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Waiting for clarity.

October 25, 2020

Last week: There were only a few trend line breakouts again last week and I suspect the low-momentum and range-bound activity on the US$ index is the problem here and I’m wondering if this might remain the case until after the November 3rd US Presidential Election. Regular readers will recall that I have been warning about range-bound markets given the set up across the FX Indices. There were quite a few indecision-style weekly candles printed across a range of trading instruments last week and this reflects the same indecision seen on the US$ index. The US stock major indices, DJIA, S&P500 and NASDAQ, closed with bearish weekly candles BUT the VIX remains below 30 and the risk metrics of Copper, the small-caps Russell-2000 and Emerging markets all closed with bullish weekly candles, despite the continued increase with US Covid infections and as US Earnings season ramps up this week. Traders need patience as they wait for clarity and for momentum-based trend line breakouts.

 

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 just a few short-lived breakout last week. Articles published during the week can be found here, here, here and here:

 

  • EUR/USD: a TL b/o from for 80 pips.
  • GBP/USD: a TL b/o from for 160 pips.
  • GBP/JPY: a TL b/o from for 60 pips.
  • USD/JPY: a TL b/o from for 80 pips.

 

This Week: (click on images to enlarge):

    • DXY: US$ Index: The US$ index closed with a bearish weekly candle, remains below the multi-year support trend line and has finally made a breakout from the daily Ichimoku Cloud. However, price action remains in a daily-chart consolidation triangle on low momentum. Traders need to watch for any developing flight to safety activity as Covid infections increase across the USA and watch for any new momentum-based trend line breakout:

 

DXY daily: still watching for any momentum-based trend line breakout:

 

 

    • Schedule for weekend Market Update posts: The Weekly Market update has, to date, been posted on a Sunday, Australian time. I am looking to delay the release of this update to a Monday, Australian time, which is still a Sunday in many other parts of the world. My analysis takes a full day to complete and I am attempting to shift this load away from my weekend time.

 

    • Multi-year trend lines: As noted recently and the caution remains valid: multi-year trend lines have been tested / broken on a number of instruments: The FX Indices (DXY and EURX) and the EUR/USD, AUD/USD, NZD/USD, AUD/JPY, GBP/USD and GBP/JPY. Caution is still required here though as trend lines of such duration are often not given up easily so traders should watch for any potential choppiness / consolidation as these levels are negotiated. Many of these levels are still back being tested and some have been tested and held.

 

    • Indecision-style weekly candles: indecision-style weekly candles were printed on a few instruments again last week: the Russell-2000, VIX, Gold, ASX-200, AUD/USD, AUD/JPY, USD/JPY and GBP/JPY.

 

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

 

    • S&P500: Keep the bigger picture in perspective with the recent moves:

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 heads back to test the 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 above the key 3 level. Price action also continues holding above the 10-year bear trend line:

 

Copper weekly: holding above the 3 level;

 

    • Emerging Markets: The Emerging market ETF, EEM, has closed with a bullish weekly candle and is holding above the key 45 S/R level;

 

EEM weekly: holding above the 45 level:

 

    • DJIA: The DJIA closed with a bearish weekly candle as price holds under the key 30,000 resistance level. Keep watch for any bullish Ascending Triangle:

 

DJIA weekly: watch for any push to 30,000:

 

 

    • NASDAQ composite: The NASDAQ Composite Index closed with another bearish weekly candle and this is helping to shape up a potential Double Top:

 

NASDAQ weekly: watch for any Double Top activity:

 

 

    • DAX weekly: The DAX closed with another bearish weekly candle and has closed below a recent support trend line. Watch for any push to 12,000 S/R:

 

DAX weekly:

 

 

    • Russell-2000: The Russell-2000 is often viewed as the ‘Canary in the Coal Mine’ for US stocks and closed with a bullish-coloured Spinning Top weekly candle as price reaches up towards the key 1,720 resistance level. Watch for any Ascending Triangle activity here as well:

 

RUT weekly: watch for any push to 1,720:

 

 

    • Bonds / TLT: The Bond ETF, TLT, closed with a bearish weekly candle and below the 160 S/R level. The Elliott Wave indicator is still suggesting an uptrend from here for the time being:

 

TLT weekly: 

 

 

    • Fedex: This chart caught my interest this week given the bearish-coloured Long Legged Doji weekly candle that has printed after a lengthy bullish run. Watch for any pause here and, if so, watch for any mean-reversion move back to the 61.8% Fibonacci that is also near a recent reaction zone of $160:

 

Fedex weekly: watch for any potential pause here:

 

    • VIX: the Fear index closed with another bullish-coloured Spinning Top weekly candle but remains below the key 30 level. Watch for any new momentum-based breakout above this 30 level.

 

VIX weekly: watch for any breakout above 30 S/R:

 

 

 

Calendar: Courtesy of Forex Factory:

 

 

Earnings: Courtesy of Earnings Whispers: there are lots of major companies reporting this week:

 

 

 

Market Analysis:

 

S&P500: The S&P500 index closed with a small, bearish weekly candle as price action consolidates under the recent all time High, circa 3,600, as the US Earnings season ramps up.

Trading volume was lower last week and remains below the revised volume bear trend line AND 200 SMA so watch this region for any new breakout:

 

S&P500 ETF: SPY weekly: Watch for any uptick with Volume above the trend line and  200 SMA:

 

Price action on the S&P500 closed below 3,500 again so this remains the horizontal level in focus for any new make or break. The whole-number 3,600 remains as resistance above the recent all-time High and any failure to break above this S/R level will help to shape up the Double Top that looks to be brewing on the weekly chart.

As noted recently: The weekly S&P500 chart below shows that the 61.8% Fibonacci level of this recent swing-High move (March 2020- September 2020) is down near the 2,700 region. Technical analysts would suggest that a pullback to this 61.8% level would be in order; even if there is to be ultimate bullish continuation. Trends do not travel in straight lines unabated so traders should be aware of this zig-zag potential.

Bullish targets: any bullish 4hr chart trend line breakout would bring the whole-number 3,500 and 3,600 levels into focus.

Bearish targets: any bearish 4hr chart trend line breakout would bring 3,400 back into focus followed by whole number levels on the way down to the weekly chart’s 61.8% Fibonacci, near 2,700.

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

 

 

ASX-200: XJO: The ASX-200 closed with a bearish-coloured Spinning Top-style weekly candle and still just under the 6,200 whole-number region that, along with the weekly 61.8% Fibonacci, has been resistance since June 2020. This remains the resistance zone to watch for any new make or break.

Trading volume remains below the 200 SMA and a multi-month Volume trend line so watch for any new breakout:

 

XJO weekly: trading volume remains below the multi-month TL:

 

Traders need to keep in mind that there has been a recent Golden Cross. This 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 as you can see from the chart below so these crosses are worth noting:

 

XJO daily: recall there has been a recent Golden Cross:

 

There are revised trend lines on the 4hr chart but the set up here continues to be one of a potential Bull Flag so watch trend lines for any new momentum breakout.

Bullish targets: Any bullish 4hr chart Flag trend line breakout above 6,200 will bring whole number levels on the way back to the previous all time High, circa 7,200, into focus.

Bearish targets: Any bearish 4hr chart Flag trend line breakout would bring 6,100, 6,000 and 5,950 as the latter is near the 4hr chart’s 61.8% Fibonacci.

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

 

 

 

Gold:  Not much has changed here for the week as Gold closed with a bullish-coloured Long Legged Doji weekly candle reflecting indecision. The precious metal managed to again close the week above the key $1,900 level but momentum remains low on the 4hr and daily time frames and continues declining on the weekly time frame.

The daily chart’s Bull Flag trend lines have been revised given the continued absence of any decent momentum.

As mentioned over recent weeks: 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 back trading above 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 new move 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 hovers near 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.

Bullish targets: any bullish 4hr chart trend line breakout would bring $2,000 S/R into focus.

Bearish targets: any bearish 4hr chart trend line breakout would bring the recent Low, near $1,850, into focus.

  • Watch $1,900 S/R and for any 4hr chart trend line breakout:

 

 

EUR/USD: The EUR/USD closed with bullish, almost ‘Engulfing’, weekly candle and there is still the look of a potential weekly chart Bull Flag. This week brings the ECB rate update so watch to see if this event helps to hinder or develop the Flag.

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

As mentioned over recent weeks: I have been warning for weeks that these major trend lines are not given up easily and so traders need to watch this region closely in coming sessions as it looks to be forming up into some decent support.

Bullish targets: Any bullish 4hr trend line breakout would bring 1.19 into focus and, then, whole-number levels on the way up to the previous weekly chart High, circa 1.26.

Bearish targets: Any bearish retreat from the upper  4hr chart trend line would bring 1.18 and, then, the the lower 4hr chart trend line  into focus followed by 1.17 S/R.

  • Watch for any new 4hr chart triangle breakout; especially with this week’s ECB rate update:

 

 

AUD/USD: The Aussie closed with a bullish-coloured Spinning Top-style weekly candle reflecting indecision BUT there is still the potential of a Bull Flag on the daily chart.

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

Keep in mind, too, that price action continues to hold above the recently broken upper trend line of the multi-year bullish-reversal Descending Wedge.

Bullish targets: Any bullish 4hr chart triangle trend line breakout would bring bring the upper daily-chart Flag trend line into focus and, then, 0.72, 0.73 and 0.74 S/R.

Bearish targets: Any bearish 4hr chart trend line breakout would bring the lower daily-chart Flag trend line into focus followed by 0.70.

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

 

 

AUD/JPY:  The AUD/JPY closed with a bullish coloured Spinning Top weekly candle reflecting indecision BUT there is still the look of a Bull Flag on the weekly chart as momentum continues to declines on this weekly time frame.

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

Bullish targets: Any bullish 4hr chart triangle trend line breakout would bring 75 into focus followed by the upper weekly-chart triangle trend line and, then, the 7-yr trend line.

Bearish targets: Any bearish 4hr/weekly chart trend triangle breakout would bring 74 into focus.

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

 

 

NZD/USD: The Kiwi closed with a bullish weekly candle and there is still the look of a potential Bull Flag on the weekly chart.

Price action is now up near 0.67 and continues to hold above the recently broken 7-yr trend line.

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

Bullish targets: Any bullish 4hr chart triangle trend line breakout would bring 0.68 into focus.

Bearish targets: Any bearish 4hr chart break of the support trend line would bring 0.66 and, then, the daily-chart’s Flag trend line into focus followed by 0.65 S/R.

  • Watch for any 4hr chart trend line breakout:

 

 

 

GBP/USD: The Cable closed with a bullish weekly candle and above the 1.30 S/R level.

There are revised 4hr chart triangle trend lines to monitor for any new momentum-based breakout BUT note how the 61.8% Fibonacci level was already tested last week!

Bullish targets: Any bullish 4hr chart break would bring 1.32 into focus as this is still near the 4hr chart’s 61.8% Fibonacci. After that, the recent High, near 1.35, would come back into focus.

Bearish targets: Any bearish 4hr chart break below 1.30 would bring the 7-month support trend line into focus followed by 1.28 S/R.

  • Watch 1.30 and for any 4hr chart triangle breakout:

 

 

USD/JPY: The USD/JPY closed with another bearish-coloured Spinning Top weekly candle reflecting indecision but price action has closed the week below the key 105 S/R level.

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

Bullish targets: Any bullish 4hr chart breakout above 105 would bring the upper 4hr chart triangle trend line into focus followed by 106 and 107 and, then, whole-number levels on the way up to the recent High, near 110.

Bearish targets: Any bearish 4hr trend line breakout below 104 S/R would bring whole-number levels on the way down to 100 S/R into focus.

  • Watch 105 and for any new 4hr chart triangle breakout:

 

 

GBP/JPY: The GBP/JPY closed with a bullish-coloured Spinning Top, and almost Inside, weekly candle with both reflecting indecision.

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

Bullish targets: Any bullish 4hr chart triangle breakout would bring 138 and 139 into focus as the latter is still near the 4hr chart’s 61.8% Fibonacci. After that, watch the 140 level and 40-yr trend line region.

Bearish targets: Any bearish 4hr chart break of the bottom 4hr chart trend line would bring 136 into focus followed by 135 and the weekly chart’s support trend line. After that, watch the 133 level and and whole-numbers on the way down to 130 S/R.

  • Watch for any 4hr chart triangle breakout: