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Waking to a result in the US Presidential Election

November 8, 2020

Last week: The major news to emerge out of last week was the announcement by numerous news outlets of a US Election victory for the Biden / Harris team. President Trump has yet to concede defeat in the election and this uncertainty will need to be factored into trading in coming sessions. US$ weakness triggered most of last week’s trend line breakout trades and I had warned about this potential as US$ index price action failed to break above a key resistance zone. This US$ weakness triggered bullish breakouts from some of last week’s profiled Bull Flag patterns so watch these for any continuation. Volatility was high on US Election day, and this triggered some serious spike action across Forex pairs, but the VIX ended up closing lower for the week. Risk appetite was apparently buoyed by the close Election result and the prospect of a divided US Congress. There isn’t a lot of scheduled news for the coming week but watch for impact from President Trump’s legal challenges to the US Election result.

 

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: Many of last week’s trend line breakouts were plagued by sharp volatility on US Election day but I have included them here as a matter of completeness. Articles published during the week can be found here, here, here and here:

 

  • S&P500: a TL b/o for 200 points:

 

  • ASX-200: a TL b/o for 240 points:

 

  • Gold: a TL b/o for $40.
  • EUR/USD: a TL b/o for 240 pips, albeit a very choppy on:

 

  • AUD/USD: a choppy TL b/o for 150 pips:

 

  • NZD/USD: a TL b/o for 120 pips.
  • AUD/JPY: a TL b/o for 120 pips.
  • GBP/USD: a TL b/o for 500 pips.
  • USD/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 weekly candle, below the recent support trend line and, also, back below the 10-yr trend line. Watch the recent support level of 91.75 for any new make or break and, after that, watch the previous Low near 88. Traders should note that last week’s fall shaped up in a bullish-reversal Descending Wedge on the 4hr chart time frame so watch for any potential relief rally, even if this is only temporary:

 

DXY daily: watch for any Support from 91.75:

 

DXY 4hr: note the bullish-reversal Descending Wedge so watch for any potential relief rally:

 

 

    • Next week: I will be away next weekend so market updates will be brief.

 

    • 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.

 

    • Central Bank updates: there is one Central Bank rate update this week: RBNZ (NZD).

 

    • 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 hovers under 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 still 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, closed with a large, bullish weekly candle and back above the key 45 S/R level.

 

EEM weekly: back above the 45 level:

 

    • DJIA: The DJIA closed with a large, bullish weekly candle and I have revised the trend lines to reflect new support. Note the ascending triangle look to this chart again so watch for any push back up to the recent High:

 

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

 

 

    • NASDAQ composite: The NASDAQ Composite Index closed with a large, bullish weekly candle and back up under $12,000 S/R and this will be the main level to watch for any new make or break. Here, too, the support trend line has been revised and there is an ascending triangle look to this chart as well:

 

NASDAQ weekly: watch 12,000  for any new make or break:

 

 

    • DAX weekly: The DAX closed with a large, bullish weekly candle and I have revised the trend lines to reflect new support and note the ascending triangle look to this chart again. Watch for any push back up to the recent High:

 

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 large, bullish weekly candle and is holding above a recent support trend line for the time being.

 

RUT weekly: watch the support trend line for any new make or break:

 

 

    • Bonds / TLT: The Bond ETF, TLT, closed with a bullish-coloured Spinning Top weekly candle. The Elliott Wave indicator is still suggesting an uptrend from here for the time being:

 

TLT weekly: 

 

 

    • Fedex: Fedex closed a bullish coloured ‘Inside‘ weekly candle which is helping to keep the Bull Flag pattern alive.

 

Fedex weekly: watch for any potential Bull Flag:

 

    • VIX: the Fear index closed with a large and bearish, essentially ‘engulfing’, weekly candle and back below the key 30 level.

 

VIX weekly: watch the 30 level for any new make or break:

 

 

Calendar: Courtesy of Forex Factory: a bit quieter this week:

 

 

Earnings: Courtesy of Earnings Whispers: another big week for Earnings:

 

 

 

Market Analysis:

 

S&P500: The S&P500 index closed with a large, bullish weekly candle and the weekly support trend line has been adjusted to reflect this recent activity.

Trading volume was a bit lower last week, which is not surprising given it was US Election week, but volume remains above the recently broken bear trend line.

 

S&P500 ETF: SPY weekly: Watch for any further uptick with Volume:

 

Price action on the S&P500 closed just under 3,550 so this will be the level to watch for any new make or break.

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, above 3,550, would bring 3,600 into focus.

Bearish targets: any bearish 4hr chart trend line breakout would bring whole number levels on the way down to 3,200 into focus.

  • Watch 3,550 and for any 4hr chart trend lines breakout:

 

 

ASX-200: XJO: The ASX-200 closed with a bullish weekly candle and back up just under 6,200; a level that has been resistance for the last 5 months.

Trading volume was a bit lower last week and remains below a multi-month volume trend line so watch for any new trend line breakout:

 

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

 

Keep in mind that the recent Golden Cross remains valid. 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 so these crosses are worth noting:

 

XJO daily: the recent Golden Cross remains valid:

 

There are revised trend lines on the 4hr chart to monitor for any new momentum breakout and the chart pattern here is one of a bullish-continuation ascending triangle.

Bullish targets: Any bullish 4hr chart triangle breakout above 6,200, and the 4hr chart’s 6,250 level, would bring whole-number levels on the way up to the pre-2020 High of 6,893.70 into focus.

Bearish targets: Any bearish 4hr chart triangle breakout would bring 6,100 and 6,000 into focus.

  • Watch 6,200 and for any new 4hr chart ascending triangle breakout:

 

 

Gold:  Gold closed with a bullish, almost ‘engulfing’, weekly candle and has made a bullish breakout from the 4hr and daily chart Bull Flag patterns. Price action closed the week just below $1,950 S/R so that is the level to watch for any new make or break.

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 is back 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.

Bullish targets: any bullish 4hr chart hold above $1,950 would bring $2,000 S/R into focus.

Bearish targets: any bearish 4hr chart break below $1,950 would bring $1,900 followed by the recent Low, circa $1,850, into focus.

  • Watch $1,950 S/R for any new make or break:

 

 

EUR/USD: The EUR/USD closed with a bullish, almost ‘engulfing’, weekly candle and has made a bullish breakout from the weekly chart’s Bull Flag pattern. Price action closed the week just below 1.19 S/R so that is the level to watch for any new make or break.

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

There was such a large move last week so traders should watch for any pause or pullback to the 61,8% Fibonacci level down near 1.17 S/R.

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

Bearish targets: Any bearish 4hr chart trend line breakout would bring 1.17 S/R into focus as this is down near the 61.8% Fibonacci level.

  • Watch 1.19 and for any new 4hr chart trend line breakout;

 

 

AUD/USD: The Aussie closed with a large, bullish weekly candle and has made a weekly chart breakout from the Bull Flag pattern.

There are revised 4hr chart triangle trend lines to monitor for any new momentum-based breakout as price sits just under 0.73 S/R.

As with the EUR/USD, there was such a large move last week so traders should watch for any pause or pullback to the 61,8% Fibonacci level.

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 trend line breakout above 0.73 would bring whole-number levels on the way up to the weekly chart’s Descending Wedge breakout target of 0.90 into focus.

Bearish targets: Any bearish 4hr chart trend line breakout would bring 0.71 into focus as this is down near the 61.8% Fibonacci level and weekly chart Flag trend line.

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

 

 

AUD/JPY:  The AUD/JPY closed with a bullish, almost ‘engulfing’ weekly candle and just up under the upper trend line of a weekly Bull Flag.  Momentum continues to declines on the weekly time frame and is low on the 4hr chart time frame so watch trend lines for any new momentum-based trend line breakout.

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

Bullish targets: Any bullish 4hr chart trend line breakout would trigger the weekly Bull Flag breakout and would bring 76, 77 and 78 into focus.

Bearish targets: Any bearish 4hr chart trend breakout would bring 74 and 73 S/R into focus.

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

 

 

NZD/USD: The Kiwi closed with a bullish, essentially ‘engulfing’, weekly candle and has made a bullish breakout from the weekly chart’s Bull Flag.

Price action closed the week just under 0.68 S/R and this will be the level to watch in coming sessions for any new make or break.

As with the EUR/USD and AUD/USD, there was such a large move here last week so traders should watch for any pause or pullback to the 61.8% Fibonacci level, down below 0.67 S/R.

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

Bullish targets: Any bullish 4hr chart breakout above 0.68 would bring 0.69 and 0.70 into focus.

Bearish targets: Any bearish 4hr chart breakout would bring 0.67 into focus followed by 0.66 S/R.

  • Watch 0.68 S/R and for any new trend line breakout:

 

 

GBP/USD: The Cable closed with a bullish, almost ‘engulfing’, weekly candle and just below the 1.32 S/R level.

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

Bullish targets: Any bullish 4hr chart break above 1.32 would bring the recent High, near 1.35, back into focus.

Bearish targets: Any bearish 4hr chart trend line breakout would bring the 7-month support trend line into focus.

  • Watch 1.32 and for any 4hr chart trend line breakout:

 

 

USD/JPY:  The USD/JPY closed with a large, bearish weekly and below the 104 level; a level that has been effective support for over 6 months.

Price action ended up closer to 103 for the week so that will be the horizontal level to watch for any new support.

Bullish targets: Any bullish 4hr chart hold above 103 would bring 104 back into focus.

Bearish targets: Any bearish 4hr trend line breakout below 103 S/R would bring whole-number levels on the way down to 100 S/R into focus.

  • Watch 103 S/R for any new make or break:

 

 

GBP/JPY: The GBP/JPY closed with a bullish-coloured Spinning Top weekly candle and just below 136 S/R for the week.

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 near the 4hr chart’s 61.8% Fibonacci and the 40-yr trend line region.

Bearish targets: Any bearish 4hr chart break of the bottom triangle trend line would bring 135, 134 and 133 into focus on the way down to 130 S/R.

  • Watch 136 S/R and for any 4hr chart triangle breakout: