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US stock indices navigate new highs

October 24, 2021

Last week: The S&P500 and DJIA are back navigating all-time Highs as Earnings season continues and the US$ remains weak. There were some mixed earnings reports, with weaker guidance on SNAP triggering a 26% pullback in the share price and INTC noting its struggle with supply chain issues, but all four of the major US stock indices managed to close higher and the DJIA and S&P500 carved out new weekly highs. The Bull Flag-style breakouts on the DJIA, S&P500 and NASDAQ will be in greater focus this week though as traders monitor to see if price continues to break-through to newer highs or rolls over in bearish Double Top fashion. It is a huge week for US Earnings, with big names such as Facebook, Amazon, Apple, Alphabet, Twitter, McDonalds, Robinhood and eBay reporting, so watch for any continued impact on market sentiment.

 

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: US$ weakness and upbeat US Earnings helped to trigger a few trend line breakouts last week. Articles released during the week can be found here, here, here and here.

 

  • EUR/USD: a TL b/o for 50 pips.
  • SPX500: a TL b/o for 75 points.
  • AUD/USD: a TL b/o for 120 pips.
  • AUD/JPY: a TL b/o for 110 pips.
  • NZD/USD: a TL b/o for 100 pips.
  • GBP/JPY: a TL b/o for 120 pips.

 

This Week: (click on images to enlarge):

 

    • DXY: US$ Index: The DXY closed with a bearish weekly candle despite the higher close with the US 10 year Treasury yield. I continue to see this price action as more driven by technical than fundamental issues as the index struggles under the 95 resistance region. There is still the look of a bullish-reversal Double Bottom or W Bottom on the weekly chart with 95 being the neck line AND this also aligns with resistance from the top of the weekly Cloud so monitor this region for any new make or break.

 

DXY weekly: watch for any ongoing resistance from the top of 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.

 

      • 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:

 

 

    • Central Bank Updates: there are three central bank updates this week: BoC (CAD), BoJ (JPY) and ECB (EUR).

 

    • Currency Strength Indicator: The last couple of weeks were shaped by Yen weakness but note how the currency strength chart reflects that there is some mean-reversion underway. This convergence may continue to start the week given there are three central bank updates on the calendar (click on chart to enlarge view):

 

Currency Strength 4hr chart: note the reversion to the mean:

 

 

    • 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:

 

 

    • % Stocks above their 200 Day Moving Average Index: The Percentage of stocks above their 200 Day Moving Average continues to trade below the all-time High 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 the continued struggle under the 92.50% level. It remains interesting to see the decent pullback here now despite the fact that the S&P500 is still trading up at an all-time High.

 

% of US Stocks above the 200 Day Moving Average: has pulled well back from the 92.50% region:

 

% of US Stocks above the 200 Day Moving Average (expanded): holding below 92.50%:

 

 

    • DJIA: The DJIA closed with a bullish weekly candle and at a new all-time High following a recent Bull Flag breakout so watch for any further upside move. As with the other Bull Flags in play, this all-time high region, just under the whole-number 36,000, will come into focus here as traders monitor whether price action breaks through and continues upwards, or, whether it is rejected at this resistance and rolls over in bearish Double Top fashion.

 

DJIA weekly: now watch the 36,000 resistance level following this new Flag b/o:

 

 

    • NASDAQ composite: The NASDAQ Composite Index closed with a bullish weekly candle AND back above the key 15,000 level. Momentum is still low on the weekly time frame but watch for any push higher after the recent Bull Flag breakout. As with the other Bull Flags in play, the previous all-time high region will come into focus here as traders monitor whether price action breaks through and continues upwards, or, whether it is rejected at this resistance and rolls over in bearish Double Top fashion.

 

NASDAQ weekly: keep an eye on ADX momentum here:

 

 

    • DAX weekly: The DAX closed with a bearish-coloured Spinning Top weekly candle following a Bull Flag-style breakout but watch for any further upside move. As with the other Bull Flags in play, the previous all-time high region will come into focus here as traders monitor whether price action breaks through and continues upwards, or, whether it is rejected at this resistance and rolls over in bearish Double Top fashion.

 

DAX weekly: watch for any 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 bullish weekly candle. The index continues to chop sideways within a trading channel so watch for any new breakout: up or down.

 

RUT weekly: watch the channel for any new b/o:

 

 

    • Copper: Copper is often viewed as one metric of economic health and closed with a bearish-coloured, almost Inside, weekly candle following the recent Bull Flag breakout and last week’s large bullish candle. The previous all-time high region will come into focus here as traders monitor whether price action breaks through and continues upwards, or, whether it is rejected at this resistance and rolls over in bearish Double Top fashion.

 

Copper weekly: watch for any Double Top:

 

 

    • 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 weekly candle and is holding above the key 15 level following the recent triangle breakout.

 

    • 10-yr T-Note Interest rate (weekly): Watch for any continued push higher after the TL b/o:

 

 

    • Bonds / TLT: The Bond ETF, TLT, closed with a bearish coloured, essentially, Inside and Spinning Top-style weekly candle with both reflecting indecision.  

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: Earnings season continues with lots of big names reporting:

 

 

Market Analysis:

S&P500: The S&P500 closed with a bullish weekly candle and at an all-time high after a recent Bull Flag breakout. The 4,600 whole-number, just above current price, will be the one in focus this week for any new make or break as this is near the 200% Fibonacci retracement of the Covid swing Low (see the second weekly chart). Any failure at this resistance zone would help to shape a potentially bearish-reversal Double Top.

Trading volume was lower again last week so watch for any move back above the 200 MA and for any bear TL b/o as price edges back to the all-time high region:

 

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

 

Keep in mind that a Golden Cross remains valid for the time being and the index is holding back 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 recent Golden Cross remains valid:

 

There are revised 4hr chart trend lines to monitor.

Bullish targets: any bullish breakout above 4,600 would bring 4,700 into focus. Then watch whole numbers on the way up to the 5,000 level.

Bearish targets: any bearish hold below 4,600 would bring 4,450 into focus. After that, watch the 4hr chart’s 61.8% Fibonacci, near 4,400, followed by whole-numbers on the way down to the weekly chart’s 61.8% Fibonacci retracement level, near 3,100.

  • Watch 4,600 for any new make or break; especially with the huge cast of big-name companies reporting earnings:

 

 

 

ASX-200: XJO: The XJO closed with a bullish weekly candle and continues to hold near 7,400 and well above the important inflection region of 7,200.

The latest hold above 7,400 is helping to shape up a potential weekly chart Bull Flag breakout so keep an eye on this level for any new make or break.

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 the 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.

  • The other metric to keep in mind here over the coming weeks and months is that of iron ore; Australia’s single largest export commodity. Price action has been under pressure for the last few months but is currently poised just above the 61.8% Fibonacci of the 2016 – 2021 swing High move. Any recovery from this level may help to underpin the ASX-200:

 

Iron ore monthly: holding above the 61.8% Fibonacci for the time being:

 

Trading volume on the XJO was a bit higher last week but still holding below the 200 MA YET note the move above the recent bear trend line:

 

XJO weekly: trading volume still below the 200 MA BUT above the recent TL:

 

Keep in mind that the recent Golden Cross remains valid here as well AND the index is now trading back 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 hold above 7,400 would develop the breakout of the daily/weekly chart’s Bull Flag and would bring 7,500 into focus followed by 7,600 and the previous all-time High region of 7,632.8.

Bearish targets: Any retreat from 7,400 would bring 7,300, 7,200 and the previous 2020 High of 7,197.20 into focus. After that, watch 7,100 followed by the daily chart’s Bull Flag support trend line, 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 7,400 and for any continued 4hr chart trend line breakout.

 

 

 

Gold: Gold closed with a bullish weekly candle after breaking but failing to hold above the $1,800 region.

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 BUT the $1,800 level seems to be the one to watch. Momentum remains low on the daily chart but 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 recovery above $1,800 would bring $1,850 and $1,900 into focus.

Bearish targets: any bearish hold below $1,800 and the daily 200 EMA would bring $1,170 and $1,750 into focus followed by $1,700 and the $1,670 support level.

  • Watch $1,800 and for any new 4hr chart trend line breakout:

 

 

 

EUR/USD: The EUR/USD closed with a bullish-coloured Spinning Top weekly candle reflecting indecision as it continues to hold near the key 1.16 level ahead of this week’s ECB rate update. Price action closed just above the weekly 200 EMA making this the level to watch for any new make or break.

The 1.16 is a 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 shown on the second weekly chart.

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 300 pips until that 1.13 region might be reached.
  • EUR/USD traders also need to keep in mind that the US$ index is approaching a potential resistance zone, at 95 S/R, 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 hold above the weekly 200 EMA would bring 1.17 S/R and the daily/weekly chart’s Bull Flag upper trend line into focus. After that, watch 1.18, the recently broken 18-month support trend line and the daily 200 EMA followed by whole-numbers on the way up to the 14-yr bear trend line.

Bearish targets: Any bearish 4hr chart trend line breakout would bring 1.16 S/R, 1.15 and the daily chart’s Bull Flag lower trend line into focus. After that, watch other whole numbers on the way down to the daily chart’s 61.8% Fibonacci, near 1.13.

  • Watch the weekly 200 EMA and for any new 4hr chart trend line breakout; especially with this week’s ECB rate update.

 

 

AUD/USD: The Aussie closed with a bullish-coloured Spinning Top weekly candle after stalling at the 0.75 level making this the one to watch for any new make or break.

There are revised 4hr chart trend lines to monitor for any new breakout and note the look of a 4hr chart Bull Flag showing some consolidation following this 4-week bullish run that has added on over 350 pips.

Bullish targets: Any bullish 4hr chart Flag breakout, above 0.75, would bring 0.76 into focus. After that, watch whole numbers on the way up to the 11-yr bear trend line and 0.80 S/R.

Bearish targets: Any bearish 4hr chart Flag breakout, and break of a recent support trend line, would bring 0.74 into focus. After that, watch the 18-month support trend line, the weekly 200 EMA and 0.73 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 0.75 and for any 4hr chart trend line breakout.

 

 

AUD/JPY: The AUD/JPY closed with a bearish-reversal Shooting Star-style candle and just under the key 85 level. This may seem rather bearish but it pays to remember that this pair has added on over 550 pips in the last three weeks so a pause at this key resistance level should be of no surprise. Another thing worth noting is that the AUD/JPY tested the 86 level during last week and this level has not been reached in over 3 1/2 years; since February 2018, and so is some mighty achievement worthy of a pause and reflection!

Price action ended up just below 85 making this the level 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.
  • They S&P500 and AUD/JPY seem to be edging higher now showing some new convergence after the recent bout of divergence!

 

AUD/JPY versus S&P500 (gold line): a high degree of positive correlation AND note the recent convergence!

 

There are revised 4hr chart trend lines to monitor for any new breakout AND note the look of a Bull Flag here so watch the Flag trend lines for any new breakout.

Bullish targets: Any bullish 4hr chart Flag breakout, above 85, would bring 86 S/R into focus as there hasn’t been a weekly chart close above this level since Feb 2018, a period of over 3 1/2 yrs!  After that, watch whole-number levels up to 90 and the 9-yr bear trend line.

Bearish targets: Any hold below 85, and bearish Flag break, would bring 84 and a recent support trend line into focus. After that, watch 83 and 82 as the latter lies near the 4hr chart’s 61.8% Fibonacci, the daily 200 EMA and monthly 200 EMA. Beyond that, watch 81, the 18-month support TL, 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 85 and for any new 4hr chart Flag trend line breakout;

 

 

 

NZD/USD: The Kiwi closed with a bullish weekly candle and just under 0.72 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 and note the look of a Bull Flag here so watch the Flag trend lines for any new breakout.

Bullish targets: Any 4hr chart Bull Flag breakout would bring 0.72 into focus. After that, watch 0.73, the 8-yr bear trend line and 0.75.

Bearish targets: Any bearish 4hr chart trend line breakout would bring 0.71 into focus. After that, watch the 0.70 level as this lies near the 4hr chart’s Fibonacci and daily 200 EMA. This would be followed by the 18-month support trend line and 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 0.72 and for any Bull Flag breakout:

 

 

 

GBP/USD: The Cable closed with a bullish-coloured Doji weekly candle and back under 1.38 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.

Bullish targets: Any bullish 4hr chart trend line breakout above 1.38 would bring 1.39 and the 18-month support TL into focus. After that, watch 1.40 and the 15-yr bear trend line.

Bearish targets: Any bearish 4hr chart trend line breakout would bring the daily 200 EMA and 1.36 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 1.36 and the 4hr chart trend lines for any new breakout:

 

 

 

USD/JPY:  The USD/JPY closed with a bearish-coloured, almost Inside, and Shooting Star-style weekly candle after pausing under the 115 level. This needs to be seen in the context that this pair has added on over 550 pips during the last five weeks and so it is not too surprising that the rally has paused. Price action ended again just near 114 making this the level to watch for any new make or break.

Bullish targets: Any bullish 4hr chart trend line breakout, above 114, would bring 115 into focus. After that, watch whole-number levels on the way to 120 S/R.

Bearish targets: Any bearish 4hr chart trend line breakout would bring 112.30 S/R into focus. After that, watch 112 followed by whole numbers down to 106 as the latter is near the weekly chart’s 61.8% Fibonacci.

  • Watch 114 and for any new 4hr chart trend line breakout:

 

 

 

GBP/JPY: The GBP/JPY closed with a bearish-coloured, almost Inside, and Shooting Star-style weekly candle under the 158 region. As with the AUD/JPY, this may seem rather bearish but it pays to remember that this pair has added on almost 900 pips in the last three weeks so a pause at this key resistance level should be of no surprise. Price action ended up near 156 making this the level 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 3rd, 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 BUT note the look of a Bull Flag here so watch the Flag trend lines for any new breakout.

Bullish targets: Any bullish hold above 156 and Flag breakout would bring 157 and 158 into focus. After that, watch 160 and whole-number levels on the way up to the weekly chart’s 61.8% Fibonacci, near 170.

Bearish targets: Any bearish move back below 156 would bring 153 into focus as this lies near the 18-month support trend line, the 4hr chart’s 61.8% Fibonacci and the recently broken 6-month trend line. After that, watch other 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 156 and the 4hr chart Flag trend lines for any new make or break: