s Bull Flag support trend line, 7,000, 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 7,200 and for any 4hr chart trend line breakout.

 

 

 

 

Gold: Gold closed with a bullish-coloured Hammer-style weekly candle but a bearish monthly candle. The precious metal managed to close back above $1,750 and looks to be in a bullish-reversal 4hr chart descending wedge so watch trend lines for any new breakout.

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

Bullish targets: any bullish 4hr chart trend line breakout would bring $1,770 into focus followed by the 4hr chart’s 61.8% Fibonacci, daily 200 EMA and $1,800 level. After that, watch $1,850 and $1,900.

Bearish targets: any bearish close back below $1,750 would bring the bottom 4hr chart trend line into focus followed by $1,700 and the $1,670 support level.

  • Watch $1,750 and for any new 4hr chart trend line breakout:

 

 

 

EUR/USD: The EUR/USD closed with bearish weekly and monthly candles, below the 18-month support trend line and just below the 1.16 level.

The important point to keep in mind here is that the daily chart shows price action has now retraced to near the 50% region of the March 2020 – February 2021 swing High move. Technical theory would suggest that this overall uptrend remains intact until the 61.8% level is broken and there is still around 300 pips until that 1.13 region might be reached.

EUR/USD traders also need to keep in mind that the US$ index is approaching a potential resistance zone and US yields paused at resistance last week just as the EUR/USD looks to be shaping up in a bullish-reversal descending wedge on the daily and weekly charts as it trades near the significant support level of 1.16.

However, despite this potential bullish chart pattern, and as mentioned over recent weeks: I have included a second weekly chart and this shows the potential for a longer-term bearish Double TopBUT note I have revised the neck line here to 1.16; it seems a more appropriate region now that price is down at this level. Watch to see if the 1.16 level can act as any support as this would be a rather bullish signal. All of this suggests that, at the very least, traders should keep an open mind!

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

Bullish targets: Any bullish 4hr chart trend line breakout would bring the weekly 200 EMA and 1.17 S/R into focus. After that, watch the recently broken 18-month support trend line, the daily chart’s Bull Flag upper trend line, 1.18, the daily 200 EMA, 1.19 and whole-numbers on the way up to the 14-yr bear trend line.

Bearish targets: Any bearish 4hr chart trend line breakout would also break the the daily chart’s Bull Flag lower trend line and would bring the 1.15 S/R into focus. After that, watch other whole numbers on the way down to the daily chart’s 61.8% Fibonacci, near 1.13.

  • Watch 1.16 and for any new 4hr chart channel trend line breakout.

 

 

 

AUD/USD: The Aussie closed with bearish-coloured Spinning Top weekly and monthly candles reflecting indecision ahead of this week’s RBA rate update. Price action managed to scrape back above the 18-month support trend line and there is the look of a bullish-reversal descending wedge on the 4hr chart to monitor for next week.

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

Bullish targets: Any bullish 4hr chart trend line breakout would bring 0.73 and the daily chart’s bear trend line, near the 4hr chart’s 61.8% Fibonacci, into focus. After that, watch 0.74 and the daily 200 EMA followed by 0.75 and 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 the 18-month support trend line and 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 4hr chart trend line breakout.

 

 

 

AUD/JPY: The AUD/JPY closed with a bullish-coloured Spinning Top-style weekly candle, reflecting indecision, and a bearish-coloured Doji monthly candle, also reflecting indecision ahead of this week’s RBA rate update..

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? It looks to be a bit of both at the moment!

 

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 the monthly 200 EMA and 82 S/R into focus.

Bearish targets: Any bearish 4hr chart trend line breakout would bring 80 S/R and the weekly 200 EMA into focus. After that, watch the revised 18-month TL and 79 S/R followed by 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 (see daily chart).

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

 

 

 

NZD/USD: The Kiwi closed with a bearish weekly candle and a bearish monthly candle but managed to scrape back above the 18-month support trend line ahead of this week’s RBNZ rate update..

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

Bullish targets: Any hold above the 18-month support trend line would bring 0.70 into focus as this is near a recent bear trend line and the 4hr chart’s 200 EMA and 61.8% Fibonacci level. After that, watch 0.71, the daily chart’s bear trend line and for any push up to 0.75.

Bearish targets: Any bearish break back the 18-month support trend line 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 daily chart’s March 2020 – Feb 2021 swing High move.

  • Watch the 18-month support trend line for any new make or break.

 

 

 

GBP/USD: The Cable closed with a bearish weekly candle and a bearish monthly candle, but, even more significantly, it closed below the 1.36 region, a level that had been support for most of 2021.

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

Bullish targets: Any bullish recovery above 1.355 would bring 1.36, a 4hr chart bear trend line, and 1.37 into focus as the latter lies near the 4hr chart’s 200 EMA, 61.8% Fibonacci and daily 200 EMA. After that, watch 1.38 and the 18-month support TL, followed by whole number levels on the way up to the 15-yr bear trend line.

Bearish targets: Any bearish hold below 1.355 would bring 1.35, near a 4hr chart support trend line, 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 (see daily chart).

  • Watch 1.355 for any new make or break.

 

 

 

 

USD/JPY:  The USD/JPY closed with a bullish weekly candle, although well off the high, and a bullish monthly candle. Price action ended up back down near 111 making that the one to watch for any new make or break.

Bullish targets: Any bullish hold above 111 would bring whole-numbers on the way up to 115 into focus.

Bearish targets: Any bearish break below 111 would bring the 110.25 region into focus as this is near the 4hr chart’s 200 EMA and 61.8% Fibonacci region. After that, watch 110 and 109 S/R followed by whole numbers down to 106 as the latter is near the weekly chart’s 61.8% Fibonacci.

  • Watch 111 for any new make or break.

 

 

 

GBP/JPY: The GBP/JPY closed with bearish-coloured Spinning Top weekly and monthly candles, with both reflecting indecision, and making this now three consecutive indecision-style monthly candles.

Price action was very volatile during last week and ended up below the 18-month support trend line and 151 region making these the levels 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 trend lines to monitor for any new breakout.

Bullish targets: Any bullish recovery above the 18-month support trend line would bring 151, 152 and a long-term bear trend line 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 hold below the 18-month support trend line would bring whole-number levels on the way down to 136 into focus as this is near the daily chart’s 61.8% Fibonacci of the March 2020 – March 2021 swing High move (see daily chart).

  • Watch the 18-month support trend line for any new make or break: