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Technical analysis: the path to success with current markets.

June 7, 2020

Last week: The divergence between Main Street and Wall Street continued last week and was further fueled by the better than expected US NFP jobs report on Friday. The NASDAQ closed at an all-time High whilst Covid-19 still ravages economies and civil unrest spreads around the globe. This divergence reinforces a point I keep laboring: to trade what you see and not what you think AND to manage trade size and risk appropriate to the conditions; especially in case there is a sharp turnaround. There were over 1,500 pips on offer last week from new trend-line breakout trades based off charts posted last weekend; and this does not include the huge 350 pip EUR/USD breakout move that has been in play over the last couple of weeks! There was also a $25 breakout move on Gold, a 240 point move on the ASX-200 and almost 150 points from a breakout move on the S&P500. Traders who focus on Fundamentals might be struggling with the current market activity but, as the above results reflect, a focus on simple trend-line breakout Technical Analysis, that removes emotion and bias, would have been very productive.

 

NB: I am away from this Thursday 11th June until the following Wednesday 17th June and updates during this period will be brief and few.

 

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:

  • AUD/USD: a TL b/o for 280 pips.
  • AUD/JPY: a TL b/o for 500 pips.
  • NZD/USD: a TL b/o for 250 pips.
  • GBP/USD: a TL b/o for 300 pips.
  • USD/JPY: a TL b/o for 200 pips.
  • EUR/USD: a continued TL b/o that peaked at 350 pips.
  • Gold: a TL b/o for $25.
  • ASX-200: a TL b/o for 240 points.
  • S&P500: a TL b/o for almost 150 points with the move above 3,050.
  • Oil: the recent trend line breakout is now up around $13:

 

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

 

Oil weekly: current chart with price near $39: a b/o worth around $13:

 

This Week: (click on images to enlarge):

 

    • DXY: US$ Index: The US$ index closed with a bearish weekly candle but it is the daily chart I am posting. Note the bullish-reversal candle printed on Friday after the surprise NFP result. Forex traders need to watch for any pause or relief rally here; especially with this week’s FOMC meeting. A more detailed analysis of the Forex Indices can be found through my post via this link:

 

DXY daily: 

 

 

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

 

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

 

 

    • Currency Strength Indicator: note how the AUD$ and NZD$ are leading the charge here:

 

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.  The choppiness I had anticipated is playing out BUT watch for any eventual push to the $1,800 ‘neck line’ breakout level of this pattern.

 

    • Central Banks: There is one Central Bank rate update this week: FOMC (USD).

 

    • Monthly chart reversal patterns: last week I noted the bullish-reversal patterns printed on Crude Oil, the AUD/USD, AUD/JPY and NZD/USD after the May candle close. Note how all of these instruments closed higher for the week! This is Technical Analysis at its best!

 

    • Heat Map: The following Heat Map was sourced from FinViz. Note the broad based gains across most sectors. However, Warren Buffets warning about ‘be fearful when others are greedy’ comes to mind here!

 

 

    • 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; even if the S&P500 heads back to testing its all time High: Check the example chart below and identify where the current S&P500 price action would currently align!

 

 

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

 

 

    • DJIA weekly: The DJIA closed with a bullish weekly candle and just under the 78.6% Fibonacci so watch this region for any new make or break:

 

DJIA weekly: 

 

 

    • NASDAQ composite: The NASDAQ Composite Index closed with a bullish weekly candle and at an all-time High. Watch the key 10,000 level for any new make or break:

NASDAQ weekly: 

 

 

    • DAX weekly: The DAX closed with a large bullish weekly candle and at the 78.6% 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 a bullish weekly candle and up near the $1,500 level so watch this region for any new make or break:

 

RUT weekly:

 

 

    • Bonds / TLT: The Bond ETF, TLT, closed with a bearish weekly candle. Note the pullback that is still being suggested by the Elliott Wave indicator; the dip here being paralleled by a continued move higher with stocks:

 

TLT weekly:

 

 

    • VIX: the Fear index closed with a bearish weekly candle and still 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: watch for next week’s FOMC:

 

 

 

Earnings: Courtesy of Earnings Whispers: slowing down a bit:

 

 

 

Market Analysis:

 

S&P500: The S&P500 closed with a large bullish weekly candle despite the ongoing global Covid-19 pandemic and civil unrest surrounding the George Floyd death.

I’ve recently been making mention of trading Volumes and urged traders to watch for any shift here. Note Friday’s trading Volume; there was a decent bullish break of declining trend to the upside here; this would have to be read as an encouraging signal for market Bulls:

 

SPY daily: note how Volume broke to the upside on Friday:

 

 

However, I’m still watching for a new weekly Volume close above the 200 moving average (blue line):

 

SPY weekly: watch for any Volume b/o above the 200 MA:

 

The S&P500 closed just below the 3,200 level so this is the new upper resistance zone to monitor for any new breakout. Given this bullish Volume shift one would have to suspect that the index might now test the previous all-time High, circa 3,400.

Bullish targets: any bullish 4hr chart breakout above 3,200 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 3,200 would bring the 4hr chart’s support trend line into focus followed by 3,000 and, then, the 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 3,200 for any momentum-based make or break:

 

 

 

ASX-200: XJO: The ASX-200 closed with a bullish weekly candle and right up under the psychological and whole-number 6,000 S/R level. The encouraging sign for ASX-200 traders is that trading Volume remains strong following last week’s bullish breakout:

 

XJO weekly: trading Volume remains strong:

 

This recent bullish move has been considered as one of either two scenarios of late and this remains the case for me until there is a clear make or break of this 6,000 / weekly 61.8% Fib region. The two scenarios being that this move is either a V-shaped recovery or a Dead Cat Bounce.

Bullish targets: Any bullish 4hr chart breakout above the 6,000 / weekly 61.8% Fib region would bring whole number levels on the way back to the previous all time High, circa 7,200, back into focus.

Bearish targets: Any bearish 4hr chart retreat from the 6,000 / weekly 61.8% Fib region would bring the two 4hr chart support trend lines on the way to the 11-yr trend line support into focus.

  • Watch the the 6,000 / weekly 61.8% Fib region for any new make or break:

 

 

 

Gold: Gold closed with a bearish weekly candle and back below $1,700 S/R. The continued bullish flows into stocks is diverting flight to safety flows into Gold. The metal closed the week just above the $1,670 level which, on the 4hr chart, appears to be of some recent support and is the level to watch for any new make or break.

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 hold above $1,670 would bring a 4hr chart bear TL followed by $1,700 S/R into focus.

Bearish targets: any bearish 4hr chart break below $1,670 would bring $1,600 and, then, $1,550 into focus.

  • Watch $1,670 for any new make or break:

 

 

 

Oil: Oil closed with another bullish weekly candle following last week’s print of a bullish-reversal monthly chart Morning Star pattern.

The gap-fill level, near $41.50, is not far away now and will be in focus if price can make a bullish push above $40 in coming sessions.

Bullish targets: any continued bullish daily chart triangle breakout above $40 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 $40 would bring $30 followed by $20 and, then, the recent Low, near $6.50, into focus.

  • Watch the $40 level and for any continued daily chart triangle breakout:

 

 

 

EUR/USD: The EUR/USD closed with another bullish weekly candle and right up under the 1.13 making this the region to watch for any new make or break; especially with this week’s FOMC update.

There are revised 4hr chart trend lines to watch for any new breakout. Th weekly chart reveals the huge impact of the 1.15 region so watch for any continued push to this S/R level.

Bullish targets: Any bullish 4hr breakout above 1.13 would bring the weekly 200 EMA into focus followed by whole-number levels on the way up to the recent High, near 1.15.

Bearish targets: Any bearish rejection of 1.13 and break of the support trend line would bring 1.10 followed by the 20-yr support trend line into focus.

  • Watch the 1.13 S/R level for any new make or break; especially with this week’s FOMC rate update.

 

 

AUD/USD: The Aussie closed with a bullish weekly candle following last week’s bullish-reversal Railway Track monthly chart pattern. The Aussie has now closed up above the 0.69 region and 9-11 year multi-year bear trend line which is rather bullish. This trend line breakout represents a break of the upper trend line from the longer-term bullish-reversal Descending Wedge so traders should watch for any potential bullish follow-through.

Most of the recent gains have come with US$ weakness but traders need to watch for this week’s FOMC to see in any announcement in this space, following the better than expected NFP, might trigger a recovery move on the US$. If so, this would undermine the AUD/USD; as would any new risk-off equity shift that triggers a flight to safety move into the US$. Remember to trade what you see and not what you think!

For the time being though, 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 various support trend lines here for clues. Remember, trends do not travel in straight lines unabated and so a pullback at this major, wedge trend line resistance zone would not be at all unexpected. The whole-number 0.70 is the upper resistance level to monitor.

Bullish targets: Any bullish 4hr chart triangle breakout above 0.70 would bring whole-number levels on the way up 0.90 into focus.

Bearish targets: Any bearish break below the first and smaller 4hr chart support trend line would bring the 0.69 / 9-11 yr TL region into focus followed by the longer-term support trend line and whole-numbers on the way down to 0.625 S/R as the latter aligns near the 50% Fibonacci level.

  • Watch for any 4hr chart trend line breakout;

 

 

 

AUD/JPY:  The AUD/JPY closed with a large bullish weekly candle following last week’s print of the bullish-reversal Railway Track pattern on the monthly chart and this move gave a 4hr chart triangle breakout for around 500 pips!

 

AUD/JPY 4hr: added almost 500 pips after the monthly bullish-reversal Railway Track pattern:

 

The AUD/JPY has now closed above the key 75 level so price action is setting up as rather bullish. There is a multi-year trend line above that aligns near 78 S/R so that will be in focus if this rally continues. For now, though, the AUD/JPY is just below 76.5 so that would be the best upper S/R level to watch for any new push higher.

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

Bullish targets: Any bullish 4hr chart breakout above 76.50 would bring whole-number levels on the way up to 78 S/R into focus.

Bearish targets: Any bearish 4hr chart break of the support trend line would bring 75 S/R back into focus followed by whole-number levels on the way down to 60 S/R and the longer-term support trend line.

  • Watch 76.50 and the support trend line for any momentum-based breakout;

 

 

 

NZD/USD: The Kiwi closed with a large bullish weekly candle following the print last week of bullish-reversal monthly chart Morning Star style pattern and this move delivered a 250 pip breakout move above the 0.625 level; the level that was in focus at the end of last week:

 

NZD/USD 4hr: a 250 pip b/o move after last week’s bullish-reversal Morning Star style pattern:

 

Price action is now consolidating near 0.65 level so watch this upper resistance zone for any new momentum breakout; especially with the multi-year bear trend line just above.

Bullish targets: Any bullish 4hr chart breakout above 0.65 would bring the 6-year bear TL into focus.

Bearish targets: Any bearish 4hr chart break back below 0.65 would bring a support trend line into focus followed by 0.625 S/R.

  • Watch 0.65 for any new make or break:

 

 

 

GBP/USD:  The GBP/USD closed with a large, bullish weekly candle and above the 1.265 S/R level making this the one to watch for any new make or break.

There are revised weekly and 4hr chart trend lines to watch for any new breakout.

Bullish targets: Any bullish 4hr chart hold above 1.265 would bring 1.28 S/R into focus as this aligns near a new weekly chart trend line.

Bearish targets: Any bearish 4hr chart break back below 1.265 and the support trend line would bring the next support trend line into focus followed by 1.21 S/R.

  • Watch 1.265 for any new make or break:

 

 

 

USD/JPY: The USD/JPY closed with a large bullish weekly candle and this move gave a great triangle trend line breakout trade opportunity last week for up to 200 pips:

 

USD/JPY 4hr: gave almost 200 pips after the triangle b/o:

 

Price action closed the week just below 110 making this the level to watch 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 above 110 would bring whole-numbers on the way to 115 into focus.

Bearish targets: Any bearish retreat from 110 and break of the support trend line would bring 109 followed by 108 S/R into focus as the latter is now near the 4hr chart’s 61.8% Fibonacci.

  • Watch 110 for any new make or break: