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US Stocks rebound

March 14, 2021

Last week: US stocks shrugged off the continued rise with interest rates and, instead, hitched their move to the bullish narrative surrounding increasing US Covid vaccinations, re-opening of economies and the passing of the US stimulus Bill. So much so, that the S&P500, DJIA and Russell-2000 indices closed with good sized, bullish weekly candles at new all-time Highs and the VIX, or Fear index, closed with a large, bearish weekly candle. The US$ index deviated last week however and closed lower which helped support Gold and other commodities as well as commodity currencies and this shift also helped to trigger some great trend line breakouts. This week brings the FOMC rate update so watch to see how this impacts the US$ index, if at all.

 

NB: I will be away with family on a 2 week holiday from this Thursday 18th until Tuesday 30th March. This is holiday that had been postponed due to Covid restrictions. Weekday updates will be brief and few during this period but I will endeavour to publish a full weekend update; on both weekends.

 

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: There were quite a few breakouts last week that were helped along by the weakening US$. Updates posted throughout last week can be found through the links here, here, here and here:

 

  • USD/JPY: a TL b/o for 40 pips.
  • GBP/JPY: a TL b/o for 150 pips.
  • Gold: a TL b/o for $35.
  • SPX: a TL b/o for 35 points and another for 40 points.
  • ASX-200: a TL b/o for 50 points.
  • EUR/USD: a TL b/o for 80 pips.
  • AUD/USD: a TL b/o for 80 pips.
  • GBP/USD: a TL b/o for 100 pips.
  • NZD/USD: a TL b/o for 30 pips.
  • AUD/JPY: a TL b/o for 50 pips.

 

 

This Week: (click on images to enlarge):

 

    • DXY: US$ Index: The US$ index closed with a bearish-coloured Spinning Top, and almost Inside, weekly candle but has held above the recently broken 12-month bearish-reversal descending wedge. Watch to see how FOMC impacts the index, it at all:

 

DXY weekly: an indecision-style weekly candle:

 

 

    • 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 moving along. The 15 level has been taken out so keep watch of the weekly 200 EMA region for any new make or break and for any continuation move up to the weekly 61.8% Fibonacci, near 21.50. 

 

  • 10-yr T-Note Interest rate:  the bullish breakout continues but watch the weekly 200 EMA region for any potential resistance:

 

 

    • Financials ETF: XLF monthly: Financial stocks often fare well in an environment of rising yields so this ETF might be worth considering given the monthly close above the previous all time High region of $31. Price action is marching higher:

 

Financials ETF: XLF monthly: watch for any continuation above $31:

 

 

    • % 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 a recovery last week so watch for any new test of 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): heading for another test of 92.50% ? 

 

    • Central Bank update: there are two Central Bank rate updates this week: FOMC (USD) and BoE (GBP).

 

    • 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 a new 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 weekly candle. Watch for any push to the 100% Fibonacci.

 

Copper weekly: a bullish weekly candle:

 

 

    • Emerging Markets: The Emerging market ETF, EEM, closed with a bullish weekly candle after testing the 12-month support trend line.

EEM weekly: watch the 12-month TL:

 

 

    • DJIA: The DJIA closed with a large, bullish weekly candle and at a new all-time High as it holds above the 12-month support trend line. The 33,000 level is just above now so watch to see if this offers any resistance.

 

DJIA weekly: watch 33,000 for any new make or break.

 

 

    • NASDAQ composite: The NASDAQ Composite Index closed with a bullish, almost Inside, weekly candle reflecting indecision as the index struggles near the 12-month support TL. Traders need to watch for any potential Bull Flag formation, but, any serious sell off would bring the weekly chart’s 61.8% Fibonacci, circa 9,500, into focus.

 

NASDAQ weekly: watch for any potential Bull Flag:

 

 

    • Growth versus Value: There was a bullish-coloured Long Legged Doji weekly candle printed for Growth versus Value and this reflects indecision. The 50% Fibonacci has been tested so watch to see if there is any push down to the 61.8% level.

 

Growth versus Value weekly: watch for any push down to the weekly 61.8% Fibonacci, near 1.78:

 

    • DAX weekly: The DAX closed with a bullish weekly candle and at a new all-time High; well above the 13,850 level.

 

DAX weekly: watch the 12-month support TL:

 

 

    • 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 bullish weekly candle. The ADX remains above the threshold 20 level AND price action continues higher above the $15 resistance-turned-support level.

 

DBC weekly: closed with a bullish weekly candle; 

 

 

    • 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 and at a new all-time High; up over 7% for the week! The Index has bounced off the 61.8% Fibonacci extension of the Covid-induced Swing Low so watch for any push to the 100% level, circa 2,475.

 

RUT weekly: watch for any push to the 100% level, circa 2,475.

 

 

    • Bonds / TLT: The Bond ETF, TLT, closed with a bearish weekly candle and just below the weekly chart’s 61.8% Fibonacci. The Elliott Wave indicator is still suggesting an uptrend from here though so watch 135, a previous region of S/R, for any potential support:

 

TLT weekly: closed below the 61.8% Fibonacci BUT watch 135 for any support:

 

 

 

    • 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: lower as the CAD$ strengthens:

 

USD/CNY weekly: a TL b/o BUT keep watch of 6.50 for any hold above this break:

 

 

    • VIX: the Fear index closed with a large, bearish weekly candle. Watch for any new break below the 20 S/R level:

 

VIX weekly: watch for any new break below 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 and at a new all-time High shaking off concern about the continued rise with US yields. Price action managed to hold above a 12-month support trend line and now the whole-number and psychological 4,000 level lies just ahead so watch this for any new make or break.

Trading volume has held above the bear trend line and 200 MA but was just a bit lower than the previous week.

 

S&P500 ETF: SPY weekly: Volume above trend but lower than the previous week:

 

The Index closed the week just below 3,950 making this the horizontal resistance level to monitor for any potential push on to 4,000. There are also revised 4hr chart trend lines to monitor for any new breakout.

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 3,950 would bring 4,000 into focus.

Bearish targets: any bearish 4hr chart break below the recent support trend line would bring 3,900 and the 12-month support trend line back into focus  After that, watch 3,850, 3,800 and whole-numbers on the way down to the weekly chart’s 61.8% Fibonacci retracement level, near 2,800. Traders need to watch for any potential weekly chart Bull Flag activity around this 12-month support trend line.

  • Watch 3,950 and 4hr chart trend lines for any new breakout:

 

 

ASX-200: XJO: The ASX-200 closed with a bullish-coloured Spinning Top weekly candle reflecting indecision as price action continues to struggle under the 6,800 level. This remains the next major resistance level to monitor for any new make or break. 

As mentioned over recent weeks: The pre-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 proving to be strong resistance levels for the index.

Trading volume was not as high last week and fell back the 200 MA and is only just hanging in above the bear trend line. Watch for any new break back above the 200 MA.

 

XJO weekly: still above the TL BUT back below the 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 trend lines to monitor for any new breakout.

Note how ADX momentum still remains low on the daily chart and is declining on the weekly chart.

Bullish targets: Any bullish breakout above 6,800 would bring the 4hr chart triangle trend line and pre-GFC high of 6,851.50 into focus. After that, watch the pre-2020 High of 6,893.70, the whole-number 7,000 and, then, the 2020 High of 7,197.20.

Bearish targets: Any bearish 4hr chart triangle breakout would bring 6,700 and 6,600 into focus.

  • Watch 6,800 and for any new 4hr chart triangle breakout;

 

 

Gold:  Gold closed with a small, bullish weekly candle that was almost an Inside and Spinning Top candle with both reflecting indecision.

As mentioned over recent months: This price action and hold 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. 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 $1,900 level over the coming sessions especially as the US$ 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.

 

Price action closed the week above $1,700 so this remains the horizontal support level to watch for any new make or break. However, the daily chart reveals the importance of the $1,670 level so this will be the 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.

Keep in mind that ADX momentum still remains low on the weekly time frame but is edging towards the 20 threshold level BUT the bearish DMI is now above 20. Watch the ADX for any new uptick to give clues about the next momentum move; either up or down!

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

Bullish targets: any bullish 4hr chart triangle breakout would bring $1,750 and $1,770 back into focus as the latter has been a recent S/R level and is still near the 4hr chart’s 61.8% Fibonacci. After that watch $1,800, $1,850 and $1,900.

Bearish targets: any bearish 4hr chart chart triangle breakout would bring $1,700 and the recent Low, near $1,670, into focus.

  • Watch for any 4hr chart triangle breakout:

 

 

 

EUR/USD: The EUR/USD closed with a bullish-coloured Spinning Top weekly candle and was pegged by 1.20 last week making this the resistance to monitor for any new make or break.

There are revised 4hr chart trend lines to watch for any new breakout and note the declining momentum on this time frame and on the weekly chart as well.

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.

Bullish targets: Any bullish 4hr chart triangle trend line breakout would bring 1.20 and 1.21 into focus as the latter is near the 4hr chart’s 61.8% Fibonacci. After that, watch the monthly 200 EMA and 1.22 level and, then, 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 triangle trend line breakout would bring 1.19 into focus followed by 1.18.

  • Watch 1.20 for any new 4hr chart momentum-based trend line breakout; especially with this week’s FOMC update.

 

 

AUD/USD: The Aussie closed with a bullish weekly candle and just below 0.78 making this the level to watch for any new make or break.

Last week’s charts showed the break below a 12-month support trend line and this support-turned-resistance was tested during the week. This region will need further monitoring and, as with the break of any support trend line; keep watch for a potential Bull Flag.

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. 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.

Bullish targets: Any bullish 4hr chart trend line breakout would bring 0.78 and the 12-month TL into focus. After that, watch 0.79 and 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 trend line breakout would bring 0.77 and 0.76 into focus.

  • Watch 0.78 and for any 4hr chart trend line breakout:

 

 

AUD/JPY:  The AUD/JPY closed with a bullish weekly candle and just under 85 S/R so this will be the resistance level to watch for any new make or break.

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.

As mentioned over recent weeks: 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 with stocks might render similar for the AUD/JPY and note how they’re back in sync this week:

 

AUD/JPY versus S&P500 (gold line): a higher degree of positive correlation and back in sync this last week:

 

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

Bullish targets: Any bullish 4hr chart triangle breakout, above 85, would bring 86 S/R into focus followed by whole numbers on the way to 90 S/R.

Bearish targets: Any bearish 4hr chart triangle breakout would bring 84 into focus followed by the 20-week support trend line that is near 83 S/R. After that, watch the monthly 200 EMA and whole-numbers on the way down to 76 as this is still near the recently broken 7-yr bear trend line.

  • Watch 85 and for any new 4hr chart momentum-based trend line breakout;

 

 

NZD/USD: The Kiwi closed with a bullish-coloured Spinning Top weekly candle and just below 0.72 making this the level to watch for any new make or break.

As with the Aussie, last week’s charts showed the break below a 12-month support trend line and this support-turned-resistance was tested during last week. This region will need further monitoring and, as with the break of any support trend line; keep watch for a potential Bull Flag.

Bullish targets: Any bullish 4hr chart triangle trend line breakout would bring the recently broken 12-month support trend line into focus followed by 0.73. After that, watch 0.74 and 0.75 as the latter is the next major horizontal S/R zone (see weekly chart). Then watch 0.76 as this is near a monthly chart 61.8% Fibonacci target of an earlier monthly chart triangle breakout.

Bearish targets: Any bearish 4hr chart triangle trend line breakout would bring 0.71 into focus.

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

 

 

GBP/USD: The Cable closed with a bullish-coloured Spinning Top weekly candle as price continues to struggle to break back above the major 1.40 level keeping this as the resistance to watch 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, 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 to 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!

Bullish targets: Any bullish 4hr chart triangle trend line breakout would bring 1.40 into focus followed by 1.41 and 1.42. After that watch whole-number levels on the way up to 1.50 as this 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 triangle trend line breakout would bring 1.38 followed by the 7-month support trend line into focus followed by 1.37.

  • Watch the 4hr chart trend lines for any new breakout:

 

 

USD/JPY:  The USD/JPY closed with a bullish weekly candle after consolidating for much of last week under 109 making this the level to watch for any new make or break.

NB: The bullish weekly descending wedge breakout continues here and this was first noted in my article of January 31st. Price action at the initial breakout was around 104.5 and has reached to 109, a move of around 450 pips, so this trend line breakout was a great clue about things to come!

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

Bullish targets: Any bullish 4hr chart Flag breakout above 109 would bring 110 and whole-numbers on the way up to 115 into focus.

Bearish targets: Any bearish 4hr chart Flag breakout below 108.50 would bring 108, 107 and 106 back into focus.

  • Watch 109 and for any new 4hr chart Flag trend line breakout.

 

 

 

GBP/JPY:  The GBP/JPY closed with a bullish weekly candle and just under the key 152 S/R level making this one to watch for any new make or break. Almost 200 pips were added after the breakout from last week’s profiled chart pattern!

There are revised 4hr chart trend lines to monitor for any new momentum breakout. Note how ADX momentum is trending upwards on the weekly chart and is now advancing above above the 20 threshold.

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 to 152, a move of around 1,100 pips, and so is another trend line breakout that has proven to be worthwhile monitoring.

Bullish targets: Any bullish 4hr chart triangle breakout would bring 152 followed by whole-number levels on the way up to the weekly chart’s 61.8% Fibonacci, near 170, into focus.

Bearish targets: Any bearish 4hr chart triangle breakout would bring 151, 150 and 149 into focus followed by the 12-week support trend line. After that, watch whole-number levels on the way down to 140 S/R.

  • Watch 152 and the 4hr chart trend lines for any new breakout: