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SP500: sneak peek at all-time high

August 16, 2020

Last week: It was another relatively quiet week for many of the Forex pairs I monitor as the US$ index struggled for direction following the recent bearish break below a 10-year support trend line. The print of plenty more Spinning Top weekly candles being a good reflection of this indecision activity. The best breakout move of the week was on Gold with a technical test of the major $1,900 level. I am still wondering what the catalyst might be that could get the US$ moving again, either up or down, as this will have implications for Forex and commodities, as just some trading instruments. The S&P500 will be in sharper focus this week as it closes in on its all-time High and the big question will then be: which way will the S&P500 head from there?

 

Technical Analysis: As noted over recent months, 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 Coronavirus, 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 and TC signals:  Articles published during the week can be found here, here, here, and here:

  • Gold: a TL b/o for up to $150.
  • EUR/USD: a TL b/o  for 70 pips but the move remains up around 540 pips from the previous multi-week Flag pattern.
  • USD/JPY: a TL b/ for 50 pips.

 

  • This Week: (click on images to enlarge):
    • DXY: US$ Index: The US$ closed with another bearish-coloured Spinning Top weekly candle reflecting indecision as the index continues to struggle near the recently broken 10-year support trend line and this remains the level to watch for any new make or break.  

 

DXY weekly: 

 

 

    • Indecision weekly candles: these appeared again last week and were printed on: the DXY, S&P500, NASDAQ, Russell-2000, Crude Oil, the VIX, AUD/USD, GBP/USD and USD/JPY.

 

    • Wall Street v Main Street Conundrum: This article by Ryan Detrick is worth reading as it offers one perspective as to why there has been such a disconnect between Wall Street and Main Street.

 

    • Growth versus Value: I was prompted to look into the relationship between Growth and Value during the week and wrote an article about my chart findings that can be accessed through this link.

 

    • Copper: Copper is often viewed as one metric of economic health and it closed with a bullish weekly candle as the metal consolidates below a 10-year bear trend line and the whole-number 3 level. Watch for any Bull Flag type activity:

 

Copper weekly:

 

 

    • Multi-year trend lines: As noted recently and the caution remains valid: multi-year trend lines have been tested / broken on a number of instruments: The FX Indices (DXY and EURX) and the EUR/USD, AUD/USD and NZD/USD. Trend lines of such duration are often not given up easily so traders should watch for any potential choppiness / consolidation as these levels are negotiated.

 

    • S&P500: Keep the bigger picture in perspective with the recent moves:

 

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 is back testing near its 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 weekly: The DJIA closed with a bullish weekly candle and note the continued triangle breakout. Watch for any push to the previous High:

 

DJIA weekly: 

 

 

    • NASDAQ composite: The NASDAQ Composite Index closed with a bearish-reversal Hanging Man style weekly candle so watch for any pause here with this recent bullish run. A test of the psychological 10,000 level would not surprise:

 

NASDAQ weekly: 

 

 

    • DAX weekly: The DAX closed with a bullish weekly candle so watch for any push to the recent High:

 

DAX weekly:

 

 

    • Russell-2000: The Russell-2000 is often viewed as the ‘Canary in the Coal Mine’ for US stocks and closed with a bullish-coloured Spinning Top weekly candle but note the continued bullish trend line breakout so watch for any push to recent High, circa 1,720:

 

RUT weekly:

 

 

 

    • Bonds / TLT: The Bond ETF, TLT, closed with a large bearish weekly candle, and, note the pullback that is still being suggested by the Elliott Wave indicator:

 

TLT weekly:

 

 

    • VIX: the Fear index closed with a bearish-coloured Spinning Top weekly candle and the Index is still below the 30 level so watch this region for any new momentum based make or break:

 

VIX weekly: watch the key 30 level for any new momentum based make or break:

 

 

 

Calendar:    Courtesy of Forex Factory: A relatively quiet week for scheduled news:

 

 

 

Earnings: Courtesy of Earnings Whispers: Watch for impact from Earnings this week as some big names report:

 

 

 

Market Analysis:

 

S&P500: The S&P500 closed with a bullish-colored Spinning Top weekly candle and is now just 20.67 points below the all-time High of 3,393.52. Trading volume remains low but note the small breakout above the bear trend line so watch for any continued uptick with volume:

 

S&P500 ETF: SPY weekly: Volume is still low BUT note the small breakout above the bear trend line:

 

Given this test of the all-time High region I thought I would add an Elliott Wave (EW) Extension tool to my charts to explore bullish targets above 3,400; should price action break through this region and keep running. This EW tool was applied to the swing High move from 2009 – 2020 and traders should note that whole-number regions would be in focus above 3,400 on the way to the 161.8% extension that lies near 5,000:

 

S&P500 weekly + Elliott Wave Extension: 

 

Price action is trading just below 3,400 so this will be the resistance level to monitor for any bullish breakout. Note the declining momentum on the 4hr chart so keep an eye on this metric.

Bullish targets: any bullish 4hr chart breakout above 3,400 would bring whole number levels into focus on the way to 5,000 S/R.

Bearish targets: any bearish 4hr chart trend line breakout would bring 3,300 and 3,200 back into focus.

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

 

 

 

ASX-200: XJO: The ASX-200 closed with a bullish weekly candle but continues trading near the psychological 6,000 level and under the weekly 61.8% Fibonacci level as momentum remains low on the 4hr and weekly time frames. Trading volume was a bit higher last week but remains below a bear trend line so watch for any new breakout here:

 

XJO weekly: trading Volume remains below the bear trend line:

 

The 6,000 level and weekly 200 EMA remain as the support to watch and 6,200 is the whole-number level resistance to watch for any new make or break. There are revised 4hr chart wedge trend lines to monitor as well.

Bullish targets: Any bullish 4hr chart wedge breakout would bring the recent High, near 6,200, into focus followed by whole number levels on the way back to the previous all time High, circa 7,200.

Bearish targets: Any bearish 4hr chart wedge break below the weekly 200 EMA would bring 6,000 into focus.

  • Watch 6,200 resistance above and the weekly 200 EMA below for any new momentum breakout:

 

 

 

Gold:  Gold closed lower last week and I had mentioned that if last week’s profiled 4hr chart triangle breakout was bearish to then watch for any push to the $1,900 level and this is exactly what we got! I hope some of you caught this great move as it delivered up to $150!

 

Gold 4hr: last week’s $150 trend line breakout:

 

Weekly chart: As mentioned over recent weeks, 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. Keep watch of $1,900 now that price action is trading above this neckline region!

Last week’s test of $1,900, and recovery back above, is significant as this is the region in focus for any bullish Cup or Inverse H&S breakout:

  • Any hold above $1,900 would support the Cup pattern thesis.
  • Any new move move back below $1,900 would support the Inverse H&S pattern thesis.

As mentioned last week:  Traders need to watch this $1,900 level over the coming days / weeks especially as the US$ index is struggling at a 10-year support trend line:

  • any US$ hold below this multi-year support trend line could help send Gold much higher.
  • any US$ recovery above this support trend line could keep Gold range-bound. This would help to further develop the Inverse H&S pattern.

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

Bullish targets: any bullish 4hr chart triangle breakout would bring $2,000 into focus as this is near the 4hr chart’s 61.8% Fibonacci.

Bearish targets: any bearish 4hr chart triangle breakout would bring $1,900 back into focus.

  • Watch for any new 4hr chart triangle breakout:

 

 

Oil: Very little has changed here yet again as another bullish-coloured Spinning Top weekly candle was printed; this is the 6th consecutive such shaped candle!

Price action remains trapped under the Jan-April 2020 swing Low 61.8% Fibonacci level and momentum remains low on the daily and weekly time frame.

Bullish targets: any continued bullish daily chart triangle breakout above $43 and the 61.8% Fibonacci level would bring whole-numbers into focus on the way up to the $50 S/R region.

Bearish targets: any bearish retreat from the 61.8% Fibonacci level would bring $40 and $35 followed by $30 and $20 and, then, the recent Low, near $6.50, into focus.

  • Watch the the 61.8% Fibonacci level for any continued daily chart triangle breakout:

 

 

 

EUR/USD: The EUR/USD closed with a small, bullish weekly candle having a long lower tail suggesting that buyers stepped up a bit last week.

Price action has held above the 13-year bear trend line again but there are revised 4hr chart trend lines to monitor for any new breakout.

NB: The breakout from the daily chart’s Cup ‘n’ Handle pattern remains at around 500 pips of the projected 700 pip move.

Bullish targets: Any bullish 4hr chart triangle breakout would bring 1.20 S/R into focus followed by whole-number levels on the way up to the previous weekly chart High, circa 1.26.

Bearish targets: Any bearish 4hr chart triangle breakout would bring the 13-year bear trend line into focus followed by 1.15 as this is still near the 4hr chart’s 61.8% Fibonacci level. After that watch for whole-numbers on the way down to 1.12 S/R.

  • Watch for any 4hr chart triangle breakout and the 13-year bear trend line for any new make or break:

 

 

AUD/USD: The Aussie closed with another bullish-coloured Spinning Top weekly candle reflecting indecision as it holds above the recently broken upper trend line of the multi-year bullish-reversal Descending Wedge. I note that current price action is also near the weekly chart’s 61.8% Fibonacci so that may also be giving the currency pair some pause.

There are revised trend lines on the 4hr chart to monitor for any new momentum-based breakout. Note how 4hr chart momentum has been contracting for the last four weeks: ever since the multi-year trend line breakout!

Bullish targets: Any bullish triangle breakout would bring 0.72 and the weekly 200 EMA and, then, whole-number levels on the way up 0.90 into focus.

Bearish targets: Any bearish triangle breakout would bring 0.71 into focus followed by 0.70 and, then, the 9-11 year bear trend line.

  • Watch for any new 4hr chart triangle breakout:

 

 

AUD/JPY:  The AUD/JPY closed with another bullish weekly candle but remains pegged below the 7-year bear trend line.

As mentioned last week: How the AUD/JPY reacts at the 7-year bear trend line above might depend on how the S&P500 reacts as it nears its all-time High so keep an eye on both!

The AUD/JPY is trading just below 76.5 S/R but bullish momentum is edging upwards so watch this level in coming sessions for any new make or break. 

Bullish targets: Any bullish 4hr chart move above 76.5 would bring 77 and the 7-year bear trend line into focus.

Bearish targets: Any bearish 4hr chart retreat from 76.5 and break of the support trend line would bring the 75 and 74 S/R back into focus.

  • Watch 76.5 S/R and the support trend line for any new make or break:

 

 

NZD/USD: The Kiwi closed with a bearish weekly candle and has slipped back below the recently broken 7-year bear trend line but this level will remain in focus in coming sessions.

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

Bullish targets: Any bullish 4hr chart triangle breakout would bring the 7-year bear trend line followed by 0.67 and, eventually, 0.70 S/R into focus.

Bearish targets: Any bearish 4hr chart triangle breakout would bring 0.64 into focus followed by 0.63 and 0.625.

  • Watch for any new 4hr chart triangle breakout:

 

 

GBP/USD:  Not a lot has changed here this week with the GBP/USD closing with another Spinning Top weekly candle reflecting ongoing indecision as price struggles at the weekly 200 EMA. However, this week the candle was bullish-coloured.

The breakout from the daily / weekly chart triangle has not gained much more but the target for this breakout move remains as the previous High, circa 1.35.

There is still the look of a Bull Flag set up on the 4hr chart so watch for any new trend line breakout.

Bullish targets: Any bullish 4hr chart trend line breakout above the weekly 200 EMA would bring 1.32 followed by whole-number levels on the way to the recent daily chart high, circa 1.35, into focus.

Bearish targets: Any bearish 4hr chart trend line breakout below 1.30 would bring whole-number levels on the way down to 1.26 into focus.

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

 

 

USD/JPY: The USD/JPY closed with a bullish-colored Spinning Top style weekly candle reflecting ongoing indecision with this pair.

Price action struggled at the 107 level during last week and there are revised triangle trend lines on the 4hr chart giving traders trend lines to watch for any new momentum breakout.

Bullish targets: Any bullish 4hr triangle breakout would bring 107 into focus followed by 107.5 as the latter is near the 4hr chart’s 61.8% Fibonacci.

Bearish targets: Any bearish 4hr triangle breakout would bring the monthly 200 EMA followed by 105 back into focus.

  • Watch for any new 4hr chart triangle breakout: