Last week: The week started with some warning signals, alerted in updates here and here, and these proved to be accurate predictors for what was to come. The first was some Yen strength and this was closely followed by similar Flight to Safety moves into the US$ and Gold; with all three preceding the large risk off shift that triggered on US stock markets on Thursday following the cautionary FOMC update. The last few weeks have been ones of divergence between Main Street and Wall Street but this theme was challenged last week when the sobering issues of a global recession and persistent pandemic seemed to sink into the markets. It remains to be seen if this latest reality-check will undermine the recent recovery efforts but volatility seems to be on the rise again and there have been a number of bearish-reversal style weekly candles printed across a range or trading instruments so watch for any potential follow-through, even if these moves are only temporary.
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.
Trend line breakouts and TC signals:
- USD/JPY: a TL b/o for 220 pips.
- NZD/USD: a TL b/o for 60 pips.
- Gold: a TL b/o for $40.
- AUD/JPY: a TL b/o for 100 pips.
- S&P500: a TL b/o for 25 points with the move above 3200 and another 150 point move from the mid-week chart pattern:
- GBP/USD: a TL b/o from last week’s profiled 4hr chart pattern for 200 pips:
- DXY: US$ Index: I pointed out on Wednesday the new bullish-reversal Descending Wedge shaping on the 4hr chart and, as often the case with these patterns, it has played out with an upside breakout. Watch for any mean-reversion follow-through here to 98 S/R and, after that, the 61.8% Fibonacci. Recall, though, that technical Theory would suggest this latest downtrend remains intact until the 61.8% Fibonacci is broken:
- S&P500: Keep the bigger picture in perspective with this recent pullback:
S&P500 yearly: keep this latest move in perspective:
- Currency Strength Indicator: note how the JPY is trying to break higher so watch for any follow-through here:
Currency Strength Indicator (4hr):
- Gold: I have been warning about the bigger picture chart pattern shaping up on the weekly chart of an Inverse H&S. The choppiness I had anticipated continues BUT watch for any eventual push to the $1,800 ‘neck line’ breakout level of this pattern.
- Central Banks: There are three Central Bank rate updates this week: BoJ (JPY), SNB (CHF) and BoE (GBP).
- 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; even if the S&P500 heads back to testing its 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 monthly: keep watch for any Distribution type of activity:
- NASDAQ composite: The NASDAQ Composite Index closed with a bearish-reversal style weekly candle after touching the key 10,000 level. Watch for any potential pause or pullback here after this lengthy recovery rally. Any deeper pullback would bring the 8,000 level back into focus as this is near the weekly chart’s 61.8% Fibonacci level:
- VIX: the Fear index closed with a large bullish weekly candle so watch for any mean-reversion push to the 61.8% Fibonacci level, near 60.
VIX weekly: watch for any recovery above the 30 S/R level:
S&P500: The S&P500 closed with a large bearish weekly candle in a week where market sentiment seemed to align more closely with community concern about the broadening global Covid-19 pandemic and continued civil unrest following George Floyd’s death.
I’ve recently been making mention of trading Volumes and urged traders to watch for any shift here. Note how last week’s bearish activity came with increased Volume and how the weekly Volume has now closed above the 200 moving average (blue line):
SPY weekly: Volume has closed above the 200 MA:
Price action broke down below the support of the three-month support trend line last week but, in doing so, has set up with a bit of a Bull Flag formation on the 4hr chart so watch these trend lines for any new momentum breakout.
Bullish targets: any bullish 4hr chart Bull Flag / channel breakout would bring whole-numbers on the way back to the previous High, near 3,400, into focus.
Bearish targets: any bearish 4hr chart Bull Flag / channel breakout below 3,000 would bring whole-number levels on the way down to the recently broken 11-yr support TL and, after that, the recent Low, near 2,200.
- Watch for any 4hr chart Bull Flag / channel breakout:
ASX-200: XJO: The ASX-200 closed with a bearish weekly candle. The candle had a small body but a long upper shadow casting a rather bearish bias as price action struggled under the psychological 61.8% Fibonacci level, circa 6,130. Another bearish signal here is that the weekly candles have been unable to close above the 6,000 psychological level. However, price action remains in an uptrend for the time being as the support trend line for this bullish recovery, since the March Low, remains intact. As well, whilst trading Volume is elevated it did not peak to a new High during this bearish week:
XJO weekly: trading Volume elevated over last three weeks BUT no candle close > 6,000:
The 6,000 and weekly 61.8% Fibonacci level remain as the upper resistance levels for the index. However, price action is back down at the 3-month support trend line so watch this region for any new make or break.
Bullish targets: Any bullish 4hr chart bounce up from the 4hr chart’s support trend line would bring 6,000 followed by whole number levels on the way back to the previous all-time High, circa 7,200, into focus.
Bearish targets: Any bearish break of the 4hr chart’s support trend line would bring the 11-yr trend line support into focus followed by the 5,000 level as this is near the 4hr chat’s 61.8% fib level.
- Watch the 4hr chart’s support trend line for any new make or break:
Gold: Gold closed with a bullish coloured, almost ‘Inside‘, weekly candle reflecting indecision. The 4hr chart below shows that the metal has been essentially chopping sideways in a range bound by $1,750 above and $1,670 below which continues to support my thesis of a weekly chart Inverse Cup and Handle brewing.
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.
Bullish targets: any bullish 4hr chart trend line breakout above $1,750 would bring $1,800 S/R into focus.
Bearish targets: any bearish 4hr chart trend line breakdown would bring $1,700 and, then, $1,670 into focus.
- Watch for any 4hr chart trend line breakout:
Oil: Oil closed with a bearish Spinning Top style weekly candle reflecting some indecision as price trades just under the weekly 61.8% Fibonacci level and back near the $35 level.
Bullish targets: any continued bullish daily chart triangle breakout above $40 would bring the $41 / $43 region into focus as this represents a Gap Fill region and is near the 61.8% fib of the recent swing Low move.
Bearish targets: any continued bearish retreat, below $35, would bring $30 followed by $20 and, then, the recent Low, near $6.50, into focus.
- Watch the $35 support level and for any continued daily chart triangle breakout:
EUR/USD: The EUR/USD closed with a bearish-coloured weekly candle that was a bit of a cross between a Spinning Top and Inside weekly candle with both reflecting indecision. The 4hr chart shows that there has been a break of the recent three-week support trend line BUT traders need to watch for any potential Bull Flag.
Price action closed above the 1.12 region making this the support level to watch of for any new make or break. Keep an eye on the 4hr Ichimoku Cloud as well.
Bullish targets: Any bullish 4hr chart Bull Flag breakout would bring the 1.130 and the weekly 200 EMA into focus followed by whole-number levels on the way up to a recent High, near 1.15.
Bearish targets: Any bearish 4hr chart break below 1.12 would bring 1.11 into focus as this is near the 4hr chart’s 61.8% fib, followed by the 20-yr support trend line.
- Watch the 1.12 S/R level and Bull Flag trend lines for any new make or break;
AUD/USD: The Aussie closed with a bearish-coloured weekly candle and, like with the EUR/USD weekly candle, this was a bit of a cross between a Spinning Top and Inside weekly candle with both reflecting indecision. The candle closed right at the multi-year bear trend line which is of little surprise; I would not have expected such a major resistance zone to be given up easily.
One important observation here is just how well the AUD/USD has held up though given the risk-off shift that developed this last week. Note how the 4hr chart’s multi-month support trend line remains intact! Traders need to keep in mind that this multi-year trend line being negotiated represents the upper trend line from the longer-term bullish-reversal Descending Wedge.
A pullback, even if only temporary, could still well evolve here so watch the various support trend lines here for clues. Remember, trends do not travel in straight lines unabated and so a pullback at this major wedge trend line resistance zone would not be at all unexpected.
Bullish targets: Any bullish 4hr chart trend line breakout would bring 0.70 into focus followed by whole-number levels on the way up 0.90.
Bearish targets: Any bearish break below the 4hr chart support trend line would bring the 0.67 into focus followed by 0.625 S/R as the latter aligns near the 50% Fibonacci level.
- Watch for any 4hr chart trend line breakout;
AUD/JPY: The AUD/JPY closed with a bearish-coloured ‘Inside’ weekly candle reflecting indecision. Price action fell in sympathy with the risk-off shift seen across stocks and it is back below the 75 S/R level. However, note how price action is holding above the support trend line that has been in pace since mid March; this will be the support region to monitor in coming sessions.
There are revised 4hr chart trend lines to monitor for any momentum breakout.
Bullish targets: Any bullish 4hr chart trend line breakout would bring 75 into focus followed by whole-number levels on the way up to 78 S/R.
Bearish targets: Any bearish 4hr chart break of the support trend line would bring 70 S/R back into focus followed by whole-number levels on the way down to 60 S/R and the longer-term support trend line.
- Watch for any momentum-based trend line breakout;
NZD/USD: The Kiwi closed with a bearish-coloured weekly candle and, like with a number of the other USD-based pairs, this had some Spinning Top and Inside look to it with both reflecting indecision.
Price action is back down near 0.64 S/R so watch this for any new momentum breakout; either up or down.
There are revised trend lines to monitor for any new breakout as well and recall the multi-year bear trend line is just above.
Bullish targets: Any bullish 4hr chart trend line breakout would bring 0.65 followed by the 6-year bear TL into focus.
Bearish targets: Any bearish 4hr chart trend line breakout would bring 0.625 S/R into focus.
- Watch for any new trend line breakout:
GBP/USD: The GBP/USD closed with a bearish coloured weekly candle and, like with the EUR/USD and AUD/USD, this was a bit of a cross between a Spinning Top and Inside weekly candle with both reflecting indecision ahead of this week’s BoE rate update.
There are revised 4hr chart trend lines to watch for any new breakout.
Bullish targets: Any bullish 4hr chart trend line breakout would bring 1.265 and 1.28 S/R into focus as the latter aligns near the weekly chart trend line.
Bearish targets: Any bearish 4hr chart trend line breakout would bring the 61.8% fib, near 1.235, into focus followed by 1.21 S/R.
- Watch for any new momentum-based trend line breakout; especially with this week’s BoE rate update:
USD/JPY: The USD/JPY closed with a bearish, almost ‘engulfing’, weekly candle and and back down near 107 S/R making this the level to watch for any new breakout.
There are revised triangle trend lines on the 4hr chart giving traders trend lines to watch for any new momentum breakout.
Bullish targets: Any bullish 4hr chart triangle breakout would bring 108.5 into focus as this is near the 4hr chart’s 61.8% Fibonacci level.
Bearish targets: Any bearish 4hr chart triangle breakout would bring 107 followed by the recent Low, near 106.5 S/R, into focus.
- Watch for any 4hr chart triangle breakout:
Analysis written by Mary McNamara, Market Analyst from Tradingchart.com