1

US$ in focus

February 7, 2021

Last week: The meme-stock inspired risk-off shift with stocks was rather short lived as the S&P500, NASDAQ, Russel-2000 and DJIA all closed last week with bullish candles and at new all time Highs. The VIX close with a large, bearish weekly candle BUT the recent candle pattern on the ‘fear index’ does suggest some caution is required. So, for the time being, the stock rally continues with all of four the US major stock indices holding above 11-month trend lines from the March 2020 Covid-inspired Lows. However, at some point there will be a correction as trends do not travel in straight lines forever so traders should exercise appropriate risk management for the market conditions. The US$ index is attempting a bullish wedge breakout but Friday’s NFP report undermined this flow somewhat. Traders should watch to see how US$ sentiment evolves next week as this has the potential to impact metals / commodities and many Forex pairs.

 

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: There were some great trend line breakouts from chart patterns posted in last week’s analysis. Articles published during the week can be found here, here, here and here:

 

  • S&P500: a Bull Flag TL b/o for 150 points:

 

  • ASX-200: a bounce up from last week’s profiled 6,550 TL b/o for 200 points.
  • Gold: a TL b/o for $45.
  • USD/JPY: a TL b/o above last week’s profiled 105 level for 50 pips BUT the weekly chart wedge b/o has now given around 150 pips:

 

 

This Week: (click on images to enlarge):

    • DXY: US$ Index: The US$ index closed with a bullish weekly candle and has made a weekly breakout from the bearish-reversal descending wedge. The US$ closed higher for the first four days of the week but pulled back on Friday after the weaker than expected NFP jobs report. Price action remains mired in the daily Ichimoku Cloud so watch for any breakout from this resistance zone:

 

DXY weekly: watch for any continued Descending Wedge b/o:

 

DXY daily: note the pullback on Friday after NFP. Price is still bogged down in the daily Cloud:

 

 

    • 10-yr T-Note Interest rate: The chart of the 10-yr Treasury Interest rate shows the recent bullish breakout from the triangle congestion pattern is continuing. Watch for any push to the 15 S/R region:

 

10-yr T-Note Interest rate:  the bullish breakout continues:

 

 

    • % Stocks above their 200 Day Moving Average Index: 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 the previous peaks near 92.50 and how there often tends to be some mean-reversion once such lofty levels are reached. The second, expanded, chart shows that the current push to 92.50 might still be in progress though.

 

% of US Stocks above the 200 Day Moving Average: watch for any reaction at the 92.50 region:

 

% of US Stocks above the 200 Day Moving Average (expanded): still pushing towards 92.50?

 

    • S&P500: 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:

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 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 back above the weekly 61.8% Fibonacci.

 

Copper weekly: back above the weekly 61.8% Fib:

 

 

    • Emerging Markets: The Emerging market ETF, EEM, closed with a bullish-coloured Inside weekly candle, reflecting indecision, but back up at the previous all time High, near 56.

EEM weekly: watch 56 and the support trend line:

 

    • DJIA: The DJIA closed with a bullish weekly candle, back above the 31,000 level and at a new all time High. Watch the 11-month support trend line:

 

DJIA weekly: now back above 31,000:

 

 

 

    • NASDAQ composite: The NASDAQ Composite Index closed with a bullish weekly candle and at a new all time High.

 

NASDAQ weekly: a new all time High:

 

 

    • DAX weekly: The DAX closed with a bullish, almost ‘Engulfing‘, weekly candle and back above the 13,850 level.

 

DAX weekly: back above 13,850:

 

 

    • Commodities: The Commodity ETF, DBC, continues with a bullish breakout from the bullish-reversal Descending Wedge that I had been monitoring for some months and closed with a small, bullish weekly candle. The ADX has broken above the threshold 20 level AND price action is still above the $15 resistance-turned-support level. The stronger US$ seems to be having more impact on metals than other commodities for the time being:

 

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 bullish Engulfing weekly candle and above the 61.8% Fibonacci extension of the Covid-induced Swing Low. Watch now for any push to the 100% Fibonacci level, near 2,500.

 

RUT weekly: watch for any push to the 100% Fibonacci extension:

 

 

 

    • Bonds / TLT: The Bond ETF, TLT, closed with a bearish weekly candle and still below the recently broken support trend line. The Elliott Wave indicator is still suggesting an uptrend from here though:

 

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 large bearish weekly candle and back below the 30 threshold. Volatility may be back down near a relatively Low level BUT the recent print of some large candles and long shadows reflects that caution is needed:

 

VIX weekly: Watch 30 for any new make or break:

 

 

Calendar: Courtesy of Forex Factory: a relatively quiet week:

 

 

Earnings: Courtesy of Earnings Whispers: another busy week for Earnings:

 

 

Market Analysis:

 

S&P500: The S&P500 closed with a large, bullish weekly candle and and at a new all time High. I’d mentioned last week that traders need to keep an open mind due to the look of a 4hr chart Bull Flag and that proved to be sage advice indeed; the index broke up and out from this Flag for a gain of around 150 points!

The 11-month support trend line, from the March 2020 Lows, was tested last week but remains intact for the time being.

Trading volume was lower last week and back below the trend line and the 200 MA but keep watch for any new breakout.

 

S&P500 ETF: SPY weekly: Volume back below the TL & 200 MA:

 

The Index closed the week just below 3,900 making this the level to watch for any new make or break.

NB: The second weekly chart shows 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 breakout above 3,900 would bring 4,000, 4,100 and 4,150 into focus.

Bearish targets: any bearish 4hr chart break of the support trend line would bring 3,850, 3,800 and 3,750 into focus as the latter is near the 4hr chart’s 61.8% Fibonacci. After that, watch the 11-month support trend line and any longer-term sell-off would bring the weekly chart’s 61.8% Fibonacci retracement level, down near 2,800, into focus.

  • Watch 3,900 and for any 4hr chart trend line breakout:

 

 

 

 

 

ASX-200: XJO: Last week’s suggestion to watch 6,550 for any support proved to be valuable indeed as price rallied around 300 points from that level. The ASX-200 ended up closing with a bullish, almost Engulfing, weekly candle despite following on from last week’s bearish Engulfing candle. This tussle is happening just under the pre-GFC High level of 6,851.50, easily seen on the daily chart below, 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, pre-2020 High of 6,893.7 and 2020 High of 7,197.2 loom large and ahead of current price action and are the resistance levels ahead for the index.

Trading volume was a bit higher last week BUT keep watch for any new breakout:

 

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

 

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

 

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.  Note how ADX momentum remains low on the daily chart AND is back to edging lower but watch for any new breakout over 20.

Bullish targets: Any bullish 4hr chart breakout above 6,851.50 would bring the pre-2020 High of 6,893.70 into focus followed by 7,000 and the 2020 High of 7,197.2.

Bearish targets: Any bearish 4hr chart break of trend line support would bring 6,800 into focus followed by whole-number levels on the way down to 6,500.

  • Watch 6,851.50 and 4hr chart trend line support for any new breakout:

 

 

Gold:  Gold closed with another bearish-coloured Spinning Top weekly candle reflecting indecision and still below the all-important $1,900 level. The stronger US$ and flows into stocks helped to put pressure on the precious metal last week.

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 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.

 

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

Keep in mind that ADX momentum still remains low and declining on the 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!

NB: The expanded view of the weekly chart below still shows a possible Bull Flag and this augers well with the Inverse Cup’n’Handle / Cup pattern.

Bullish targets: any bullish 4hr chart trend line breakout would bring $1,850 and $1,900 into focus as the latter is still near the 4hr chart’s 61.8% Fibonacci.

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

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

 

 

EUR/USD: The EUR/USD closed with a bearish weekly candle but, again, having a bit of a long lower shadow. This shadow partly reflects the recovery that evolved after Friday’s NFP-inspired US$ weakness.

There are revised 4hr chart channel trend lines to monitor but 1.20 seems to be acting as some decent support as well and is worth monitoring.

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 channel breakout would bring 1.21, 1.22 and 1.23 into focus. After that, watch whole-numbers on the way up to a previous weekly chart High, circa 1.26 and, then, for any continued push up to 1.40.

Bearish targets: Any bearish 4hr chart channel breakdown would bring 1.19 into focus as this is still near the 4hr chart’s 61.8% Fibonacci.

  • Watch 1.20 and for any momentum-based channel breakout:

 

 

AUD/USD: The Aussie closed with a small, bullish weekly candle having a long lower shadow reflecting the buying recovery that took place after Friday’s US$ weakness.

The 4hr chart is still showing sideways consolidation and this is keeping the Bull Flag scenario open for the time being.

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

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

Bullish targets: Any bullish 4hr chart Flag breakout would bring 0.78, 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 Flag breakout would bring 0.76 into focus followed by whole numbers on the way down to 0.73 as the latter still lies near the 4hr chart’s 61.8% Fibonacci.

  • Watch for any new 4hr chart Flag breakout;

 

 

AUD/JPY:  The AUD/JPY closed with a good sized bullish weekly candle casting aside the previous two weeks of indecision.

I’d mentioned last week to watch for any potential 4hr chart Bull Flag and that looks like it could be evolving. The 81 level is just above now and will be the level to watch in coming sessions for any new make or break.

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 deeper pullback, with stocks might render similar for the AUD/JPY:

 

AUD/JPY versus S&P500 (gold line): a higher degree of positive correlation:

 

 

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

Bullish targets: Any bullish 4hr chart breakout above 81 would bring whole numbers on the way up to 85 S/R into focus.

Bearish targets: Any bearish 4hr chart support trend line breakdown would bring 80 S/R back into focus followed by whole-numbers on the way down to 76 as the latter now lies near the 7-yr trend line and 4hr chart 61.8% Fibonacci.

  • Watch 81 S/R and for any new 4hr chart momentum-based trend line breakout;

 

 

NZD/USD: The Kiwi closed with a bullish-coloured Spinning Top weekly candle reflecting indecision.

The 4hr chart is still showing sideways consolidation and this is keeping the Bull Flag scenario open for the time being.

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

Bullish targets: Any bullish 4hr chart Flag breakout would bring 0.73 into focus. After that, watch 0.74 and 0.75 as the latter is the next major horizontal S/R zone (see weekly chart).

Bearish targets: Any bearish 4hr chart Flag breakout would bring 0.71, 0.70 and 0.69 into focus with the latter still being near the 4hr chart’s 61.8% Fibonacci.

  • Watch for any new 4hr chart Flag breakout:

 

 

GBP/USD: The Cable closed with a small, bullish weekly candle having a long lower shadow reflecting the buying recovery that took place after Thursday’s BoE update and Friday’s US$ weakness.

The weekly close was just above the 1.37 level keeping this the level to watch in coming sessions for any new make or break.

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

NB: The longer-term target for any bullish continuation above the previously broken 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.

Bullish targets: Any bullish 4hr chart hold above 1.37 would bring 1.38 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 break of the support trend line and back below 1.37 would bring 1.365 S/R and, after that, the 7-month support trend line and 1.35 into focus.

  • Watch 1.37 and for any 4hr chart trend line breakout:

 

 

USD/JPY:  The USD/JPY closed with another good-sized bullish weekly candle following last week’s descending wedge breakout.

Price action closed near the monthly 200 EMA making this the level to watch in coming sessions for any new make or break.

Bullish targets: Any bullish 4hr chart hold above the monthly 200 EMA would bring 106 into focus.

Bearish targets: Any bearish 4hr chart break below the support trend line and monthly 200 EMA would bring 105 and 104 back into focus.

  • Watch the monthly 200 EMA for any new make or break.

 

 

GBP/JPY: It has been onward and upwards for the GBP/JPY since it broke above the 40-yr bear trend line some 6 weeks ago. The GBP/JPY closed with a bullish weekly candle following last week’s very bullish close above the weekly 200 EMA.

The weekly candle closed below 145 making this the new resistance to monitor in coming sessions.

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

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

Bullish targets: Any bullish 4hr chart breakout above 145 would bring whole-number levels into focus on the way up to the weekly chart’s 61.8% Fibonacci, near 170.

Bearish targets: Any bearish 4hr chart hold below 145 would bring a recent support trend line into focus followed by 144 and, then, whole-number levels on the way down to 140 as the latter is near the 4hr chart’s 61.8% Fibonacci.

  • Watch 145 for any new make or break.