Last week: The US major stock indices of the S&P500 and DJIA remain in focus as traders and analysts around the world watch to see whether this latest price action is shaping up as a V-shaped recovery or a dead cat bounce. This uncertainty kept price action on many trading instruments in range-bound chart patterns with numerous indecision-style weekly candles again being printed. The exception being Oil and Gold with both trading in risk-off mode due to ongoing concern about the economic impact of Covid-19. It is a busy week ahead with plenty of large-cap US stocks reporting earnings, three Central banks updating rates and, of course, Covid-19 developments so watch to see if some or all of these trigger some breakout movement.
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, every headline related to the topic:
Trend line breakouts and TC signals: There were only a few trend line breakouts last week.
- Oil: a TL b/o move for $10.00.
- Gold: a TL b/o move for $50.
- GBP/USD: a TL b/o move for 150 pips.
- ASX-200: a TL b/o move for 300 points.
- DXY: US$ Index: The US$ index closed with bullish weekly candle and above the key 100 level BUT note the absence of momentum:
- Indecision weekly candles: there were lots of these printed again last week: S&P500, DJIA, DAX, Russell-2000, EUR/USD, AUD/USD, NZD/USD, AUD/JPY, GBP/JPY and USD/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 AUD$ emerging out of the recent bunching! A short note here that is relevant to the AUD$: Australia has been doing very well with management of Covid-19 and this article highlights some of the key reasons for this success. I would like to add one key factor to this list though and I believe this is helping to accelerate our progress in dealing with Covid-19. That being the preparedness of our National Cabinet, and the broader public to a major extent, to listen to, accept and adopt the advice of our leading medical professionals and this fact alone stands in stark contrast to many other major countries.
Currency Strength Indicator (daily): The AUD$ is punching above its weight!
- Gold: is creeping closer to the key $1,800 level so watch for any developing Inverse H&S.
- VIX: the Fear index closed with another bearish weekly candle and note how price continues down past the 61.8% fib retracement of the recent swing High. Watch this region for any new make or break:
VIX weekly: price has pulled back more than the Elliott Wave tool predicted!
S&P500: SPX: The S&P500 closed with a bearish-coloured Spinning Top style weekly candle and still under 2,900 S/R.
The 2,900 / 3,000 level remains a key S/R region as it marks the 61.8% Fibonacci retracement of the latest pullback and would also satisfy a Gap Fill move. This region remains in focus 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: watching for any pullback to the 61.8%, circa 2,900 / 3,000 with this first bounce:
S&P500 weekly & GFC: note the pullback to the 61.8% fib with the first bounce of the GFC:
Back in the GFC era though, 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 2,900 / 3,000 level, should this be 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!
There is the look of a Bear Flag on the daily chart but I’ve also got a triangle pattern on the smaller time frame 4hr chart to monitor for any momentum breakout.
Bullish targets: any bullish 4hr chart triangle breakout would bring 2,900 / 3,000 into focus as this is near the 4hr chart’s 61.8% fib.
Bearish targets: any bearish 4hr chart triangle breakdown would bring the recent S/R level of 2,650 back into focus followed by the 11-yr support TL and, then, the recent Low, near 2,200.
- Watch for any momentum-based 4hr chart triangle breakout:
ASX-200: XJO: The ASX-200 closed with a bearish weekly candle and back below the 5,450 level that has been in focus for the last two weeks. Price action has struggled to get back above the recently broken 11-year support trend line however, even with this recent bearish candle, the overall chart action can still be viewed in either of two ways:
- 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 breakout above 5,450 would bring the 4hr chart’s 61.8% fib level, near 6,125, into focus and this would satisfy a Gap Fill move as well.
Bearish targets: Any bearish 4hr chart 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 5,450 and the Bear Flag trend lines for any new breakout:
Gold: Gold closed with a bullish weekly candle and above the $1,700 level. There were two Bull Flag breakouts last week and the second was the best one giving up to $50 as the chart below reveals:
Gold 4hr: the second Bull Flag b/o gave $50:
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 lines to monitor in the mean time until this $1,800 breakout region might be reached.
Bullish targets: any bullish 4hr triangle breakout would bring $1,800 S/R into focus.
Bearish targets: any bearish 4hr chart triangle breakout would bring $1,700, $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 triangle breakout:
Oil: Oil secured itself a page for the history books this week with an unprecedented sharp decline into negative territory. The commodity closed with a large bearish weekly candle but recovered well off its Low; giving a long lower shadow to this candle. Reduced global demand due to Covid-19 is being attributed to this sharp decline.
It seems a bit of a fools folly in trying to apply technical analysis to this commodity under these circumstances but I do see a triangle on the daily chart to monitor for any potential momentum breakout.
Bullish targets: any bullish daily chart triangle breakout 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 $6.50, into focus.
- Watch for any daily chart triangle breakout:
Price action is trading within a revised 4hr chart triangle, albeit with very low to no momentum, but watch for any new momentum breakout. Note how price is consolidating near that 20-yr trend line.
Bullish targets: Any bullish 4hr chart trend line breakout would bring 1.10 back into focus followed by whole numbers on the way up to 1.12 as this is near the 4hr chart’s 61.8% fib. After that, watch the 1.15 level, near the previous High.
Bearish targets: Any bearish 4hr chart trend line breakout would bring the recent Low, near 1.065, into focus.
- Watch for any 4hr chart triangle breakout; especially with this week’s FOMC and ECB rate decisions:
AUD/USD: The Aussie closed with another bullish-coloured Spinning Top weekly candle reflecting ongoing indecision. However, the currency pair continues to hold up pretty well given the continued US$ strength.
Not much has changed this week as the small weekly candle reflects. Price action is consolidating within a revised triangle on the 4hr chart giving traders trend lines to watch for any new momentum breakout. Note the continued declining and contracting 4hr chart momentum.
Bullish targets: Any bullish 4hr chart triangle 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 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 triangle breakout:
Very little has changed here this week as well. Price action remains just under the 61.8% fib and 70 S/R level and there are revised 4hr chart trend lines to monitor.
Note the continued declining and contracting 4hr chart momentum.
Bullish targets: Any 4hr chart triangle breakout would bring 70 S/R followed by whole-number levels up to 75 S/R into focus.
Bearish targets: Any bearish trend line breakdown would bring 65 S/R back into focus followed by 60 S/R.
- Watch for any 4hr chart trend line breakout:
NZD/USD: The Kiwi closed with another indecision weekly candle but this time it was a Doji weekly candle.
Price action remains trading within a 4hr chart triangle giving trend lines to monitor for any new momentum breakout. Note the declining momentum here as well.
NB: I have revised the longer-term (20-year) monthly chart support trend line.
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 would bring 0.57 S/R back into focus as this is near the 4hr chart’s 61.8% fib
- Watch for any 4hr chart triangle breakout:
Price action dropped to start the week but then chopped sideways to shape up in a new 4hr chart triangle giving traders trend lines to watch for any new breakout. However, here too, note the declining and contracting 4hr chart momentum.
Bullish targets: Any bullish 4hr chart triangle breakout would bring 1.25 S/R followed by whole-numbers on the way up to 1.32 into focus.
Bearish targets: Any bearish 4hr chart triangle breakout would bring 1.22 S/R back into focus followed by 1.20 and, after that, the 2016 Low, near 1.145.
- Watch for any 4hr chart triangle breakout:
The 4hr chart shows how price action pretty just chopped sideways under 108 and above 107 forming a channel to watch for any new breakout. Here, too, declining and contracting 4hr chart momentum is a feature.
Bullish targets: Any bullish 4hr channel breakout above 108 would bring 108.5, 109 and, then, whole-numbers on the way to 112 into focus.
Bearish targets: Any bearish channel 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 107 – 108 channel breakout:
Very little has changed here now for over four weeks as, although dropping to start the week, price action continues to chop within the channel bound by 136 above and 132.50 below. As well as this channel, note the 4hr chart triangle trend lines and how there is declining and contracting momentum here too.
Bullish targets: Any bullish 4hr chart triangle breakout would bring 136 into focus followed by whole-numbers on the way to 140 and 150.
Bearish targets: Any bearish 4hr chart channel breakout below 132.50 would bring 130 S/R back into focus and, after that, the key 125 level.
- Watch for any 4hr chart triangle breakout and 136 – 132.50 channel breakout: