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US Stocks new highs but amid some indecision

June 27, 2021

Last week:  I had warned last week to watch the descending wedges setting up across many Forex pairs for potential mean-reversion activity. This proved to be sage advice as many of these wedges triggered and delivered significant gains: the AUD/JPY for 160 pips, the GBP/USD for 190 pips, the Kiwi for 110 pips and the GBP/JPY, after a bit of a stutter at the start, gave 280 pips. Despite these text-book style breakout moves and new Highs for the S&P500 and NASDAQ, there were numerous indecision-style candles printed last week. The US$ index remains pegged under resistance but watch to see if this week’s US NFP jobs report can get the index moving one way or another and shake out the indecisive movement seen on many trading instruments. 

 

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: Updates posted throughout last week can be found through the links here, here, here and here:

 

  • GBP/USD: a TL b/o trade for 190 pips.
  • AUD/USD: a TL b/o trade for 90 pips.
  • AUD/JPY: a TL b/o trade for 160 pips:
  • NZD/USD: a TL b/o trade for 110 pips.
  • GBP/JPY: a TL b/o trade for 280 pips.
  • ASX-200: a TL b/o for 60 points.
  • S&P500: a TL b/o for 120 points.

 

 

This Week: (click on images to enlarge):

 

    • DXY: US$ Index: The US$ index closed with a bearish-coloured, Inside, weekly candle, reflecting indecision. The weekly trend lines have been revised due to the lack of overall momentum so watch for any new trend line breakout. Resistance remains ahead from the weekly Cloud so watch this region for any new make or break. The US NFP jobs report is released this week so watch to see if this can trigger some breakout movement here.

 

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

 

 

    • Inside weekly candles: indecision style Inside candles were printed on the weekly charts of: DXY, Copper, TLT, Gold, EUR/USD, AUD/USD, NZD/USD, GBP/USD,  and GBP/JPY.

 

    • Central Bank Update: there are no Central Bank updates next week.

 

    • USD/CAD: I have been monitoring this descending wedge for some months and it recently made a decisive breakout. It is not uncommon to see major trend lines tested after a breakout and so I will be looking to see if this is what is happening here, or, if it just another failed breakout. FWIW: I find the Fibonacci retracement  to be a helpful tool to identify targets for breakout moves and, for the swing low move on the USD/CAD, this would bring 1.36 into focus.

 

USD/CAD weekly: watch for any push to 1.36:

 

 

 

    • % Stocks above their 200 Day Moving Average Index: The Percentage of stocks above their 200 Day Moving Average is still below 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 the continued struggle under the 92.50% level.

 

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

 

% of US Stocks above the 200 Day Moving Average (expanded): holding below 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. Note how the recent Covid dip does not even figure on this chart!

 

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 small, bullish, almost Inside, weekly candle reflecting indecision as price holds below the S/R region of 4.65. Watch for any pullback to the 61.8% Fibonacci region, near 3 S/R.

 

Copper weekly: Watch for any pullback to the 61.8% Fibonacci region, near 3 S/R.

 

 

 

    • Emerging Markets: The Emerging market ETF, EEM, closed with a bullish, almost ‘engulfing’, weekly candle but ADX momentum remains low.

 

EEM weekly: watch for any Flag breakout:

 

 

    • DJIA: The DJIA closed with a bullish weekly candle almost matching in size to last week’s bearish one. The index is back up testing the recently broken 16-month support trend line so this will the level to watch for any new make or break. It is not uncommon to see broken trend lines tested, especially ones of such weighty impact as multi-month trend lines, so the next directional move from this level will be important. Traders should watch for any potential Bull Flag but, if bearish momentum resumes, watch for any pullback to the weekly 61.8% Fibonacci, near 25,000.

 

DJIA weekly: watch for any potential Bull Flag:

 

 

 

    • NASDAQ composite: The NASDAQ Composite Index closed with a large, bullish weekly candle. Whilst there does look to have been a Bull Flag style breakout, momentum remains low but watch for any continuation.  

 

NASDAQ weekly: watch for any momentum to support this new Flag breakout:

 

 

    • DAX weekly: The DAX closed with a bullish weekly candle and remains above the 16-month support trend line.

 

DAX weekly: the trend remains ‘up’:

 

 

    • 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, bullish weekly candle, almost matching in size to last week’s bearish one. Caution is still needed here though as the ADX remains below 20 and is trending lower but watch for any new momentum breakout.

 

RUT weekly: watch the 16-month support trend line:

 

 

    • 10-yr T-Note Interest rate / TNX: This has closed with a bullish weekly candle and has recovered back above the Resistance turned Support region of 15. Note the revised trend lines and low momentum so watch for any new breakout.

 

  • 10-yr T-Note Interest rate: watch 15 for any new make or break: 

 

 

    • Bonds / TLT: The Bond ETF, TLT, closed with a bearish, almost Inside, weekly candle reflecting indecision. Note the revised trend lines here.

 

TLT weekly: consolidating, on declining momentum, above the 61.8% Fibonacci:

 

 

    • BTC/USD: I continue to view this latest pullback as a well-due technical correction following the recent rally. I have previously mentioned that the 61.8% Fibonacci, near $30,000, is the line-in-the-sand level to monitor and this remains the case. IMHO: any hold above the 61.8% Fibonacci level would simply further legitimise BTC/USD and any of the other cryptos in the stable that might similarly hold above this support region.

 

BTC/USD: the whole-number $30,000 remains the level to watch:

 

 

    • VIX: the Fear index closed with a large, bearish engulfing weekly candle and back below the 20 level.

 

VIX weekly: watch for any push back to 20 S/R:

 

Calendar: Courtesy of Forex Factory:

 

 

Earnings: Courtesy of Earnings Whispers:

 

 

Market Analysis:

 

S&P500: The S&P500 closed with a bullish weekly candle, at a new all-time High and it also recovered above the recently broken 16-month trend line.

Trading volume was lower last week and remains below the 200 MA and bear trend line.

 

S&P500 ETF: SPY weekly: volume down a bit and remains below trend:

:

The index closed just below 4,300 so this will be the level to monitor for any new make or break.

Bullish targets: any bullish break above 4,300 would bring 4,400 into focus.

Bearish targets: any bearish hold below 4,300 and break of a recent support trend line would bring the 16-month support trend line and 4,250 into focus.  After that, watch whole-numbers on the way down to the weekly chart’s 61.8% Fibonacci retracement level, near 3,000.

  • Watch 4,300 for any new make or break.

 

 

 

ASX-200: XJO: The index closed with a bearish-reversal Hanging Man weekly candle under the recent the all-time High and 7,400 whole-number level. However, the index remains in an uptrend and is holding above the 16-month support trend line so this remains the support region to monitor. The expansion of the Sydney lock down, announced over the weekend, may sour risk sentiment to start the week.

As mentioned over recent weeks:

  • It has taken a long time for the XJO to break and hold above the pre-GFC High region and, in this regard, it has lagged well behind most other global stock indices. However, any new hold above this 7,200 region to see out the month could well mark the beginning of a new trading range for the index and put it in catch-up mode with its peers.
  • S&P upgraded the Australian outlook from ‘Negative’ to ‘Stable’ so watch for any impact this may have on market sentiment for the XJO.

Trading volume was little changed last week and I have revised the bear trend line so watch for any new trend line and 200 MA breakout.

 

XJO weekly: keep watch for any new b/o back above the TL and 200 MA:

 

 

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 triangle trend lines to monitor for any new breakout.

Bullish targets: Any bullish 4hr chart trend line breakout would bring 7,400 back into focus.

Bearish targets: Any bearish 4hr chart trend line breakout would bring the 16-month support TL into focus. After that, 7,200, the previous 2020 High of 7,197.20, the pre-2020 High of 6,893.70, the pre-GFC High of 6,851.50 followed by 6,800 and 6,700. The weekly chart’s 61.8% Fibonacci is down near 5,600 so that would be the next support to monitor.

  • Watch for any 4hr chart trend line breakout:

 

 

 

Gold: Gold closed with a small and bullish-coloured, Inside, weekly candle, reflecting indecision as price action continues to hover above the daily chart’s 61.8% Fibonacci retracement level, circa $1,770. The 4hr chart shows that price action chopped sideways along this support zone for most of last week.

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.

Traders need to watch this $1,900 level over the coming sessions especially as the US$ 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.

The daily chart reveals the importance of the $1,670 level so this continues to be a ‘line in the sand’ support level to monitor. 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.

Bullish targets: any bullish 4hr chart trend line breakout would bring $1,800 and $1,850 into focus as the latter still intersects with the 4hr chart’s 61.8% Fibonacci.

Bearish targets: any bearish 4hr chart trend line breakout would bring $1,770 and $1,750 into focus. After that, watch whole-numbers down to the $1,670 support level.

  • Watch $1,770 and the 4hr chart trend lines for any new breakout:

 

 

 

EUR/USD: The EUR/USD closed with a bullish-coloured, almost Inside, weekly candle, reflecting indecision. Price action continues to hug the 16-month trend line making this the region to watch for any new make or break.

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. This trend line breakout was flagged back in a post on August 2nd 2020. Price at the breakout was around 1.17 and has reached up as far as 1.23, a move of around 600 pips, so this has been a breakout worth monitoring.

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

Bullish targets: Any bullish 4hr chart trend line breakout would bring 1.20 and 1.21 into focus. After that, watch the recent High of 1.235 and whole-numbers on the way up to a previous weekly chart High, circa 1.26, and for any continued push up to 1.40.

Bearish targets: Any bearish 4hr chart trend line breakout, below the 16-month support trend line, would bring 1.19 into focus.

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

 

 

 

 

AUD/USD: The Aussie closed with a bullish-coloured Inside weekly candle, reflecting indecision, and near 0.76 making this the 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 weekly 61.8% Fibonacci, near 0.90. This monthly wedge trend line breakout was also flagged back in the post on August 2nd 2020. Price at the breakout was around 0.71 and has reached up as far as 0.80, a move of around 900 pips, so has been another breakout worth monitoring.

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

Bullish targets: Any bullish 4hr chart trend line breakout would bring 0.77 into focus. After that, watch whole-numbers on the way back to the weekly chart’s Descending Wedge breakout target of 0.90.

Bearish targets: Any bearish 4hr chart trend line breakout would bring 0.75 into focus. After that, watch 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 the 4hr chart trend lines for any new breakout:

 

 

 

AUD/JPY: The AUD/JPY closed with a bearish weekly candle and just above 84 S/R making this the support region to monitor. However, note how the monthly candle is shaping up in a bearish-reversal Hanging Man candle so watch to see how this candles closes after end of month Wednesday.

 

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:

 

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

 

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

Bullish targets: Any bullish 4hr chart trend line breakout would bring 85 S/R into focus. After that, watch whole numbers on the way up to 90 S/R.

Bearish targets: Any bearish 4hr chart trend line breakout would bring 83 S/R into focus. After that, watch whole-numbers on the way down to 76 as this is still near the recently broken 7-yr bear trend line, and then 70 as this is now near the 61.8% Fibonacci of the March 2020 – March 2021 swing High move.

  • Watch for any 4hr chart trend line breakout:

 

 

 

NZD/USD: The Kiwi closed with a bullish-coloured Inside weekly candle reflecting indecision. Price closed near 0.71 making this the one to watch for any new make or break.

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

Bullish targets: Any bullish 4hr chart trend line breakout would bring 0.71 back into focus followed by 0.72 and 0.73 S/R.

Bearish targets: Any bearish 4hr chart trend line breakout would bring 0.70 into focus. After that, watch whole-number levels on the way down to 0.63 as this is near the 61.8% Fibonacci of the March 2020 – Feb 2021 swing High move.

  • Watch for any 4hr chart trend line breakout:

 

 

 

GBP/USD: The Cable closed with a bullish-coloured Inside weekly candle reflecting indecision. Price closed near 1.39 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 14-yr trend line, noted here in my article on December 20th, is the monthly chart’s 61.8% Fibonacci, near 1.75. Price action at the initial breakout was around 1.35 and has reached up as far as 1.42, a move of 700 pips, so this trend line breakout was a great clue about things to come and the target for this move has not even been reached yet!

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

Bullish targets: Any bullish 4hr chart trend line breakout would bring would bring 1.40 and 1.41 S/R into focus. After that, watch the recently broken 16-month TL, 1.425 and 1.50 as the latter is 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 trend line breakout would bring 1.38 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.

  • Watch for any 4hr chart trend line breakout:

 

 

 

USD/JPY:  The USD/JPY closed with a bullish weekly candle and just under 111 making this the horizontal level to watch for any new make or break.

NB: The bullish weekly-chart descending wedge breakout was first noted in my article of January 31st. Price action at the initial breakout was around 104.5 and has reached up as far as near 111, a move of around 650 pips, so this trend line breakout was a great clue about things to come!

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

Bullish targets: Any bullish breakout above 111 would bring whole-numbers on the way up to 115 into focus.

Bearish targets: Any bearish 4hr chart trend line breakout would bring a 9-week support trend line and 110 S/R into focus followed by 109 and 108 S/R.

  • Watch 111 and for any 4hr chart trend line breakout:

 

 

 

GBP/JPY: The GBP/JPY closed with a bullish-coloured, almost Inside weekly candle, reflecting indecision. Price closed just above 152 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 reached up as far as 156, a move of around 1,500 pips, and so is another trend line breakout that has proven to be worthwhile monitoring.

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

Bullish targets: Any bullish 4hr chart trend line breakout would bring 156 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 chart trend line breakout would bring 153 and 152 into focus. After that, watch whole-number levels on the way down to 136 as this is near the 61.8% Fibonacci of the March 2020 – March 2021 swing High move.

  • Watch for any 4hr chart trend line breakout: