Trade Charting

Last week: US equities were rocked by the high US CPI print, the most significant increase in 30 years, such that all four of the US stock index majors, the S&P500, DJIA, NASDAQ and Russell-2000, closed with bearish weekly candles. This bearish week has to be viewed in the context of a stock rally that has gone on for around 19 months and so a pause is not really that much of a surprise or out of order as trends do not travel in straight lines. The question now, however, is whether this high US inflation print will trigger a sustained sell off for US equities and spill over into other markets? The VIX isn’t flashing any warnings just yet as it closed with a bearish weekly candle and remains below 20. The US$ closed above a key resistance level for the week and this resulted in a number of bearish weekly candles across Forex pairs. The stronger US$ didn’t worry Gold too much as the precious metal closed with a bullish weekly candle and above a multi-month bear trend line bringing the key $1,900 back into focus and, begging the question, will the multi-month bullish pattern, that I have been stalking since mid 2020, finally trigger?

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 were only a few trend line breakout opportunities despite the stronger US$. Articles released during the week can be found here, here and here.

GBP/USD: a TL b/o for 60 pips and another for 130 pips.
Gold: a TL b/o for $40.
NZD/USD: a TL b/o for 100 pips.
EUR/USD: a great 30 min chart range-breakout trading opportunity, after the failure at 1.16, for over 150 pips:

This Week: (click on images to enlarge):

- DXY: US$ Index: The DXY closed with a bullish weekly candle and has finally broken above the key 95 resistance region. This break above 95 marks the breakout of a bullish-reversal Double Bottom or W Bottom on the weekly chart, as well as a breakout above the weekly Cloud, so watch for any bullish continuation. US Retail Sales is released on Tuesday so watch for any impact from this news on the DXY.

DXY weekly: watch for any continued breakout above 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 recently 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:

- 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 near 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 bearish-coloured Spinning Top weekly candle, reflecting indecision, but only after punching a new all-time high mid week and managing to hold above 36,000. 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: holding above the 36,000 resistance level, for now, following this Flag b/o:

- NASDAQ composite: The NASDAQ Composite Index closed with a bearish-reversal Hanging Man weekly candle under the the 16,000 level so watch for any pause here. ADX Momentum is edging higher so watch for any clues this may offer with the next directional move on the index.

NASDAQ weekly: keep an eye on ADX momentum here:

- DAX weekly: The DAX closed with a small, bullish weekly candle, at a new all time high and has held above 16,000 following on from the recent Bull Flag-style 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.

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 bearish coloured Spinning Top, and almost Inside, weekly candle with both reflecting indecision. Recall that this follows on from last week’s impressive bullish close at a new all-time high above 24,000 for the first time and after making a breakout from a 9-month trading channel so some pause and reflection here is not surprising. Note how price action is still perched at the 200% retracement of the Covid swing low move so watch this region for any new make or break.

RUT weekly: paused after the recent 9-month channel breakout:

- Copper: Copper is often viewed as one metric of economic health and closed with a bullish weekly candle, despite the stronger US$ and pause with equities. Watch for any new trend line breakout.

Copper weekly: watch for any new breakout:

- Emerging Markets: The Emerging market ETF, EEM, closed with a bullish weekly candle AND 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 bullish-coloured Inside weekly candle, reflecting indecision, BUT is back above the key 15 level following. Momentum remains on the decline BUT watch for any new breakout.

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

- Bonds / TLT: The Bond ETF, TLT, closed with a bearish-coloured, almost Inside, weekly candle BUT watch for any new trend line breakout.

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

- VIX: the Fear index closed with a bearish 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: the season is winding down but there are still some big names to report this week:

Market Analysis:

S&P500: The S&P500 closed with a bearish-reversal Hanging Man weekly candle so watch for any pause here as index consolidates above the key 4,600 S/R level, a level now held for three consecutive weeks following the recent daily-chart Bull Flag breakout. Despite this bearish weekly candle and inflation concern, the 4hr chart shows a new, but smaller, Bull Flag in play so watch these Flag trend lines for any new breakout; either up or down. Try to keep an open mind!

Recall that the 4,600 has been in focus here for some weeks 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 lower last week and remains below the 200 MA and the TL so watch for any new breakout.

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

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 Golden Cross remains valid:

There are revised 4hr chart trend lines to monitor.

Bullish targets: any bullish 4-hr chart Bull Flag breakout would bring 4,700 into focus followed by whole-number levels on the way up to the 5,000 level.

Bearish targets: any bearish 4-hr chart Bull Flag breakout would bring 4,600 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 3,150.

Watch for any 4hr chart Bull Flag breakout:

ASX-200: XJO: The XJO closed with a small, bearish-coloured weekly candle but having a long lower shadow reflecting some recovery after an earlier sell-off. Price action remains in a weekly Bull Flag of 14-weeks duration so watch this for any new breakout.

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.
The second weekly 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!

Trading volume on the XJO was little changed last week and still below the 200 MA so watch for any new breakout:

XJO weekly: trading volume still below the 200 MA:

Keep in mind that the recent Golden Cross remains valid here and the index is still 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 Bull Flag breakout would bring 7,500, 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;

Gold: Gold closed with a large, bullish weekly candle, above $1,850 and has made a bullish breakout above a 16-month^# bear trend line.

#: I mistakenly referred to this TL as a 4 month (ie: 16-week) TL last week but it it is actually a 16 month TL!

A key point to note, however, is that momentum remains quite low on the 4hr time frame, as well as the daily and weekly time frame, so watch how the ADX evolves if and when price action creeps back to the key $1,900 level. As you all should know the $1,900 is a MAJOR S/R level we’ve had in focus here for many months so it will be in great focus again as we monitor to see if this might be THE bullish breakout we’ve been monitoring.

Price action ended up just above $1,850 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 $1,850 would bring $1,900 S/R into focus.

Bearish targets: any bearish break below $1,850 and a recent support trend line would bring the recently broken 16-month TL, $1,800, $1,770 and $1,750 into focus followed by $1,700 and the $1,670 support level.

Watch $1,850 for any new make or break.

EUR/USD: The EUR/USD closed with a large, bearish weekly candle, below the key 1.16 level and down near the bottom wedge trend line 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 150 pips until that 1.13 region might be reached.
EUR/USD traders also need to keep in mind that the US$ index is currently negotiating the major 95 S/R resistance level 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 bounce up from the bottom wedge trend line would bring 1.15 and 1.16 S/R back into focus. After that, watch the weekly 200 EMA and the daily/weekly chart’s Bull Flag upper trend line for any new breakout. Followed by 1.17, 1.18, the daily 200 EMA, the previously broken 19-month support trend line followed by whole-numbers on the way up to the 14-yr bear trend line.

Bearish targets: Any bearish break below the bottom wedge trend line would bring 1.14 into focus followed by the daily chart’s 61.8% Fibonacci, near 1.13.

Watch the bottom wedge trend line for any new make or break;

AUD/USD: The Aussie closed with a bearish-coloured Spinning Top weekly candle, reflecting indecision. Price action managed to close back above 0.73 and is trading just below the weekly 200 EMA and within a trading channel 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.

NB: momentum remains low on the weekly chart and so the 19-month trend line has been revised lower to capture recent price action.

Bullish targets: Any bullish 4hr chart channel breakout would bring 0.74 and the daily 200 EMA into focus. After that, watch 0.75 and other whole numbers on the way up to the 11-yr bear trend line and 0.80 S/R.

Bearish targets: Any bearish break below 0.73 and the 19-month support trend line would bring 0.72 into focus 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 0.73 and the channel trend lines for any new make or break;

AUD/JPY: The AUD/JPY closed with a bearish-coloured Spinning Top weekly candle, reflecting indecision, but managed to hold above 83, near 83.5, 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.
Watch for any new and developing divergence!

AUD/JPY versus S&P500 (gold line): a high degree of positive correlation but watch for any renewed divergence!

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

Bullish targets: Any bullish break above 83.5 would bring 84 and 85 into focus. After that watch 86 as there hasn’t been a weekly chart close above this level since Feb 2018. Then watch whole-number levels up to 90 and the 9-yr bear trend line.

Bearish targets: Any break below 83 would bring 82 into focus as this lies near the 4hr chart’s 61.8% Fibonacci, the daily 200 EMA, monthly 200 EMA and the 19-month support trend line. Beyond that, watch 81, the 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 83.5 for any new make or break;

NZD/USD: The Kiwi closed with a bearish weekly candle having long lower and upper shadows reflecting the volatility here last week but managed to above 0.70 and the 19-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 hold above the daily 200 EMA would bring 0.71 and the 9-month bear trend line into focus. After that, watch 0.72 followed by 0.73 and the 8-yr bear trend line and, then, 0.75.

Bearish targets: Any bearish 4hr chart break below 0.70 and the 19-month support trend line would bring the monthly 200 EMA and 0.69 into focus. 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 0.70 and the 19-month support trend line for any new make or break.

GBP/USD: The Cable closed with a bearish weekly candle having long lower and upper shadows reflecting the volatility here last week. Price action ended just above 1.34 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 low, with the ADX below 20, on the daily and weekly time frames so watch for any new shift here.

Bullish targets: Any bullish hold above 1.34 would bring 1.35 and the 4hr chart’s triangle trend line into focus. After that watch 1.365 as this is near the daily 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 triangle trend line break, and break below 1.34 and the weekly 200 EMA, would bring 1.33 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 1.34 and the 4hr chart triangle trend lines for any new make or break;

USD/JPY: The USD/JPY closed with a bullish-coloured Spinning Top weekly candle, reflecting some volatility here last week but managed, yet again, to close near the 114 level keeping this the one to watch for any new make or break.

Bullish targets: Any bullish break above 114 would bring 115 into focus. After that, watch whole-number levels on the way to 120 S/R.

Bearish targets: Any hold below 114 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 for any new make or break.

GBP/JPY: The GBP/JPY closed with a bearish-coloured Spinning Top weekly candle, reflecting indecision, but has held near 153 and the 4hr chart’s 61.8% Fibonacci keeping 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 3^rd, 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 break above 153 would bring whole-numbers on the way up to the recent high, near 158, 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 153 would bring 152 and the 19-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 and the 19-month support trend line for any new make or break:

Stock rally pauses after CPI