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Virus fear dominating markets.

February 23, 2020

Last week: Coronavirus fear resurfaced last week and this helped to trigger a good number of trend line breakout trades which I hear that some of you have been able to catch. The virus came back into focus late last week and this tipped the US major stock indices into negative territory; note how much of Saturday’s CNBC front-page was dedicated to virus-related issues. It is the next few weeks that remain critical though as the health impact on countries outside of China is evaluated; the rate of increase of cases in South Korea is the latest concern.  An interactive map showing the status of virus infection can be found through this link and shows that developing countries, such as Africa and Indonesia, have few reported cases. There would obviously be significant concern for any disease spread through these nations due to the challenges they would face with providing access to effective health care and disease control. Traders need to keep abreast of this global health situation and manage their risk and trade size appropriately.

 

 

Technical Analysis: As noted over recent weeks, 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.

 

Trend line breakouts and TC signals:  There were more great trend line breakout trades last week. Articles published during the week can be found here, here, here and here:

  • AUD/JPY: a TL b/o for 55 pips and a TC signal for 40 pips and 3 R and another TL b/o for 60 pips.
  • AUD/USD: a TL b/o for 35 pips.
  • NZD/USD: a TL b/o for 45 pips.
  • Oil: a TL b/o from the previous week and now at $3.80.
  • USD/JPY: a TL b/o above 110 for 200 pips and a TC signal for 150 pips and 6 R.
  • S&P500: a TL b/o for 20 points.
  • GBP/USD: a TL b/o for 120 pips.
  • GBP/JPY: a TL b/o for 160 pips.
  • Gold: a TL b/o above $1,600 that extended up to $48:

Gold 4hr:

 

 

This Week: (click on images to enlarge):

 

    • DXY: US$ Index: The US$ index closed with a bullish weekly candle and out from the weekly triangle BUT is currently struggling under the 100 S/R level. Watch this key 100 level for any new make or break as any developing weakness could underpin some mean reversion moves across a range of Forex pairs:

 

 

    • Indecision weekly candles: there were more of these printed again last week on:  S&P500 (Inside), NASDAQ (Inside), Russell-2000 (Inside and Spinning Top), ASX-200 (Spinning Top) , Oil (Spinning Top), GBP/USD (Inside), AUD/JPY (Spinning Top) and GBP/USD (Inside and Spinning Top).

 

    • End of Month: trading completes for February this coming Friday so watch to see how monthly candles close.

 

    • Gold: Gold has caught a strong bid of late with ‘flight to safety‘ flows on the back of increased Coronavirus concern. Watch, too, if the US$ has any pullback from the current 100 resistance level as this could help to underpin further gains for the precious metal.

 

    • S&P500: I will keep posting this chart periodically as traders keep asking how long this S&P500 rally can run for. I suspect similar questions would have been asked midway during the previous breakout phases!

 

S&P500 yearly: for those wondering how long this rally can extend:

 

 

    • DJIA weekly: has closed with a bearish weekly candle and under the big 30,000 level:

 

 

    • NASDAQ composite weekly: has closed with a bearish, essentially Inside indecision-style, weekly candle after reaching a new all time High. Price action might consolidate here under the psychological and whole number 10,000 level; in spite of whether Coronavirus fear persists:

NASDAQ weekly:

 

 

    • DAX: The DAX pulled back this week from the previous all time High, circa the whole-number 13,600. The index closed with a bearish weekly candle but watch to see where next week’s monthly candle closes!

DAX weekly:

 

 

    • Russell-2000: The Russell-2000 is often viewed as the ‘Canary in the Coal Mine’ for US stocks and the index closed with a bearish-coloured Inside and Spinning Top weekly candle, under the 1.750 resistance level, as markets digest the significance of Coronavirus. Watch trend lines for any new breakout:

 

RUT weekly:

 

    • LIT: What a classic descending wedge breakout this was! It took a few months but the 61.8% fib target has finally been reached! I urge all traders to remain aware for this type of chart pattern as they are high-probability patterns to trade:

 

LIT weekly: descending wedge b/o from Tweet during Nov 2019:

 

LIT weekly: descending wedge target reached Feb 2020:

 

 

    • VIX weekly: the Fear index closed with a bullish engulfing weekly candle and back above the 14 threshold but is still below a recent bear trend line. Watch for any trend line breakout:

 

VIX weekly:

 

 

 

Calendar:    Courtesy of Forex Factory:

 

Earnings:    Courtesy of Earnings Whispers:

 

 

Markets:

 

S&P500: SPX:  The S&P500 printed a new all-time High last week before pulling back from the 3,400 whole-number resistance level. The weekly candle closed, essentially, as a bearish-coloured Inside candle reflecting indecision stemming from the Coronavirus situation. This price action has shaped up with a bit of a Bull Flag appearance on the 4hr chart so watch trend lines for any new momentum breakout: up or down!

Whilst the weekly candle was bearish the monthly candle, which will close at the end of this week, is still bullish for the time being so watch to see how this ends up closing.

As noted over recent weeks: any accelerated concern with Coronavirus could turn market sentiment in a heartbeat and reverse the broader uptrend of this index. That is why traders need to carefully manage their trade exposure and risk per trade. For the time being though, the daily and weekly charts still shows higher Highs and higher Lows being printed which is the definition of an uptrend.

Bullish targets: any 4hr chart bullish Bull Flag trend line breakout would bring the whole-number 3,400 back into focus. 

Bearish targets: any bearish 4hr chart Flag trend line breakdown would bring 3,300  into focus.

  • Watch for any 4hr chart momentum-based Bull Flag trend line breakout:

 

 

ASX-200: XJO: The ASX-200 closed, rather surprisingly, with a bullish-coloured Spinning Top weekly candle after printing a new weekly all-time High during the week. The fact that this ASX-200 candle was green at all, when the US major Index weekly candles were red, is somewhat of an achievement!

Price action pulled back from the round-number 7,200 level and, in doing so, broke through a 4hr chart support trend line but this is shaping up as a potential Bull Flag at the moment so watch these trend lines for any new breakout.

As mentioned over recent weeks: the ASX-200 continues to hold up pretty well considering the situation with Coronavirus, the ongoing Aussie drought and recent devastating bush fires. The fact that the index is still holding above pre-2020 Highs is pretty remarkable and I remind folk here of the trading saying that ‘Old resistance becomes new Support‘. I’m not making any predictions here but, whilst the index holds above 6,851.50, the pre-GFC High, there doesn’t seem to be any reason to be bearish. There are daily and weekly support trend lines in place and, until these are broken, the trend remains up.

Bullish targets: Any bullish 4hr chart Bull Flag trend line breakout above 7,100 will bring 7,150 and, then, 7,200 back into focus. 

Bearish targets: Any bearish 4 hr chart Flag breakdown would bring 7,000 into focus as this is near the 4hr chart’s 61.8 fib.

  • Watch for any 4hr chart Bull Flag breakout:

 

 

Bonds: TLT Bond ETF: Bullish flow continued into the flight to safety Bond ETF as it made a bullish triangle breakout for up to $3. The ETF closed with a large bullish weekly candle up under the $150 level.

NB: My charting software still has a bullish Wave 5 in progress so watch for any new push to 150 S/R.

Bullish targets: any continued bullish triangle breakout would bring the whole-number 150 into focus.

Bearish targets: any bearish retreat would bring the 144 S/R and the support trend line followed by the 135 S/R level back into focus.

  • Watch for any continued daily chart bullish triangle trend line breakout:

 

 

Gold:  Gold gave another great trend line breakout trade last week worth up to $48; after moving above the $1,600 level. The metal closed with a bullish weekly candle and just below $1,650 making this the new level to watch for any new make or break.

Daily chart Bull Flag details: Recall that there is a broader Bull Flag breakout in progress on Gold (see daily chart below) and this is now up around $155. The length of the Daily chart’s Bull Flag pole is about $300 and, according to technical theory, this could be the expected move on any bullish Flag breakout (see daily chart). This Bull Flag breakout remains in progress and brings the $1,790 region into focus; this being the target of the $300 Flag pole above the $1,490 breakout level, and this target is up near previous S/R at $1,800 for added confluence.

Bullish targets: any bullish break above $1,650 would bring $1,700 into focus followed by the daily chart’s Bull Flag target, circa $1,790 and, then, $1,800.

Bearish targets: any bearish retreat from $1,650 would bring a revised 4hr chart support trend line into focus followed by $1,600 S/R as this is also near the 4hr chart’s 50% fib.

  • Watch $1,650 for any new make or break:

 

 

Oil: Oil printed another bullish weekly candle but this was an indecision-style Spinning Top candle due to renewed Coronavirus concern.

Last week’s wedge breakout has given up to $3.80 so watch for any continuation. Caution is obviously needed given the potential for Coronavirus to impact market sentiment so manage any trade size and risk appropriately.

Bullish targets: any continued 4hr chart bullish wedge breakout above the 4hr chart’s 200 EMA would bring $58 and, then, $60 S/R back into focus as the latter is near the 61.8% Fibonacci retracement of the recent 4hr chart swing Low move.

Bearish targets: any bearish retreat would bring $50 back into focus.

  • Watch the 4hr chart’s 200 EMA for any continued 4hr chart wedge breakout:

 

 

 

EUR/USD: The EUR/USD closed with a bullish-reversal Hammer weekly candle just above 1.08 keeping this as the level level to watch for any new make or break. Price action had struggled at this level all week but finally broke away on Friday following some weaker than expected US Manufacturing data.

 

EUR/USD weekly: a bullish-reversal Hammer candle at major support:

 

Price action broke out from the 4hr chart channel and then bounced up and away from 1.08 on Friday so watch for any continued push up to the 4hr chart’s 61.8% fib of the last swing Low move, near 1.10 S/R.

Remember that price action is still tracking in a descending wedge on the weekly / daily chart time frame.

Bullish targets: any continued  bounce up from 1.08 would bring 1.09, 1.10 and, then, 1.11 into focus.

Bearish targets: any bearish break back below 1.08 would bring the 20-yr support TL into focus (see daily, weekly and monthly charts).

  • Watch for any continued 4hr chart bullish channel breakout move:

 

 

AUD/USD: It was back to printing bearish weekly candles for the Aussie last week following disappointing AUD Employment data. Price action pulled back to the 0.66 level making this the one to watch for any new make or break.

There are revised 4hr chart trend lines to monitor and the 4hr chart has a bit of a bullish reversal wedge look to it so keep an open mind and watch for momentum-based trend line breakouts: up or down. Any developing weakness with the US$ could work in the AUD/USD favour. Note the smaller triangle within this 4hr chart wedge as well.

As noted over recent weeks: price action has been hit hard here with the Coronavirus situation due to broad-based economic growth concern but, also, because of the fact that China is Australia’s largest trading partner and the impact on Tourism, Education and Trade could be considerable. Not much has changed here as the world monitors the spread of the virus outside of China. Any positive news on the health front could trigger a relief rally here, even if only temporary so traders need to watch for momentum-based trend line breakouts.

Bullish targets: Any bullish 4hr chart triangle breakout would bring the upper wedge trend line, 0.67 followed by 0.68 and, then, the 4hr chart’s 61.8% fib, near 0.69, into focus.

Bearish targets: Any bearish 4hr chart triangle breakout would bring 0.66 back into focus.

  • Watch for any momentum-based 4hr chart triangle and, then, wedge breakout:

 

 

AUD/JPY:  The AUD/JPY closed with another bullish-coloured Spinning Top weekly candle and still near the 74 S/R level keeping this as the main horizontal level to watch for any new make or break.

Price action is shaping up within another 4hr chart triangle so watch trend lines for any new momentum-based breakout.

NB: as per previous weeks, AUD/JPY traders should keep an eye on the broader stock market as this currency pairs often trades in tandem with stock market sentiment. A stock market pullback might take the AUD/JPY along for the ride.

Bullish targets: Any bullish triangle breakout would bring 75 and 76 into focus.

Bearish targets: Any bearish triangle breakout would bring 73 and 72 S/R into focus.

  • Watch for any 4hr chart triangle breakout:

 

 

NZD/USD: The Kiwi closed with a bearish weekly candle but managed to hold above 0.63 S/R which is also just above a 20-yr support trend line.

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

Bullish targets: any bullish 4hr chart triangle breakout would bring 0.64 and 0.65 into focus followed by the daily 200 EMA and 0.66 S/R level.

Bearish targets: Any bearish 4hr chart triangle breakout would bring 0.63 S/R and, then, 20-yr support trend line into focus.

  • Watch for any 4hr chart momentum-based triangle breakout:

 

 

GBP/USD: The Cable closed with a bearish-coloured Inside / Spinning Top style weekly with both reflecting indecision. Price action dipped last week but recovered to close just below the 1.30 level and this activity has generated a 4hr chart triangle giving traders trend lines to watch for any new momentum-based breakout.

Bullish targets: Any bullish 4hr chart triangle breakout above 1.30 would bring 1.31 and 1.31 into focus.

Bearish targets:  Any bearish 4hr chart triangle breakout would bring 1.29 and 1.28 into focus.

  • Watch for any momentum-based 4hr chart triangle breakout:

 

 

USD/JPY: The USD/JPY closed with a large bullish weekly candle and ran up to 200 pips after escaping the key 110 S/R level and 5-year bear trend line that were profiled last week as the levels to watch for any new make or break:

 

Last week’s 4hr USD/JPY chart: the 110 and 5-yr bear TL were in focus:

 

 

This week’s 4hr USD/JPY chart showing the 200 pip momentum breakout move: 

 

 

 

Price action closed the week just below 112 and so this is the resistance zone to monitor for any new make or break. The 4hr chart has a Bull Flag look to it so watch the Flag trend lines for any new momentum breakout: up or down!

Bullish targets: Any bullish Bull Flag breakout would bring 112 and other whole number levels on the way up to 115 S/R into focus. 

Bearish targets: Any bearish Flag breakout would bring 110 and the previously broken 5-yr TL into focus as this is near the 4hr chart’s 61.8% fib level.

  • Watch 112 and for any Bull Flag breakout:

 

 

GBP/JPY: The GBP/JPY closed with a bullish weekly candle and gave a great 4hr chart trend line breakout last week that is currently up around 160 pips with the target of 146 still just above current price.

 

Last week’s 4hr GBP/JPY chart: with 143 and triangle trend lines in focus:

 

This week’s 4hr GBP/JPY chart showing the 160 pip trend line breakout move: 

 

Bullish targets: any continued bullish 4hr chart triangle breakout would bring the 4hr chart’s 61.8% fib and weekly 200 EMA, near 146, into focus.

Bearish targets: any retreat from current levels would bring the 143 S/R level back into focus.

  • Watch for any continued 4hr chart triangle breakout: