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SP500 cracks 4,600

October 31, 2021

Last week: October ended up being a strong month for US stocks with the four stock index majors, the S&P500, DJIA, NASDAQ and Russell-2000, all closing higher and with the first three closing at new all-time highs and, essentially, with bullish-engulfing style monthly candles. The S&P500 and AUD/JPY both carved out particular achievements; the S&P500 with a new weekly and monthly close above the key 4,600 resistance level and the AUD/JPY with a monthly close above 85 for the time in over 3 1/2 years. There were some mixed earnings reports with the most notable being from Apple and Amazon after market close on Thursday but this didn’t hold either back for long with both closing higher for the day on Friday. The Bull Flag-style breakouts on the DJIA, S&P500 and NASDAQ will remain in focus this week as traders monitor to see if price continues higher or rolls over in bearish Double Top fashion. The US$ closed higher for the week but remains pegged by the 95 resistance level so watch all of these instruments for any new reaction; especially with this week’s FOMC update, monthly US NFP jobs report and as US earnings season continues.

 

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: It was a relatively quiet week for trend line breakout trade opportunities but short-term traders (scalpers) may have had a good week with the volatile moves on the EUR/USD. Articles released during the week can be found here, here, here and here.

 

  • SPX500: a TL b/o for 50 points.
  • AUD/JPY: a TL b/o for 100 pips.
  • GBP/JPY: a TL b/o for 100 pips.
  • GBP/USD: a TL b/o for 80 pips on Friday.
  • Gold: a TL b/o for $15 pips on Friday.

 

This Week: (click on images to enlarge):

 

    • DXY: US$ Index: The DXY closed with a bullish weekly candle and I continue to see this price action as more driven by technical than fundamental issues 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 FOMC update and NFP jobs report.

 

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.

 

      • 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:

 

 

    • Central Bank Updates: there are three central bank updates this week: RBA (AUD), FOMC (USD) and BoE (GBP).

 

    • Currency Strength Indicator: There has been some decent mean reversion and convergence so watch for any new currency breakout (click on chart to enlarge view):

Currency Strength 4hr chart: watch for any new breakout:

 

 

    • 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:

 

 

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

 

% of US Stocks above the 200 Day Moving Average: has pulled well back from the 92.50% region:

 

% of US Stocks above the 200 Day Moving Average (expanded): holding below 92.50%:

 

 

    • DJIA: The DJIA closed with a bullish weekly candle and at a new all-time high following a recent Bull Flag breakout so watch for any further upside move. The monthly candle was bullish as well and almost an engulfing candle. As with the other Bull Flags in play, this all-time high region, just under the whole-number 36,000, will come into focus here as traders monitor whether price action breaks through and continues upwards or, whether, it is rejected at this resistance and rolls over in bearish Double Top fashion.

 

DJIA weekly: watch the 36,000 resistance level following this Flag b/o:

 

 

    • NASDAQ composite: The NASDAQ Composite Index closed with a bullish weekly candle, above the key 15,000 level and at a new all-time high and the monthly candle was, essentially, bullish engulfing. 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, the previous all-time high region remains in focus here as traders monitor whether price action continues upwards, or, whether it is rejected at this resistance and 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 following on from the recent Bull Flag-style breakout so watch for any further upside move and the monthly candle was bullish as well. As with the other Bull Flags in play, the previous all-time high region will come into focus here as traders monitor whether price action breaks through and continues upwards or, whether, it is rejected at this resistance and 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 bullish-coloured Spinning Top weekly 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:

 

    • Copper: Copper is often viewed as one metric of economic health and closed with a bearish weekly candle but a bullish monthly candle. The Flag trend lines have been revised so watch for any new breakout.

 

Copper weekly: watch for any new breakout:

 

 

    • Emerging Markets: The Emerging market ETF, EEM, closed with a bearish, almost engulfing, weekly candle BUT there is still the look of sideways consolidation so watch for any trend line breakout: up or down. It is not surprising that the monthly candle was a bullish-coloured Spinning Top with long upper and lower shadows.

 

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

 

 

    • 10-yr T-Note Interest rate / TNX: This has closed with a bearish weekly candle but is holding above the key 15 level following the recent triangle breakout.

 

    • 10-yr T-Note Interest rate (weekly): Watch for any continued push higher after the 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 bullish-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: Lots on the calendar this week:

 

 

Earnings: Courtesy of Earnings Whispers: Earnings season continues with another big week:

 

 

Market Analysis:

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

The 4,600 whole-number will remain in focus this week for any new make or break especially given the FOMC update and monthly NFP jobs report. The 4,600 is significant as it is 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 higher last week but, whilst still below the 200 MA, there has been a break above the recent bear TL b/o so watch for any push higher with trading volume.

 

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 hold above 4,600 would bring 4,700 into focus. Then watch whole numbers on the way up to the 5,000 level.

Bearish targets: any bearish break back below 4,600 and the support trend line would bring 4,550 into focus. After that, watch the 4hr chart’s 61.8% Fibonacci, near 4,450, followed by whole-numbers on the way down to the weekly chart’s 61.8% Fibonacci retracement level, near 3,100.

  • Watch 4,600 for any new make or break; especially with this week’s FOMC and NFP updates and as US earnings continues:

 

 

 

ASX-200: XJO: The XJO closed with a bearish weekly candle, and a bearish-coloured Long Legged Doji indecision monthly candle after failing to hold above 7,400. Recall, however, it is the 7,200 level that is the key inflection point and the index remains comfortably above this support for now. The XJO closed just above the 4hr chart’s 200 EMA making this the level to watch for any new make or break.

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.

 

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.

 

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

 

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

 

Keep in mind that the recent Golden Cross remains valid here although the index is trading back below 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 hold above the 4hr chart’s 200 EMA would bring 7,400 and the daily/weekly chart’s upper Flag trend line into focus followed by 7,500, 7,600 and the previous all-time High region of 7,632.8.

Bearish targets: Any hold below the 4hr chart’s 200 EMA would bring 7,300 and the the daily chart’s Bull Flag support trend line into focus. After that, watch 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 the 4hr chart’s 200 EMA for any new make or break; especially with this week’s RBA rate update.

 

 

 

Gold: Gold closed with a bearish-coloured Spinning Top, and essentially Inside, weekly candle with both reflecting indecision, and broke below a 5-week support trend line on Friday. Price action ended up just above the 4hr chart’s 200 EMA 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 hold above the 4hr chart’s 200 EMA would bring $1,800, $1,850 and $1,900 into focus.

Bearish targets: any bearish break below the 4hr chart’s 200 EMA would bring $1,770 and $1,750 into focus followed by $1,700 and the $1,670 support level.

  • Watch the 4hr chart’s 200 EMA for any new make or break.

 

 

 

EUR/USD: The EUR/USD closed with a large, bearish weekly candle and below the key 1.16 level ahead of this week’s FOMC and NFP update. The monthly candle closed as a bearish-coloured Spinning Top though reflecting the indecision that exits around this key S/R region. Price action closed just near the recent Low, circa 1.525, 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 the recent Low, circa 1.525, 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 18-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 the recent Low, circa 1.525, 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 the the recent Low, circa 1.525, for any new make or break; especially with this week’s FOMC rate update and NFP jobs report.

 

 

 

AUD/USD: The Aussie closed with a bullish weekly candle but essentially just chopped sideways above the key 0.75 level keeping this the one to watch for any new make or break. The monthly candle was a large and bullish, essentially engulfing, candle though.

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

Bullish targets: Any bullish 4hr chart hold above 0.75 would bring 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 of 0.75, and a recent support trend line, would bring 0.74 into focus. After that, watch the 18-month support trend line and the 4hr chart’s 61.8% Fibonacci that is near the weekly 200 EMA and 0.73 level. 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 0.75 and for any 4hr chart trend line breakout; especially with this week’s RBA rate update.

 

 

 

AUD/JPY: The AUD/JPY closed with a bullish weekly candle but essentially just chopped sideways for much of the week above the 85 level. This may seem rather subdued but the AUD/JPY has carved out a significant achievement marking the first monthly close above 85 since January 2018! The next level to monitor now for any new make or break is 86 and there hasn’t been a weekly close above this level since February 2018, and so this is going to be a significant S/R level to negotiate as well. The monthly candle was large and bullish and closed just under 86 S/R.

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 edging higher and 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 new convergence!

 

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

Bullish targets: Any bullish 4hr chart trend line breakout, above 86 (where there hasn’t been a weekly chart close above this level since Feb 2018) would bring whole-number levels up to 90 and the 9-yr bear trend line into focus.

Bearish targets: Any hold below 86, and bearish Flag breakout, would bring 85 and a recent support trend line into focus. After that, watch 84, 83 and 82 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 86 and for any new 4hr chart trend line breakout; especially with this week’s RBA rate update.

 

 

 

NZD/USD: The Kiwi closed with a bullish-coloured Doji weekly candle, reflecting indecision, as price action chopped sideways under 0.72 keeping this the region to watch for any new make or break. However, the monthly candle was large and essentially bullish engulfing.

There are revised 4hr chart trend lines to monitor for any new breakout and note the continued look of a Bull Flag here so watch the Flag trend lines for any new breakout.

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

Bearish targets: Any bearish 4hr chart trend line breakout would bring 0.71 into focus. After that, watch the 0.70 level as this lies near the 4hr chart’s Fibonacci and daily 200 EMA. This would be followed by the 18-month support trend line and 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 0.72 and for any Bull Flag breakout:

 

 

 

GBP/USD: The Cable closed with a bearish weekly candle after breaking below a recent support trend line on Friday. Price action ended up just near the 38.2% Fibonacci of the 4hr chart’s recent swing High move making this the level to watch for any new make or break. The monthly candle was a bullish-coloured, essentially Inside, candle though reflecting indecision.

There are revised 4hr chart trend lines to monitor for any new breakout BUT momentum remains very low, with the ADX below 20 on the daily, weekly and monthly time frames, so watch for any new shift here. This lack of momentum helps to explain the indecision-style nature seen with the monthly candle.

Bullish targets: Any bullish bounce up from the 4hr chart’s 38.2% Fibonacci would bring 1.37 and 1.38 into focus. After that, watch 1.39, 1.40 and the 15-yr bear trend line.

Bearish targets: Any bearish break below the 4hr chart’s 38.2% Fibonacci would bring 1.36 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 the 4hr chart’s 38.2% Fibonacci for any new make or break; especially with this week’s BoE rate update.

 

 

 

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

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 another bearish-coloured Shooting Star-style weekly candle and just above 156 keeping this the level to watch for any new make or break. The monthly candle was a large and bullish, essentially engulfing, candle though.

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 AND note the continued look of a Bull Flag here so watch the Flag trend lines for any new breakout.

Bullish targets: Any bullish hold above 156 would bring the monthly 200 EMA and 157 into focus. After that, watch the upper 4hr chart Flag trend line and whole-number levels on the way up to the weekly chart’s 61.8% Fibonacci, near 170.

Bearish targets: Any bearish break below 156, and bearish Flag breakout, would bring 153 into focus as this lies near the 18-month support trend line and the 4hr chart’s 61.8% Fibonacci. After that, watch the recently broken 6-month trend line and 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 156 and the 4hr chart Flag trend lines for any new make or break: