Trade Charting

Last week: The markets were clearly forward-looking and not phased by the terrible events that played out at the US Capitol building last week. Neither this, nor the dire situation with US Covid-related deaths passing 4,000 in one day, halted the risk-on moves. The four major US stock indices, the S&P500, NASDAQ, DJIA and Russell-2000, closed the week at new all-time Highs, as did the DAX, the Emerging Markets ETF (EEM) printed a large bullish candle and the VIX closed with a bearish weekly candle. Gold is back below $1,900 and US Treasury yields jumped triggering a breakout on the TNX chart I posted last week. However, one has to wonder if this bullish bias can just keep rolling on? There is not a lot of scheduled news for the coming week but keep an eye on US political news as the US President potentially faces a second petition for impeachment.

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 summary: Articles published during the week can be found here, and here:

Gold: a TL b/o for $50.
GBP/USD: a TL b/o for 50 pips.
GBP/JPY: a TL b/o above 140 for 100 pips and a second one for 120 pips.
USD/JPY: a TL b/o for 85 pips.
AUD/JPY: a TL b/o for 85 pips.

This Week: (click on images to enlarge):

- DXY: US$ Index: The US$ index closed with a bullish-reversal Hammer-style weekly candle as price action continues to consolidate within a bullish-reversal Descending Wedge. Watch for any potential mean-reversion.

DXY weekly: watch for any Descending Wedge mean-reversion activity:

- 10-yr T-Note Interest rate: The chart of the 10-yr Treasury Interest rate shows a new bullish breakout from the triangle congestion pattern. I am reading that this bullish shift was triggered by the Democrat’s win of the US Senate. Watch for any push to the 15 S/R region:

10-yr T-Note Interest rate: a new bullish breakout:

- Schedule for weekend Market Update posts: The Weekly Market update has, to date, been posted on a Sunday, Australian time. I am looking to delay the release of this update to a Monday, Australian time, which is still a Sunday in many other parts of the world. My analysis takes a full day to complete and I am attempting to shift this load away from my weekend time.

- Stocks above their 200 Day Moving Average: The percentage of stocks above their 200 Day Moving Average remains above the 85% region. The first chart below gives a perspective of this current level and shows how there often tends to be some mean-reversion once such lofty levels are reached. Thus, it might be prudent to keep watch for any pause or pullback with US stocks given their recent bullish run. The second, expanded, chart shows that this rally might be picking up again so watch for any push to the previous High region of circa 92.50:

% of US Stocks above the 200 Day Moving Average:

% of US Stocks above the 200 Day Moving Average (expanded): watch for any push to 92.50:

- 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 trades up 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:

- Copper: Copper is often viewed as one metric of economic health and closed with a bullish weekly candle and above the weekly 61.8% Fibonacci so watch for any push to the whole-number 4 level.

Copper weekly: watch for any push to the 4 level:

- Emerging Markets: The Emerging market ETF, EEM, gapped above 52 resistance at market open and then closed with a bullish weekly candle and just under the previous all time High, near 56.

EEM weekly: watch for any push past the 56 level:

- DJIA: The DJIA closed with a bullish weekly candle and at a new all time High so keep watch for any ascending triangle-style activity above this psychological 30,000 level.

DJIA weekly: a new all time High:

- NASDAQ composite: The NASDAQ Composite Index closed with a bullish weekly candle, at a new all-time High and now above the 13,000 level.

NASDAQ weekly: another new all-time High last week and a weekly close above 13,000:

- DAX weekly: The DAX closed with a bullish candle weekly candle and at a new all time High though so monitor for any ascending triangle-style activity.

DAX weekly: a new all time High:

- Commodities: The Commodity ETF, DBC, continues with a bullish breakout from the bullish-reversal Descending Wedge that I had been monitoring for some months. The ADX has now broken above the threshold 20 level AND above the $15 resistance level:

DBC weekly: a descending wedge b/o continues:

- Russell-2000: The Russell-2000 is often viewed as the ‘Canary in the Coal Mine’ for US stocks and the index closed with a large and bullish weekly candle and at a new all time High. Note how the 61.8% Fibonacci extension of the Covid-induced Swing Low is up near 2,200 so this would be the target for this continuation move.

RUT weekly: watch for any push to 2,200:

- Bonds / TLT: The Bond ETF, TLT, closed with a bearish weekly candle and broke below a support trend line BUT the Elliott Wave indicator is still suggesting an uptrend from here:

TLT weekly:

- USD/CAD and USD/CNY: keep an eye on these two weekly chart Descending Wedge patterns for any new trend line breakout:

USD/CAD weekly:

USD/CNY weekly:

- VIX: the Fear index closed with a small, bearish weekly candle having a long upper shadow reflecting the volatility that surrounded last week:

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

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

Earnings: Courtesy of Earnings Whispers:

Market Analysis:

S&P500: The S&P500 closed at a new all time High and with a bullish weekly candle.

Trading volume was higher last week and popped above the recent bear trend line BUT watch for any new volume breakout above the 200 MA.

S&P500 ETF: SPY weekly: Volume was higher last week so watch for any Volume pop back above the 200 MA:

The index closed the week just above 3,800 making this the level to watch for any new make or break and there are revised 4hr chart trend lines to monitor for any new breakout.

Note, on the weekly chart, how the 61.8% Fibonacci extension of the Covid-induced Swing Low is up near 4,150. This would be one target for any bullish continuation move.

Bullish targets: any bullish 4hr chart hold above 3,800 would bring 3,850 into focus.

Bearish targets: any bearish 4hr chart break of the recent support trend line would bring 3,750 and the 10-week support trend line into focus. After that, watch whole-number levels on the way down to 3,500 as this now lies near the 4hr chart’s 61.8% Fibonacci.

Watch 3,800 and for any 4hr chart trend line breakout:

ASX-200: XJO: The ASX-200 closed with a bullish, essentially ‘engulfing’, weekly candle and just above 6,750 making this the level to watch in coming sessions for any new make or break.

As mentioned over recent weeks: The GFC High of 6,851.50 and 2020 High of 6,893.70 loom large and ahead of current price action and will also be resistance levels to negotiate in coming sessions.

Trading volume remains below trend so watch for any new breakout

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

Keep in mind that the recent Golden Cross remains valid. This 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:

XJO daily: the recent Golden Cross remains valid:

There are revised wedge trend lines on the 4hr chart to monitor for any new momentum breakout. Note how ADX momentum is low and declining on the daily chart so watch for any new uptick here.

Bullish targets: Any bullish 4hr chart wedge trend line breakout would bring 6,800 into focus. After this, watch the pre-GFC High of 6,851.50 followed by the 2020 High of 6,893.70.

Bearish targets: Any bearish 4hr chart trend line breakout below 6,700 would bring 6,600 into focus. After that, watch the bottom wedge trend line and whole-numbers on the way down to 6,000. The 6,200 level is still near the daily chart’s 61.8% Fibonacci so that would be in focus as well.

Watch for any 4hr chart wedge trend line breakout:

Gold: Gold closed with a bearish weekly candle and back below the all-important $1,900 level. This bearish retreat, following the bullish yearly candle close above this key level, is being attributed to the fade in US political risk and the rise with US Treasury yields. These are ‘Fundamental‘ reasons for the retreat. However, back in July 2020 I discussed ‘Technical‘ reasons for gravitation around $1,900 and a warning that there could be many months of sideways price action around this key level. Once again, Technical Analysis seems to be on the money here!

As mentioned over recent 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. Keep watch of $1,900 now that price action is back trading below this neckline region!

$1,900 remains 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 move back below $1,900 would support the Inverse H&S pattern thesis.

Traders need to watch this $1,900 level over the coming days / weeks especially as the US$ index is still below the recently broken 10-year support trend line:

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

Price action closed the week just below $1,850 so this will be the level to watch for any new make or break.

The expanded view of the weekly chart below still shows a possible Bull Flag BUT the upper trend line has been relaxed.

Keep in mind that ADX momentum still remains low on the daily and weekly time frame though so keep an eye on this metric for any new uptick to give clues about the next momentum move; either up or down!

Bullish targets: any bullish 4hr chart break above $1,850 would bring $1,900 into focus as this is previous S/R and midway between the 4hr chart’s 50% and 61.8% Fibonacci.

Bearish targets: any bearish 4hr chart hold below $1,850 would bring $1,800 and, then, the recent Low, near $1,770, into focus.

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

EUR/USD: The EUR/USD closed with a bearish-reversal Shooting Star-style weekly candle and has broken down through a 10-week support trend line. Price action closed just above 1.22 making this the support level to watch for any new make or break.

As mentioned over recent weeks: The trend had been UP here for some time with the print of higher Highs and higher Lows BUT this trend of 10 weeks has now been broken. Note the recent break of the SUPPORT trend line on the 4hr chart BUT, also, watch for any potential Bull Flag formation. As I always remind traders, trends do not travel in straight lines unabated; they zig and zag. So some caution is needed here at the moment, especially given the US$ index remains in a bullish-reversal descending wedge on the weekly time frame.

There are revised 4hr chart trend lines to monitor and note the look of a potential Bull Flag.

NB: Note that the longer-term target for any continued bullish movement, following the previous break of the 13-yr trend line, is the monthly chart’s 61.8% Fibonacci, near 1.40. However, a test of the 4hr chart’s 61.8% Fibonacci, near 1.19, would still fit within an overall bullish continuation thesis and move.

Bullish targets: Any bullish 4hr chart Flag breakout would bring 1.23 followed by whole-numbers on the way up to a previous weekly chart High, circa 1.26, into focus. After that, watch for any continued push up 1.40.

Bearish targets: Any bearish 4hr chart Flag breakdown below 1.22 would bring the monthly 200 EMA into focus followed by 1.21, 1.20 and 1.19. The latter 1.19 is still near the 4hr chart’s 61.8% Fibonacci.

Watch for any new Bull Flag breakout:

AUD/USD: The Aussie closed with a bullish-coloured Spinning Top weekly candle reflecting some indecision as price action trades not too far below the 0.80 level; a level that triggers a lot of reaction as the monthly chart below reveals.

As mentioned over recent weeks: The trend remains UP here for the time being though with the print of higher Highs and higher Lows BUT this trend has been in play for 10 weeks now and so a pause or pullback would not be out of order. As I always remind traders, trends do not travel in straight lines unabated; they zig and zag. So some caution is needed here at the moment, especially given the US$ index remains in a bullish-reversal descending wedge on the weekly time frame.

There are revised 4hr chart trend lines to monitor for any new momentum-based breakout as price closed the week just below 0.78 making this the resistance level to watch for any new make or break.

NB: The longer-term target for any bullish continuation from the weekly/monthly chart’s Descending Wedge breakout is the 61.8% Fibonacci, near 0.90.

Bullish targets: Any bullish 4hr chart triangle breakout would bring 0.79 and 0.80 into focus followed by whole-number levels on the way up to the weekly chart’s Descending Wedge breakout target of 0.90.

Bearish targets: Any bearish 4hr chart triangle breakout would bring 0.77 followed by the 10-week support trend line into focus. Any break of this support trend line would then bring whole numbers on the way down to 0.73 into focus as the latter now lies near the 4hr chart’s 61.8% Fibonacci.

Watch for any new 4hr chart triangle breakout;

AUD/JPY: The AUD/JPY closed with a bullish weekly candle and just under 81 S/R making this the resistance level to watch for any new make or break. The 81 level, like 80, is a significant reaction level as the monthly chart below reveals.

The other point of note for AUD/JPY traders is to keep an eye on the sentiment with stocks as the two are generally highly aligned. Any pause or pullback with stocks might render similar for the AUD/JPY.

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

Bullish targets: Any bullish 4hr chart trend line breakout above 81 would bring 82 into focus.

Bearish targets: Any bearish 4hr chart break of the recent support trend line would bring 80 S/R into focus. After that, watch for any break of the 10-week support trend line as this would then bring 79, 78, and, then, the 77 and 7-yr trend line region into focus.

Watch for any new 4hr chart momentum trend line breakout;

NZD/USD: The Kiwi closed with a bullish-coloured Spinning Top-style weekly candle as price action remains above the 10-week support trend line.

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

Bullish targets: Any bullish 4hr chart triangle breakout would bring 0.73 followed by whole-number levels on the way up to 0.75 into focus as this is the next major horizontal S/R zone.

Bearish targets: Any bearish 4hr chart triangle breakout below 0.72 would bring 0.71 and 0.70 back into focus followed by 0.69 as this is near the 4hr chart’s 61.8% Fibonacci.

Watch 0.72 and for any new 4hr chart triangle breakout:

GBP/USD: The Cable closed with a bearish-coloured, almost Inside, weekly candle after price action rejected the 1.37 level and, then, chopped sideways under 1.365.

There are revised 4hr chart Flag-style trend lines to monitor as well for any new momentum breakout. Note the hold above the recently broken 14-yr trend line.

NB: The longer-term target for any bullish continuation above the 14-yr trend line is the monthly chart’s 61.8% Fibonacci, near 1.75. However, a test of this major breakout region would not surprise and note how this multi-year trend line lies near the 4hr chart’s 61.8% Fibonacci; for some added confluence!

Bullish targets: Any bullish 4hr chart Flag breakout above 1.365 would bring 1.37 into focus followed by whole-number levels on the way up to 1.50, a previous S/R region on the weekly chart. Any bullish continuation after that would bring whole-number levels on the way up to 1.75 into focus.

Bearish targets: Any bearish 4hr chart Flag breakout would bring 1.35 into focus followed by the previously broken 14-year bear trend line as this lies near the 4hr chart’s 61.8% Fibonacci.

Watch for any 4hr chart Flag breakout:

USD/JPY: The USD/JPY closed with a bullish, almost ‘Engulfing’, weekly candle and near 104 S/R making this the level to watch in coming sessions for any new make or break.

There is still the the look of a bullish-reversal Descending Wedge on the weekly chart.

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

Bullish targets: Any bullish 4hr chart triangle breakout would, effectively, trigger the weekly chart’s Bull Flag breakout and then bring 105 into focus.

Bearish targets: Any bearish 4hr chart triangle breakout would bring 103 back into focus.

Watch for any new 4hr chart trend line breakout:

GBP/JPY: The GBP/JPY closed with a bearish-coloured Doji weekly candle but its location, at the top of a recent uptrend, is also giving this candle a bit of a bearish-reversal Hanging Man appearance.

Price action is holding above the recently broken 40-yr trend line and 140 S/R level for now though BUT watch these regions for any potential support. Also, there are revised 4hr chart trend lines to monitor for any new momentum-based breakout.

NB: The longer-term target for any bullish continuation above the 40-yr trend line is the weekly chart’s 61.8% Fibonacci, near 170.

Bullish targets: Any bullish 4hr chart break above 141 would bring 141.50 into focus followed by whole-number levels on the way up to the weekly chart’s 61.8% Fibonacci, near 170.

Bearish targets: Any bearish 4hr chart hold below 141 would bring a recent support trend line followed by 140 into focus. After that, watch the 139 level as this is now near the recently broken 40-yr trend line and 4hr chart 61.8% Fibonacci.

Watch 141 and the 4hr chart’s trend lines for any new breakout.

US Capitol + Covid: the main themes