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SPX: keeps rising to the challenge

May 31, 2020

Last week: The S&P500 has risen to all of the recent set challenges and accomplished them, seemingly, against great odds. The Index can be considered a gauge of broader risk sentiment and the monthly close above a recent 61.8% Fibonacci and the psychological 3,000 level are rather bullish signals. All of this coming against a backdrop of the expanding global Covid-19 pandemic and increasing US-China trade tensions to say nothing of the distressing race tension situation currently playing out on US soil and Twitter placing a warning on one of the US President’s Tweets. This bullish weekly and monthly close on the S&P500 is supporting the notion of a V-shaped recovery rather than a dead cat bounce although I still struggle to get my head around this fact but urge traders that this is why it is important to trade what you see and not what you think. However, managing trade size and risk is crucial at times like these in case there is a sharp turnaround. The VIX closed with an indecision-style weekly candle and on declining momentum so keep an eye on this metric for clues about any new directional market move.

 

Technical Analysis: As noted over recent weeks, 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:

  • ASX-200: a TL b/o for 200 points.
  • EUR/USD: a TL b/o for 120 pips.
  • GBP/USD: a TL b/o for 140 pips.
  • AUD/USD: a TL b/o for 50 pips.
  • Gold: a TL b/o for $25.
  • NZD/USD: a TL b/o for 100 pips.
  • Oil: the recent trend line breakout is now up around $9:

 

Oil weekly: weekly chart from the previous week when price was $26 prior to b/o:

 

Oil weekly: current chart with price near $35.30: a b/o worth around $9:

 

 

This Week: (click on images to enlarge):

 

    • DXY: US$ Index: The US$ index closed with a bearish weekly candle and below the key 100 level:

 

DXY weekly: 

 

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

 

S&P500 yearly: keep this latest move in perspective:

 

 

    • Currency Strength Indicator: still looks rather indecisive here with daily chart bunching being evident BUT the AUD$ is still on top:

 

Currency Strength Indicator (daily): 

 

    • Gold: I have been warning about the  bigger picture chart pattern shaping up on the weekly chart of an Inverse H&S.  Price action is still near the $1,750 S/R level so watch for any push to the $1,800 ‘neck line’ breakout level of this pattern.

 

    • Central Banks: There are three Central Bank rate updates this week: RBA (AUD), BoC (CAD) and ECB (EUR).

 

    • Monthly chart reversal patterns: there were monthly chart based bullish-reversal patterns printed on Crude Oil, the AUD/USD, AUD/JPY and NZD/USD after the May candle close. So keep an open mind if trading these pairs!

 

    • Non Farm Payroll: NFP data is released on Friday and will be in special focus this week given the Covid-19 impact on Employment.

 

    • Market Phases: I think it remains timely 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 lead to Participation Down; even if the S&P500 heads back to testing its all time High:

 

 

S&P500 monthly: keep watch for any Distribution type of activity:

 

 

 

    • Market Breadth: Ryan Detrick noted on Twitter that market breadth is supportive of a continuation move for the S&P500. As I keep saying: keep an open mind:

 

 

    • DJIA weekly: The DJIA closed with bullish weekly and monthly candles and above the 61.8% Fibonacci and key $25,000 level so watch this region for any new make or break:

 

DJIA weekly: 

 

 

    • NASDAQ composite: The NASDAQ Composite Index closed with bullish weekly and monthly candles so watch for any push to the previous all-time High, circa 10,000:

 

NASDAQ weekly: 

 

 

    • DAX weekly: The DAX closed with bullish weekly and monthly candles and at the 61.8% Fibonacci level so watch this region for any new make or break:

 

DAX weekly:

 

 

    • Russell-2000: The Russell-2000 is often viewed as the ‘Canary in the Coal Mine’ for US stocks. The index closed with bullish weekly and monthly candles and up under the 61.8% fib so watch this region for any new make or break:

 

RUT weekly:

 

 

    • Bonds / TLT: The Bond ETF, TLT, closed with a bearish-coloured Doji style weekly candle continuing the theme of indecision. Note the pullback that is still being suggested by the Elliott Wave indicator; any further dip here might parallel a continued move higher with stocks:

 

TLT weekly:

 

    • VIX: the Fear index closed with a bearish-coloured Indecision-style weekly candle and below the key 30 S/R level so watch this region for any new momentum based make or break:

 

VIX weekly: watch 30 S/R for any new make or break:

 

 

Calendar:    Courtesy of Forex Factory: CNY manufacturing PMI was below expectations but still above the 50 level. Watch to see if this impacts the Asian market open:

 

 

 

Earnings: Courtesy of Earnings Whispers:

 

 

 

Market Analysis:

 

S&P500: The S&P500 closed with bullish-coloured weekly and monthly candles despite the global Covid-19 pandemic. Of important note is that the index has now closed above the 61.8% Fibonacci of the recent swing Low move and the psychological 3,000 level suggesting this is more than just a Dead Cat Bounce.

I made mention of trading Volumes last week and consider they need attention again this week and, to achieve this, I make reference to the S&P500 ETF, SPY. Note on the daily chart below how most of this recent price recovery came with declining Volume; there are trend lines in place to illustrate this fact. Volume on the last couple of days closed above this trend line, albeit only just. However, this shift in Volume is worth noting and monitoring for any continued uptick:

 

SPY daily: note how Volume might be starting to edge higher:

 

A similar result is apparent for the weekly chart of the SPY ETF, however, a new weekly Volume close above the 200 moving average (blue line) would be more encouraging:

 

SPY weekly: note how Volume might be starting to edge higher:

 

Thus, with the bullish weekly and monthly close and Volume looking like it might be starting to edge higher, one should keep an open mind about the potential for a continued upward move with the index.

The S&P500 closed just below the 3,050 level so this would be the upper resistance zone to monitor for any new breakout.

Bullish targets: any bullish 4hr chart breakout above 3,050 would bring whole-numbers on the way back to the previous High, near 3,400, into focus.

Bearish targets: any bearish 4hr chart respect of 3,050 would bring the 3,000 level back into focus followed by recently broken 11-yr support TL as this is still near the 4hr chart’s 61.8% fib and, after that, the recent Low, near 2,200.

  • Watch 3,050 for any momentum-based make or break:

 

 

ASX-200: XJO: The ASX-200 closed with bullish weekly and monthly candles but the main point of note is the uptick with trading Volume. Most of this bullish recovery effort had been associated with declining trading Volume but that all changed last week. The chart below shows that trading volume broke up though this downward trend-line last week:

 

XJO weekly: trading Volume breaks to the upside:

 

 

The daily chart shows there was some selling on Friday but this might have been due to end of month flows:

 

XJO daily: end of month selling on Friday?

 

Two scenarios have been considered across most stock indices over recent weeks and these described the bullish move as either a V-shaped recovery or a Dead Cat Bounce. This bullish weekly and monthly close and uptick with trading Volume would add support to the V-shaped recovery thesis but the psychological 6,000 level and daily 61.8% Fibonacci resistance zones lie ahead. These levels are the ones to monitor in the coming sessions.

Traders should keep an eye on ADX momentum as well. The daily chart below now shows that the ADX and +DMI are trending upwards and are above the 20 threshold level BUT bearish momentum is dominant on the 4hr chart. Watch for any inflection with momentum on the 4hr chart.

Bullish targets: Any bullish 4hr chart bounce up from trend line support would bring the whole-number 6,000 level into focus.

Bearish targets: Any bearish 4hr chart break below trend line support would bring a longer term trend line followed by the 11-yr trend line support into focus.

  • Watch for any new momentum-based 4hr chart make or break at trend line support:

 

 

Gold: Gold closed with a bullish-coloured Doji weekly candle reflecting continued indecision. The monthly candle was also bullish coloured but could also be viewed as an indecision-style Spinning Top.

Price action remains just under $1,750 keeping this as the level to watch for any new make or break. There are revised 4hr chart triangle trend lines to monitor as well.

Weekly chart: As mentioned over recent weeks, the weekly chart 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 $700 so it is a longer-term pattern worth monitoring. The upper breakout region for this pattern is $1,800 which is still a way off yet.

Bullish targets: any bullish 4hr chart trend line breakout above $1,750 would bring $1,800 S/R into focus.

Bearish targets: any bearish 4hr chart triangle breakout would bring $1,700, $1,650, $1,600 and, then, $1,550 into focus as the latter remains near the 4hr chart’s 61.8% Fibonacci level.

  • Watch for any 4hr chart breakout above $1,750 or below trend line support:

 

 

Oil: Oil closed with another bullish weekly candle and just above $35 continuing the bullish momentum breakout from the recent triangle pattern. This move has now given up to $9 but watch for any continuation up to the $41 / $43 region as this would fulfil a Gap Fill and it is also near the 61.8% fib of the recent swing Low move.

Note the bullish-reversal Morning Star pattern that has now formed on the monthly chart:

 

Oil Monthly: note the bullish-reversal Morning Star pattern:

 

Bullish targets: any continued bullish daily chart triangle breakout above $35.50 would bring the $41 / $43 region into focus as this represents a Gap Fill region and is near the 61.8% fib of the recent swing Low move.

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

  • Watch the $35.50 level and for any continued daily chart triangle breakout:

 

 

 

EUR/USD: The EUR/USD closed with bullish weekly and monthly candles and right up under the 1.11 S/R level making this the one to watch for any new make or break.

Price action remains trading following last week’s 4hr chart triangle breakout.

Bullish targets: Any bullish continuation above 1.11 would bring 1.12 into focus followed by whole-number levels on the way up to the recent High, near 1.15.

Bearish targets: Any bearish rejection of 1.11 would bring 1.10 followed by the 20-yr support trend line into focus.

  • Watch the 1.11 S/R level for any new make or break; especially with this week’s ECB rate update.

 

 

AUD/USD: The Aussie closed with bullish weekly and monthly candles. The monthly chart is of particular interest though given the bullish monthly candle that has confirmed a bullish-reversal Railway Track pattern:

 

AUD/USD monthly: note the bullish-reversal Railway Track pattern:

 

 

As mentioned over recent weeks: Traders need to keep an open mind here and keep an eye on the US$ index. Any continued weakness with the US$ index (DXY), and struggle at the key 100 level, would underpin the Aussie. However, a risk-off equity shift could trigger a flight to safety move into the US$ which would likely punish this pair. Remember to trade what you see and not what you think! Recall, also, the monthly chart still shows a rather bullish pattern developing; that of a bullish-reversal Descending Wedge.

The 4hr chart still shows a print of higher Highs and higher Lows so the uptrend remains intact. However, a pullback, even if only temporary could well evolve so watch the support trend line here for clues. The whole-number 0.67 is the upper resistance level to monitor.

Bullish targets: Any bullish 4hr chart triangle breakout above 0.67 would bring the 0.68 S/R level, near the 28-month bear trend line, into focus.

Bearish targets: Any bearish break below the 4hr chart support trend line would bring 0.66 and 0.625 S/R into focus followed by whole-numbers on the way down to the recent Low, near 0.55 S/R.

  • Watch 0.67 and the support trend line for any new breakout; especially with this week’s RBA rate update:

 

 

 

AUD/JPY:  The AUD/JPY closed with bullish weekly and monthly candles. As with the AUD/USD though, the monthly chart is of particular interest given the bullish monthly candle that has confirmed a bullish-reversal Railway Track pattern:

 

AUD/JPY monthly: note the bullish-reversal Railway Track pattern:

 

 

This monthly close above 70 S/R is not to be ignored either. I noted last week this was somewhat like the Lunar landing with ‘that’s one small step for man, one giant leap for mankind‘ in mind. This is even more so the case given the new monthly candle close above this key S/R level.

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

Bullish targets: Any bullish 4hr chart triangle trend line breakout would bring whole-number levels on the way up to 75 S/R into focus.

Bearish targets: Any bearish 4hr chart triangle trend line breakout would bring 70 S/R back into focus followed by whole-number levels on the way down to 60 S/R.

  • Watch for any momentum-based 4hr chart trend line breakout; especially with this week’s RBA rate update:

 

 

NZD/USD: The Kiwi closed with bullish weekly and monthly candles but it is the monthly candle that is of some interest. The monthly chart below shows that this recent bullish monthly candle has helped to shape up a bullish-reversal Morning Star style pattern above the 0.60 S/R level so watch for any bullish follow-through:

 

NZD/USD monthly: note the bullish-reversal Morning Star style pattern:

 

Price action is currently consolidating below the 0.625 level so watch this upper resistance zone for any new momentum breakout.

Bullish targets: Any bullish 4hr chart breakout above 0.625 would bring whole number levels into focus on the way up to a recent High, near 0.64 S/R.

Bearish targets: Any bearish 4hr chart break of the support trend line would bring the next support trend line into focus followed by 0.60 S/R.

  • Watch 0.625 and the support trend line for any momentum breakout:

 

 

GBP/USD:  The GBP/USD closed with a bullish weekly candle following last week’s bullish-reversal style Inverted Hammer weekly candle. However the monthly candle was bearish.

I’m not seeing much to be excited about here as price action ranges adrift between the 1.265 level above and the 1.21 level below.

Price action is holding near the 4hr chart’s 200 EMA so maybe watch that for any new make or break.

Bullish targets: Any bullish 4hr chart breakout above the 4hr chart’s 200 EMA would bring 1.265 S/R into focus.

Bearish targets: Any bearish 4hr chart breakout below the 4hr chart’s 200 EMA would bring 1.21 into focus followed by whole-number levels on the way down to the 2016 Low, near 1.145, into focus.

  • Watch the 4hr chart’s 200 EMA for any new breakout:

 

 

USD/JPY: The USD/JPY closed with small, bullish-coloured indecision style weekly and monthly candles and still stuck between 107 and 108 making this the range to keep watch of for any new breakout.

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 108, 108.5, 109 and, then, whole-numbers on the way to 112 into focus.

Bearish targets: Any bearish triangle breakout would bring 107 followed by 105 S/R into focus as the latter is near the 4hr chart’s 61.8% Fibonacci and the monthly 200 EMA.

  • Watch for any 4hr chart triangle breakout: