Last week: The first day of May started with selling and this is bringing the ‘Sell in May and Go Away‘ mantra into greater focus for traders. The US major stock index of the S&P500 has now peaked at a major technical resistance zone; the same zone that featured back in the 2008-2009 Global Financial Crisis. How the Index reacts from here might help sort out whether the latest stock market move was the start of V-shaped recovery or simply a dead cat bounce. Some US$ weakness helped to trigger a few decent trend line breakout trades and traders should watch to see how this week’s NFP might further impact the US$ index.
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 during these volatile market conditions. Coronavirus remains the dominant market theme and this can be seen from CNBC’s Saturday’s front page where, yet again, most headlines related to the topic:
Trend line breakouts and TC signals: Some US$ weakness helped to trigger a few trend line breakouts last week.
- AUD/USD: a TL b/o move for 150 pips.
- AUD/JPY: a TL b/o move for 110 pips.
- GBP/USD: a TL b/o move for 100 pips.
- NZD/USD: a TL b/o move for 100 pips.
- GBP/JPY: a TL b/o move for 170 pips.
- EUR/USD: a TL b/o move for 100 pips.
- DXY: US$ Index: The US$ index closed with bearish weekly candle and back under the key 100 level BUT note the continued low level of momentum:
- Indecision weekly candles: there were still a few of these printed last week: VIX, Gold, ASX-200, AUD/USD, AUD/JPY and GBP/JPY.
- S&P500: Keep the bigger picture in perspective with this pullback:
S&P500 yearly: keep this latest move lower in perspective:
- Currency Strength Indicator: note the convergence of currencies on the 4hr time frame so watch for any new breakout:
Currency Strength Indicator (4hr):
- Sell in May and Go Away: Ryan Detrick gives his thoughts on Sell in May for 2020 in a 2 minute video clip.
- Gold: is still shaping up in a weekly chart Inverse H&S so watch the $1,800 breakout level.
o Calendar: Note there are two Central Bank updates next week from the RBA (AUD) and BoE (GBP) and it it also NFP week.
- VIX: the Fear index closed with a small bullish-coloured Spinning Top weekly candle reflecting indecision at this 61.8% fib pullback level. Watch this region for any new make or break:
VIX weekly: watch 40 for any new make or break:
S&P500: SPX: The S&P500 closed with a bearish-reversal Shooting Star weekly candle after finally reaching up to the key 61.8% Fibonacci level. This region has been in focus over recent weeks as it proved to be a major turning point region for stocks back in GFC; as the following set of charts reveal:
S&P500 weekly & Covid-19: note there has now been a pullback to the 61.8% region:
S&P500 weekly & GFC: note the pullback to the 61.8% fib with the first bounce of the GFC:
Back in the GFC era, price action eventually moved much lower after this test of the 61.8% fib as the following chart reveals:
S&P500 weekly & GFC: price action moved lower after the first bounce and test of the 61.8% fib with the GFC:
As mentioned over recent weeks:
- The big question remains: Will current price action mirror that seen during the GFC? No one can know for sure but the reaction at the 61.8% Fibonacci level, now that this has been reached, will be critical to aid our understanding of what might be to follow.
- I am still watching for any broader pullback to the 61.8% Fibonacci of the 2009-2020 swing High move and this level is down near 1,700 / 1,600. This is a region of some confluence as it is the previous upper level from the 2013 channel breakout. The 61.8% Fibonacci zone was also tested in the 1987 and GFC market pullbacks, as described in this post. For the moment though, the index has only pulled back to around 45% of this 2009-2020 swing High move so keep this move in perspective as technical theory would suggest the uptrend is intact until the 61.8% fib is broken!
The 4hr chart’s recent support trend line has been broken but there is the look of a potential Bull Flag so watch these Flag trend lines for clues about the next move on the index.
Bullish targets: any bullish 4hr chart Flag breakout would bring 2,900 and 3,000 back into focus.
Bearish targets: any bearish 4hr chart Flag breakdown would bring the 11-yr support TL into focus as this is near the 4hr chart’s 61.8% fib and, after that, the recent Low, near 2,200.
- Watch for any momentum-based 4hr chart Bull Flag breakout:
ASX-200: XJO: The ASX-200 closed with a bullish-coloured Doji weekly candle reflecting indecision as the index struggles to recover above 5,450 and the recently broken 11-year support trend line.
There have been two scenarios open to the index over recent weeks and these are described below. There has been a new break below the 4hr chart’s support trend line suggesting the Bear Flag move might be underway BUT there is declining 4hr momentum here for now suggesting some caution with this move is warranted. Traders need to watch weather price holds below this trend line and to see if there is any uptick with ADX momentum:
- Bullish: any breakout and hold above 5,450 would support a V-shaped recovery.
- Bearish: the revised 4hr chart trend lines are still shaping up in a potential Bear Flag so keep an open mind for any breakout: up or down! The Flag pole here is large and would predict the index falling to down near 2,000 so let’s hope this pattern fails! However, the impact from the economic fallout due to Covid-19 is still uncertain but could take an enormous toll if the situation continues out to the end of the year. Recall though that the index continues to hold above the support from the weekly 61.8% fib; a key S/R region that was previously highlighted in articles here and here.
Bullish targets: Any bullish 4hr chart recovery above 5,450 would bring the daily chart’s 61.8% fib level, near 6,130, into focus and this would satisfy a Gap Fill move as well.
Bearish targets: Any bearish continuation with the the 4hr chart’s Bear Flag style breakout would bring the 5,000 level and, then, the weekly chart’s 61.8% fib region, near 4,600-4,700, followed by whole-numbers down to the recent Low, near 4,400.
- Watch for any continuation with the 4hr chart’s bearish trend line breakout:
Gold: Gold closed with a small bearish-coloured, almost Inside, weekly candle and just above the $1,700 level making this the one to watch for any new make or break.
Weekly chart: As mentioned over recent weeks, the weekly chart 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 $700 so it is a longer-term pattern worth monitoring. The upper breakout region for this pattern is $1,800 which is still a way off yet.
There are revised 4hr chart trend wedge lines to monitor in the mean time until this $1,800 breakout region might be reached.
Bullish targets: any bullish 4hr chart wedge breakout would bring $1,800 S/R into focus.
Bearish targets: any bearish 4hr chart wedge breakout would bring $1,650, $1,600 and, then, $1,550 into focus as the latter is near the 4hr chart’s 61.8% Fibonacci level.
- Watch for any 4hr chart wedge breakout:
Oil: Oil closed with a bullish-reversal Hammer weekly candle and just under $20 making this the one to watch for any new make or break.
I still see a triangle on the daily chart to monitor for any potential momentum-based breakout.
Bullish targets: any bullish daily chart triangle breakout above $20 would bring $30 S/R into focus followed by the $40 / $41.50 region as the latter represents a Gap Fill from a previous weekly close and is near the 61.8% fib of the recent swing Low move.
Bearish targets: any bearish daily chart triangle breakout would bring the recent Low, near $6.50, into focus.
- Watch for any daily chart triangle breakout:
Price action last week broke out from a 4hr chart triangle and this move is currently up around 130 pips. Watch the 1.10 level for any potential continuation with this bullish move that has a first target up near 1.12.
Bullish targets: Any bullish 4hr chart continuation above 1.10 would bring 1.12 into focus as this is near the 4hr chart’s 61.8% fib. After that, watch the 1.15 level, near the previous High.
Bearish targets: Any bearish retreat from 1.10 would bring the 20-year support trend line followed by the recent Low, near 1.065, into focus.
- Watch 1.10 for any new make or break:
AUD/USD: The Aussie closed with yet another bullish-coloured Spinning Top weekly candle reflecting ongoing indecision. However, the monthly chart still shows a rather bullish pattern developing; a bullish-reversal Descending Wedge. Watch to see how next week’s RBA rate update might impact the recent bullish run on the Aussie.
Price action last week rallied up to just under the 0.66 level before pulling back to close the week just above 0.64 S/R. This pullback resulted in a break of the recent 4hr chart support trend line, but, in doing so, has set up a potential Bull Flag giving traders trend lines to monitor for any new breakout.
Bullish targets: Any bullish 4hr chart Flag breakout would bring 0.65 S/R back into focus and, after that, the recent High near 0.67 S/R.
Bearish targets: Any bearish 4hr chart triangle breakout below 0.64 would bring 0.625 S/R into focus followed by whole-numbers on the way down to 0.55 S/R.
- Watch for any 4hr chart Bull Flag or 0.64 breakout; especially with next week’s RBA rate update:
Price action rallied up to test the 61.8% fib and 70 S/R level before pulling back. Like with the AUD/USD, this pullback resulted in a break of the recent 4hr chart support trend line, but, in doing so, has set up a potential Bull Flag giving traders trend lines to monitor for any new breakout.
Bullish targets: Any 4hr chart Bull Flag breakout would bring 70 S/R followed by whole-number levels up to 75 S/R into focus.
Bearish targets: Any bearish Flag breakdown would bring 65 S/R back into focus followed by 60 S/R.
- Watch for any 4hr chart Bull Flag breakout; especially with next week’s RBA rate update:
NZD/USD: The Kiwi closed with a small bullish weekly candle having a long upper shadow but it has continued to hold above 0.60 S/R.
Price action remains trading within a 4hr chart triangle giving traders trend lines to monitor for any new momentum breakout.
Bullish targets: Any bullish 4hr chart triangle breakout would bring 0.625 into focus followed by the recent High, near 0.64 S/R.
Bearish targets: Any bearish triangle breakout below 0.60 would bring 0.57 S/R back into focus as this is still near the 4hr chart’s 61.8% fib
- Watch for any 4hr chart triangle breakout; especially with next week’s NZD Unemployment data release:
GBP/USD: The GBP/USD closed with a bullish weekly candle right on top of the 1.25 level making this the one to watch for any new make or break. Perhaps news of the PM’s new baby buoyed sentiment last week!
Despite this bullish weekly candle, price action has essentially chopped sideways for the last 5 weeks in a channel with a 1.265 upper boundary and a 1.22 lower boundary. Watch to see if this week’s BoE rate update might shake price out of this trading channel.
Bullish targets: Any bullish 4hr chart bounce up from 1.25 would bring 1.265 S/R followed by whole-numbers on the way up to 1.30 into focus.
Bearish targets: Any bearish 4hr chart break and hold below 1.25 would bring 1.22 S/R back into focus followed by 1.20 and, after that, the 2016 Low, near 1.145.
- Watch 1.25 for any new make or break; especially with next week’s BoE rate update:
The 4hr chart shows how price action chopped sideways above 107 for the previous two weeks but spent most of last week just below this level. There is the look of a descending wedge on the 4hr chart as well so watch trend lines for any new momentum breakout.
Bullish targets: Any bullish 4hr wedge breakout above 107 would bring 108, 108.5 and 109 and, then, whole-numbers on the way to 112 into focus.
Bearish targets: Any bearish wedge breakout below 107 would bring 105 S/R back into focus as this is near the 4hr chart’s 61.8% Fibonacci and the monthly 200 EMA.
- Watch for any 4hr chart wedge breakout:
Very little has changed here now for over five weeks as price action continues to chop within the channel bound by 136 above and 132 below.
Bullish targets: Any bullish 4hr chart move up from the 21 EMA would bring 136 into focus followed by whole-numbers on the way to 140 and 150.
Bearish targets: Any bearish 4hr chart breakout below the 21 EMA would bring 132 S/R back into focus and, after that, 130 and the key 125 level.
- Watch the 21 EMA for any new make or break and for any 136 – 132 channel breakout: