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Small caps surge ahead

November 7, 2021

Last week: US equities shrugged off FOMC taper talk and were no doubt lifted by the upbeat US jobs report with all four of the US stock index majors closing at new all-time weekly highs. Even more positive news was released after Friday’s US market close with the passing of President Biden’s bipartisan infrastructure bill so watch for potential support into next week following this news. The most impressive move from last week was on the small caps Russell-2000 with the print of a large, bullish weekly candle, a breakout from a 9-month trading channel and a first ever close above 2,400. The DJIA also impressed with the first weekly close above 36,000 and the S&P500 has now carved out two consecutive weekly closes above 4,600. So far, the Bull Flag breakouts on the DJIA, S&P500 and NASDAQ show no sign of rolling over into bearish Double Top fashion. The US$ closed just a little higher for the week which is surprising given Friday’s great jobs report where the US now, apparently, has the lowest unemployment rate per job opening ratio on record! The DXY remains pegged by the 95 resistance level but watch to see if this week’s US CPI data can get the index moving. The Aussie XJO will be in greater focus this week, too, as it tests a 13-week Bull Flag breakout ahead of Australian Employment data.

 

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 weren’t many momentum based trend line breakouts and I suspect the wait for FOMC and, then, NFP, may have been the reason. Articles released during the week can be found here, here, here and here.

 

  • AUD/JPY: a TL b/o for 100 pips.
  • Gold: a TL b/o for $20.
  • GBP/USD: a b/o below 1.37 for 250 pips after the BoE update.
  • GBP/JPY: a TL b/o for 220 pips after the BoE update.
  • S&P500: a b/o move above 4,600 for 100 points.

 

This Week: (click on images to enlarge):

 

    • DXY: US$ Index: The DXY closed with a bullish-coloured Spinning Top weekly candle, reflecting indecision, as the index struggles under the 95 resistance region. There is still the look of a bullish-reversal Double Bottom or W Bottom on the weekly chart with 95 being the neck line AND this also aligns with resistance from the top of the weekly Cloud so monitor this region for any new make or break, especially with this week’s US CPI data release.

 

DXY weekly: watch for any ongoing resistance from the top of the weekly Cloud and 95 region:

 

 

    • S&P500:
      • Roaring ’20s on the way? I still see some traders suggesting that the US stock market is in for a massive and imminent correction and I can understand this view given the lengthy stock market rally. However, as the major US stock indices continue to hold up well, in spite of the uncertainty caused by Covid, I wonder if the post-Covid world might just as likely emerge into something akin to a second Roaring ’20s? The eponymous Roaring ’20s evolved after the end of the Spanish Flu and WW1 and continued until the market crash of 1929 and Great Depression of the 1930s. It is with some interest then that I note the potential confluence of past and present events with the projected pattern on the multi-year S&500 chart (below). A bit of deja vu there perhaps?  My reason for positing this idea is to remind traders to keep an open mind about the possibility of continued moves higher with the S&P500, as well as other stock indices. NB: I listened to an interesting 52 minute podcast during the week where, with suitable government policy, the notion of a second Roaring 20s was floated as a possibility for Australia suggesting that I’m not the only one thinking on this wavelength! It is well worth a listen!

 

      • Perspective: 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 the bigger picture in perspective:

 

 

    • Veterans Day: note that Thursday November 11th is a holiday in the USA and Canada for Veterans Day.

 

    • 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 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:

 

 

    • DJIA: The DJIA closed with a bullish weekly candle, at another new all-time high and made a first ever close above 36,000 following the recent Bull Flag breakout so watch for any further upside move. As with the other Bull Flags in play, traders will need to monitor whether price action continues upwards or rolls over in bearish Double Top fashion.

 

DJIA weekly: has made a first weekly close above the 36,000 resistance level following this Flag b/o:

 

 

    • NASDAQ composite: The NASDAQ Composite Index closed with a bullish weekly candle and at another all-time high. Momentum remains low on the weekly time frame but watch for any push higher after the recent Bull Flag breakout. As with the other Bull Flags in play, traders will need to monitor whether price action continues upwards or rolls over in bearish Double Top fashion.

 

NASDAQ weekly: keep an eye on ADX momentum here:

 

 

    • DAX weekly: The DAX closed with a bullish weekly candle, at an all time high and made its first ever weekly close above 16,000 following on from the recent Bull Flag-style breakout so watch for any further upside move. As with the other Bull Flags in play, traders will need to monitor whether price action continues upwards or rolls over in bearish Double Top fashion.

 

DAX weekly: watch for any potential Double Top:

 

 

    • Russell-2000: The Russell-2000 is often viewed as the ‘Canary in the Coal Mine’ for US stocks and the index closed with a most impressive bullish weekly candle, at a new all-time high, above 24,000 for the first time and has made a breakout from a 9-month trading channel. Note how price action is now perched at the 200% retracement of the Covid swing low move so watch this region for any new make or break.

 

RUT weekly: note the new 9-month channel breakout:

 

    • Copper: Copper is often viewed as one metric of economic health and closed with a bearish-coloured Spinning Top weekly candle reflecting indecision.

Copper weekly: watch for any new breakout:

 

 

    • Emerging Markets: The Emerging market ETF, EEM, closed with a bullish-coloured Doji weekly candle, reflecting indecision, 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:

 

 

    • 10-yr T-Note Interest rate / TNX: This has closed with a large, bearish weekly candle and is back below the key 15 level following. Momentum remains on the decline and so the trend lines have been revised.

 

    • 10-yr T-Note Interest rate (weekly): Watch for any new TL b/o:

 

 

    • Bonds / TLT: The Bond ETF, TLT, closed with a bullish weekly candle so watch for any new trend line breakout.

 

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

 

 

    • VIX: the Fear index closed with a bearish-coloured Spinning Top weekly candle and still below 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: another full week of earnings:

 

 

Market Analysis:

S&P500: The S&P500 closed with a bullish weekly candle, at a new all-time high and has held above the key 4,600 S/R level for two consecutive weeks following the recent Bull Flag breakout.

Recall that the 4,600 has been in focus here as it is the whole-number level near the 200% Fibonacci retracement of the Covid swing Low (see the second weekly chart) and any failure at this resistance zone would help to shape a potentially bearish-reversal Double Top.

Trading volume was a bit lower last week and remains below the 200 MA and below the revised TL b/o so watch for any new breakout.

 

S&P500 ETF: SPY weekly: watch for any move back above the 200 MA:

 

Keep in mind that a Golden Cross remains valid for the time being and the index is holding above the 50 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 and, ss 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 break above 4,700 would bring 4,750 into focus followed by whole-number levels on the way up to the 5,000 level.

Bearish targets: any bearish hold below 4,700 would bring a recent support trend line into focus. After that, watch the 4hr chart’s 61.8% Fibonacci, near 4,500, followed by whole-numbers on the way down to the weekly chart’s 61.8% Fibonacci retracement level, near 3,150.

  • Watch 4,700 for any new make or break:

 

 

 

ASX-200: XJO: The XJO closed with a bullish, almost engulfing, weekly candle, above 7,400 and is currently testing the upper trend line of the weekly chart’s Bull Flag. This Bull Flag has been forming up for the lat 13 weeks so watch this region, and 7,500, for any new make or break. I have included a second weekly chart this week and, as with the S&P500 above, this chart shows the Fibonacci retracement of the Covid swing low move and projects bullish levels that are worth monitoring. The most interesting level would have to be the 200% retracement, a level the S&P500 has just passed, but for the XJO this level lies up at the whole-number level of 10,000; a nice round number to monitor!

 

As mentioned over recent weeks:

  • Recall that the 7,200 region was resistance prior to 2021 and any hold above this region would be a bullish signal as it would suggest that this old Resistance has evolved into new Support.

  • Traders will need to watch for any new Bull Flag breakout and for any push to the previous all-time High region of 7,632.8 but, as with the S&P500, any failure at this level would help shape up a potential Double Top.

  • I do wonder if the XJO might just chop along sideways, under the resistance of the previous high of 7,632.8, until after the next Australian Federal election, likely sometime in the first quarter of 2022? A change of Government might just be the catalyst needed to invigorate market confidence and get the index moving to tackle this 7,650 region.

 

Trading volume on the XJO was a bit lower again last week and still below the 200 MA and bear trend line so watch for any new breakout:

 

XJO weekly: trading volume still below the 200 MA and the TL:

 

Keep in mind that the recent Golden Cross remains valid here and the index is back above above the 50 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 and this current Golden Cross proved to be great signal.

 

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 break above 7,500 would render a Bull Flag breakout and would bring 7,550, 7,600 and the previous all-time High region of 7,632.8 into focus. After that watch the 161.8% retracement of the Covid swing low, near 9,000, followed by the 200% level, near 10,000 (see second weekly chart).

Bearish targets: Any hold below 7,500 would bring 7,400 back into focus. After that, watch 7,300, the weekly chart’s Bull Flag support trend line, 7,200 and the previous 2020 High of 7,197.20, 7,100 followed by 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 7,500 and the Bull Flag trend lines for any new make or break; especially with this week’s Australian employment data:

 

 

 

Gold: Gold dipped at the start of the week but closed with a bullish weekly candle and above the $1,800 level which has brought a 4-month bear trend line back into focus.

Price action ended up just below $1,820 making this the level to watch for any new make or break.

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.

The daily chart reveals the importance of the $1,670 level and this continues to be a ‘line in the sand’ support level. 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. Momentum remains low on the daily chart so watch the ADX for any new move above 20 as it could potentially offer a clue about the next major directional move, whether that be up or down.

Bullish targets: any bullish break above $1,820 would bring the 4-month bear trend line into focus followed by $1,850 and $1,900.

Bearish targets: any bearish hold below $1,820 would bring $1,800, $1,770 and $1,750 into focus followed by $1,700 and the $1,670 support level.

  • Watch $1,820 for any new make or break.

 

 

 

EUR/USD: The EUR/USD closed with a bullish-coloured Spinning Top weekly candle but still below the key 1.16 level. Price action closed just near 1.155 making this the level to watch for any new make or break.

As noted recently:

  • The 1.16 is significant level for the EUR/USD being the neck line of a potential bearish Double Top region however, in somewhat of a conundrum, any hold and recovery above this level could also shape up a bullish Double Bottom, as highlighted on the second weekly chart.
  • An 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 250 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, at 95 S/R, just as the EUR/USD looks to be shaping up in a bullish-reversal descending wedge on the daily and weekly charts.

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

Bullish targets: Any bullish hold above 1.155 would bring 1.16 S/R into focus. After that, watch the weekly 200 EMA, the daily/weekly chart’s Bull Flag upper trend line, 1.17, 1.18, the recently broken 19-month support trend line and the daily 200 EMA followed by whole-numbers on the way up to the 14-yr bear trend line.

Bearish targets: Any bearish break below 1.155 would bring 1.15 and the daily chart’s Bull Flag lower trend line into focus. After that, watch other whole numbers on the way down to the daily chart’s 61.8% Fibonacci, near 1.13.

  • Watch 1.155 for any new make or break;

 

 

 

AUD/USD: The Aussie closed with a bearish weekly candle after breaking down through a 4-week support trend line. Price action ended up back at 0.74 and near the 18-month support trend line making this the region to watch for any new make or break.

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

Bullish targets: Any bullish 4hr chart hold above 0.74, and trend line breakout, would bring 0.75 and 0.76 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 break below 0.74 and the 18-month support trend line would bring 0.73 into focus as this is near the 4hr chart’s 61.8% Fibonacci and weekly 200 EMA. This would be followed by 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 18-month support trend line for any new make or break; especially with this week’s Australian employment data:

 

 

 

AUD/JPY: The AUD/JPY closed with a bearish weekly candle after failing to break up through the 86 level, a level that hasn’t been broken on the weekly chart since February 2018. Price action ended up just below a 7-week support trend line and the 84 level making this the region to watch for any new make or break. 

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.
  • They S&P500 and AUD/JPY are both showing new convergence after the recent bout of divergence!

 

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

 

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

Bullish targets: Any bullish break above 84, and channel breakout, would bring 85 and 86 into focus, the latter being a level where there hasn’t been a weekly chart close above since Feb 2018. After that, watch whole-number levels up to 90 and the 9-yr bear trend line.

Bearish targets: Any hold below 84 would bring 83 and 82 into focus as the latter lies near the 4hr chart’s 61.8% Fibonacci, the daily 200 EMA and monthly 200 EMA. Beyond that, watch 81, the 18-month support TL, weekly 200 EMA 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 84 for any new make or break; especially with this week’s Australian employment data:

 

 

 

NZD/USD: The Kiwi closed with a bearish weekly candle but has held above 0.71 making this the region to watch for any new make or break.

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

Bullish targets: Any bullish 4hr chart trend line breakout would bring 0.72 and the revised 8-month bear trend line into focus. After that, watch 0.73, the 8-yr bear trend line and 0.75.

Bearish targets: Any bearish 4hr chart trend line breakout would bring the 0.70 level into focus as this lies near the 4hr chart’s Fibonacci, daily 200 EMA and 19-month support trend line. After that, watch whole-number levels on the way down to 0.62 as this is near the 61.8% Fibonacci of the daily chart’s March 2020 – Feb 2021 swing High move.

  • Watch for any new trend line breakout:

 

 

 

 

GBP/USD: The Cable closed with a bearish weekly candle after failing to crack 1.37 and, then, falling to test the recent low, just above 1.34, following the BoE update. Price action ended up just below 1.35 making this the level to watch for any new make or break.

There are revised 4hr chart trend lines to monitor for any new breakout BUT momentum still remains very low, with the ADX below 20 on the daily and weekly time frames, so watch for any new shift here.

Bullish targets: Any bullish break back above 1.35 would bring 1.37 into focus as this is near the 4hr chart’s 200 EMA and 61.8% Fibonacci. After that, watch whole-number levels on the way up to the 15-yr bear trend line.

Bearish targets: Any bearish hold below 1.35 would bring the weekly 200 EMA and 1.34 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 1.35 for any new make or break;

 

 

 

USD/JPY:  The USD/JPY closed with a bearish weekly candle after, again, chopping sideways along the 114 level for most of the week keeping this the level to watch for any new make or break.

Momentum remains low on the 4hr time frame and there is a 3-week trading channel that has emerged so watch for any new trend line breakout.

Bullish targets: Any bullish 4hr chart trend line breakout would bring 115 into focus. After that, watch whole-number levels on the way to 120 S/R.

Bearish targets: Any bearish 4hr chart trend line breakout would bring 112.30 S/R into focus. After that, watch 112 followed by whole numbers down to 107 as the latter is near the weekly chart’s 61.8% Fibonacci.

  • Watch 114 and for any new 4hr chart trend line breakout:

 

 

 

GBP/JPY: The GBP/JPY closed with a bearish weekly candle and back near 153 and the 4hr chart’s 61.8% Fibonacci making this the region 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 now reached up as far as 158, a move of around 1,700 pips, and so is a trend line breakout that has proven to be worthwhile monitoring.

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

Bullish targets: Any bullish hold above 153 would bring whole-numbers on the way up to the recent high, near 157, 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 break below 153 would bring 152 and and the 18-month support trend line into focus. After that, watch whole-number levels on the way down to 137 as this is near the daily chart’s 61.8% Fibonacci of the March 2020 – current swing High move (see daily chart).

  • Watch 153 for any new make or break: