Trade Week Analysis for 11/08/14

Last week:  It was another choppy week defined by further geopolitical tension with Iraq concern adding to the situation already in Ukraine. This was on top of a weekly news schedule that was heavy with high impact data. Many of the weekly FX candles reveal this choppy action through their long upper and / or lower shadows. There were only two TC signals but both failed: GBP/AUD = – 80 and EUR/USD = – 20.

Stocks bounced back strongly on Friday on just a whiff of some good news revealing the strength in this current bull market. An interesting image appeared as the week came to a close. It was one of China and the USA battling it out for front running place in the ‘strengthening economy’ stakes with most other global economies running a good furlong or so behind. It seems the ‘Bernanke Put’ mentality, that had underpinned US stocks throughout much of the QE period, may have been replaced with one of ‘The Empire Strikes Back’ as US stocks held their ground relative to other economies last week. London’s FTSE is one index worth keeping an eye on this week as it trades down near a triangle support that has been in play for over 5 years:

FTSEweekly

This week:

There isn’t a lot of scheduled ‘high impact’ news this week but those items featured are quite significant. Unscheduled news may pick up the slack here though, especially of the geopolitical variety!

The USD battled hard at the resistance zone of 81.50 last week but failed to make a weekly close above this key level. A make or break of this level for the USD index still has the potential to define much of the future FX momentum and thus this index needs monitoring. A review of this index can be found through this link.

There was very bullish Chinese Trade Balance data released last week and on-target CPI was released on Saturday. This should help to support risk appetite to a certain extent.

Pivotal week for Cable: The Cable will come under close scrutiny this week as it trades down near a major resistance level and especially so on Wednesday as there is some key GBP data scheduled for release on that day. 

Events in the Ukraine and the Middle East continue to have the potential to undermine any developing ‘risk’ appetite and needs to be monitored.

Stocks and broader market sentiment:

The ‘bellwether’ stock, UPS, gave an early warning two weeks ago that stocks may be in trouble when it dipped below its weekly support trend line. Concern about escalating tension in the Ukraine and the Middle East added further pressure to stocks last week and the S&P500 traded down to test its daily support trend line and major support level of 1,900. The DJIA also fell to test its daily support trend line. News on Friday though of a Russian troop withdrawal in Ukraine and of decisive action being taken in Iraqi saw US stocks post their best gains since March. The S&P500, DJIA and NASDAQ closed above their daily support trend lines and the Russell 2000 closed above its key support. All of these US stock indices printed positive weekly candles, albeit they were only small candles.

I am still seeing divergence on the monthly S&P500 monthly chart though and whilst this might just be warning of a pause, as the index navigates new highs, the chance of a pullback cannot be ruled out either. There has not been any real deep pull back since the break up through the 1,577, 1,600, 1,700 and 1,800 levels and the major break of the 1,577 level was only tested once.  Thus, I am still being cautious here now even though the daily support of the S&P500 has not been broken. 

It is worth noting that a 61.8% fib pull back of the recent bull run (Nov 2012-present) would bring price down to near the 1,577 area. This remains significant as it is the breakout level of the previous highs from the 2000 and 2007 peaks. I would expect this region could be a target if there was any pullback on the S&P500.

Thus, with all of this, I continue to watch out for further clues as to any new momentum move, long or short though! In particular I’m looking out for:

S&P500 daily chart: I’m watching for any break of the daily trend line but price is holding above this for the time being. The index continues to hold above the top trend line of the bullish ascending triangle (1,900). It is worth noting that the pull back to test this level has not broken the daily support trend line.

S&Pdaily

Ichimoku S&P500 chart: a clear cross of the blue Tenkan-sen line below the pink Kijun-sen line. There has been a bearish Tenkan/Kijun cross and price, after dipping below below the Ichimoku Cloud mid-week, the index closed back up in the Cloud. I will be on the lookout for any continued bounce here though as any new close back above the Cloud could trigger a new Tenkan/Kijun cross ABOVE the Cloud which would be a ‘strong’ bullish signal:

S&PdailyCloud

S&P500 monthly chart: a break of the monthly support trend line (see monthly chart). The monthly trend line remains intact. A break of this support level would suggest to me of a more severe pull back or correction. The look of this ‘market top’ still appears quite different to that of the previous two market tops from back in 2000 and 2007. I am seeing divergence on the monthly chart though. This may just be as the index pauses and ponders this new high or it could be warning of a pull back. Elliott wave suggest a big correction here though. I am still thinking that the 1,600 level might be the new base line for this index. The saying that ‘Old resistance becomes new Support’ holds here. I still believe that it would not be at all surprising to this 1,600 level tested again. It has only been tested once by a monthly candle since the bullish breakthrough and I would expect a significant level such as this to be tested more than once. Maybe I’m wrong here though as there have now been thirteen consecutive months of candles that have closed above this key level, and, without testing this region at all. To add to this thought of bearish pull back potential, the previous candle close ‘highs’ from back in 2000 and 2007 were down near the 1577/1580 area so it is entirely feasible that price may even test this region again before any continued move upwards. I actually won’t be too comfortable with any bullish continuation move on the S&P500 until this 1,577 level is tested again but, for the moment, the trend seems to be continuing higher.

S&Pmonthly

Russell 2000 Index: this small caps index is a bit of a US market ‘bellwether’ and I see the 1,100 level as key support here. This support level is holding up for now:

RUTdaily

Items to watch out for:

  • Mon 11th: nil
  • Tue 12th: AUD NAB Business Confidence. EUR German ZEW Economic sentiment.
  • Wed 13th: CNY Industrial Production. GBP Unemployment data, BoE Inflation Report & BoE Gov Carney speaks. USD Retail Sales.
  • Thurs 14th: NZD Retail Sales. USD Unemployment claims.
  • Fri 15th: EUR French /Italian holiday. GBP Second estimates GDP. CAD Manufacturing Sales. USD Prelim UoM Consumer Sentiment.

Forex:

E/U: The E/U drifted lower again last week but found some support from the bottom of the weekly Ichimoku Cloud. It rallied on Friday to close back up just under the weekly 200 EMA.

Weekly H&S? The weekly chart’s bearish ‘H&S’ appears to have evolved with the ‘neck line’ of 1.35 now clearly broken. The height of this weekly H&S pattern is about 500 pips. The theory of these technical patterns is that any bearish follow through can be expected to extend by the same order of magnitude as the height of the pattern. Thus, the projected target for this H&S pattern is 500 pips below the 1.35 level. This would predict the E/U to target the 1.3 level which is just above the monthly 200 EMA. This has now delivered up to 170 pips. Caution here though: Any failure of the USD index to close above the 81.50 might allow a continued reprieve for the E/U. Thus, the 1.35 level will be the key level to watch here in the coming week: A close and hold back above the 1.35 would void this pattern but a respect would suggest the neck line is simply being tested before bearish continuation.

I had mentioned that there is plenty of support below current price and that any bearish follow through may be choppy which is what we continue to see. Support levels below the weekly 200 EMA include the:

  • bottom of the weekly Ichimoku Cloud.
  • 50% fib level of this latest Bull Run.
  • monthly 200 EMA AND
  • 61.8% fib level of this latest Bull Run.

EUweeklyCloud

Price is trading below the Ichimoku Cloud on the 4hr and daily charts, near the bottom of the Cloud on the weekly chart and at the bottom edge of the Cloud on the monthly chart. There has been a bullish Tenkan/Kijun cross on the 4hr chart (see chart below) although this is a weak signal as it formed below the Cloud. A candle close back above the 4hr Cloud though would be bullish and is worth monitoring, especially as the USD index continues to struggle at key resistance:

EU4hrCloudThe weekly candle closed as bearish candle but with a long lower shadow showing some buying into the weekly close.

  • I’m watching for any new TC signal on this pair and the 4hr Ichimoku Cloud chart.  

EUweekly EUdaily EU4

E/J: The E/J chopped lower last week but found some support from the revised daily chart bull trend line.

Price is now trading below the Cloud on the 4hr and daily charts, in the Cloud on the weekly but above the Cloud on the monthly chart. The November and December candles were the first to close above the resistance of the monthly Ichimoku Cloud since 2008.

The weekly candle closed as a bearish coloured ‘inside’ candle.

The weekly and monthly charts however still show the E/J looking ‘Bull Flag’ like to me!

  • I’m watching for any new TC signal on this pair and the daily 200 EMA.

EJmonthly EJweekly EJdaily EJ4

A/U:  The AUD had a very choppy week and suffered significant losses after the much weaker than expected AUD employment data.  Positive Chinese Trade Balance data on Friday though helped to stem the losses somewhat. The previous support level of 0.9225, a significant level throughout April and May, seems to have kicked in again here during this last week. This support level is best viewed on the daily chart and will be a level to watch next week.

The recent bearish Tenkan/Kijun cross on the daily Ichimoku chart does not bode well for this pair though and the A/U is still trading below the daily Cloud:

AUdailyCloud

Price is trading below the Cloud on the 4hr and daily charts, in the bottom of the Cloud on the weekly chart and in the middle of the Cloud on the monthly chart.

The weekly candle closed as a bearish candle with long upper and lower shadows showing the buying and selling pressure this pair endured during the week.  Remember there was a monthly chart bearish-reversal ‘Railway Track’ pattern at the end of July and this may well still play out here.

  • I’m watching for any new TC signal on this pair and the 0.9225 level.  

AUmonthly AUweekly AUdaily AU4A/J: The A/J suffered a huge fall after the AUD employment data and also with Yen strength stemming from increased geopolitical concern. The daily chart’s bullish ‘Inverse H&S’ seems to have been undermined by fundamental events.  The daily 200 EMA has offered some support here however.

Price is now trading below the Cloud on the 4hr and daily charts, in the middle of the Cloud on the weekly chart but above on the monthly chart.

The weekly candle closed as a bearish candle. 

  • I’m watching for any new TC signal on this pair.

AJmonthly AJweekly AJdaily AJ4

G/U: The Cable chopped sideways and just above the 1.68 level until Friday when the release of some weak, second tier GBP Trade Balance data saw the Cable slip below this support. The weekly close below the 1.68 would seem to signal further weakness BUT there is major support with the monthly 200 EMA just 50 pips below current price.

The weekly close and hold below the weekly support trend line and the 1.68 level suggests that a further pull back may be in store here though. Possible targets now include:

  • The monthly 200 EMA, near the 23.6% fib of the recent bull move (50 pips away)
  • The 1.6 region. This is near the 50% fib of the recent bull move and near the previously broken monthly chart’s triangle trend line (650 + pips away)

It will be a pivotal week for the Cable as it navigates down near this major support of the monthly 200 EMA and especially given the significant GBP data scheduled for release on Wednesday. A respect of this key level would suggest bullish reversal but a sustained close and hold below would suggest a pull back possibly back down to the 1.60 region.

Bullish targets for any continued hold above the monthly 200 EMA: This level remains a key level to watch here and any continued hold above this level would be quite bullish. It is important to remember that February was the first monthly close above this S/R level since September 2008 and, also, the highest monthly close since the bear move of 2007-2009. These were major achievements. A possible target for any continued bullish movement is best determined from the monthly chart. The 50 % fib level of the 2007-2009 bear move is up at around the 1.73 region and the 61.8 % fib is at the 1.82 region. Both of these levels might be possible profit targets. The 61.8% fib level is now about 1,500 pips away. 

Price is now trading below the Cloud on the 4hr and daily chart, above the Cloud on the weekly and in the top edge of the Cloud on the monthly chart.

The weekly candle closed as a bearish candle. 

  • I’m watching for any new TC signal on this pair, the 1.68 level and the monthly 200 EMA.

GUmonthly GUweekly GUdaily GU4

GBP/JPY: The GBP/JPY chopped lower last week and couldn’t hold above the 173 level. Yen strength due to geopolitical concern plus some GBP weakness fueled this pull back and saw the pair close back below the key support of the monthly 200 EMA as well.  

I had previously been seeing a bullish triangle break on the GBP/JPY but recent price action now seems to have the GBP/JPY forming up into a bearish ascending wedge pattern. As always, trend line breaks will help to guide traders here. Having said that though, the monthly chart still looks like this pair is setting up in a ‘Bull Flag’ pattern!

Price is trading below the Ichimoku Cloud on the 4hr and daily charts but above the Cloud on the weekly and monthly charts.

There is major GBP data on Wednesday that might define the next major move here.

The weekly candle closed as a bearish candle.

  • I’m watching for any new TC signal on this pair, the 173 level and the monthly 200 EMA.

GJmonthly GJweekly GJdaily GJ4hr

Kiwi: NZD/USD: The Kiwi chopped along above the daily 200 EMA to start the week but soon slipped below this support. This ‘support’ then turned into ‘resistance’ and the Kiwi subsequently struggled to break back above this level.

Any failure to close back above the daily 200 EMA would suggest bearish follow through to possibly the daily support trend line (60 pips away) and, then, the monthly support trend line (300 pips away).

Price is still trading below the Ichimoku Cloud on the 4hr and daily charts but above the Cloud on the weekly and monthly charts.

The weekly candle closed as a bearish candle. The July candle’s bearish-reversal ‘Railway Track’ pattern has played out so far last week.

There is Retail Sales data for the Kiwi on Thursday.

  • I’m watching for any new TC signal on this pair and the daily 200 EMA.

KiwiMonthly KiwiWeekly KiwiDaily Kiwi4

EUR/AUD:  This pair chopped lower and then higher last week but eventually rallied again to test the top of the daily chart’s bullish descending wedge pattern. It broke up through the upper trend line of this pattern on Friday and closed above this resistance and also above the weekly and monthly pivots. This pair made a similar wedge breakout last week that didn’t hold but a continued hold above this wedge pattern and pivots would be bullish.

I’m still seeing the look of a possible bearish ‘H&S’ building on the weekly chart as well. This would tie in with any bullish breakout on the E/A from the descending wedge on the daily chart though.

The E/A is still trading above the Cloud on the 4hr but below the Cloud on the daily chart which suggest choppiness.

The weekly candle closed as a small bullish candle with a long lower shadow reflecting the late buying pressure here. This bullish weekly close comes after the clues offered last week by the bullish-reversal ‘Railway Track’ pattern.

  • I’m watching for any new TC signal on this pair and the descending wedge trend lines.

EAmonthly EAweekly EAdaily EA4

The Yen: U/J: The U/J chopped lower last week despite increasing USD strength. Yen strength triggered by geo-political concern and ‘flight to safety’ activity weakened this pair. It has been interesting to see how the 38.2%,  50%, 61.8% and 78.6% fib levels of the recent bull move ALL provided support for the U/J at various points throughout last week!

Price is now trading below the Cloud on the 4hr chart, above on the daily chart, in the top edge of the Cloud on the weekly chart but above on the monthly chart. November was the first monthly candle close above the Ichimoku Cloud since mid-2007 and the bullish hold above the monthly Cloud continues to be noteworthy.

The weekly candle closed as a bearish ‘inside’ candle reflecting the indecision here.

Weekly Chart Bullish Cup’ n’ Handle pattern: I am still seeing this pattern building on the weekly chart. The theory behind these patterns is that the height of the ‘Cup’ pattern is equivalent to the expected bullish move from the ‘handle’ breakout. The height of the Cup for the U/J weekly chart is around 2,400 pips. The interesting point here is that a 2,400 pip bullish move up from the ‘Handle’ would put price up near the 124 level. This level is the last major swing high for the U/J from back in 2007 and represents the 100% fib pullback for the move down in 2007 to the lows of 2012. Possible targets along the way include the 61.8% fib retrace level at the 105.5 region and the 78.6% fib up near the 112 region.

The weekly chart still has a ‘Bull Flag’ look to it but a sustained breach of the 100.7 level would void this pattern.

  • I’m watching for any new TC signal and the upper triangle trend line.

UJmonthly UJweekly UJdaily UJ4

AUD/NZD: I posted an article mid-week where I noted how I’m now seeing the AUD/NZD trading in more of a bullish ascending triangle pattern with a top horizontal resistance level of 1.105. Price chopped right up to this resistance level last week but some weaker than expected AUD employment data saw price pull back from this resistance but only as far as the daily 200 EMA, another S/R level.

It is all a matter of perspective though as some are seeing the AUD/NZD as trading in a trading channel and, thus, setting up on the monthly chart as huge ‘Bear Flag’ pattern. I have this channel drawn in on my charts as well. If so, this would suggest a bearish move for the AUD/NZD of over 3,200 pips. This calculation is derived from measuring the height of the ‘flag pole’ of the ‘Bear Flag’ pattern. Any such ‘Bear Flag’ follow-through move would suggest the AUD/NZD would trade down to near 0.77 which, personally, I cannot fathom but I will however be keeping an open mind and will look for trend line breaks to help guide me with either bullish or bearish breakouts.

The AUD/NZD is now trading in the Cloud on the 4hr and above the Cloud on the daily. The AUD/NZD is still attempting to move up through broad weekly Cloud and so any bullish continuation move could still be a bit choppy.

The weekly candle closed as a small bullish candle with long upper shadow. This follows on from the July candle that closed with a bullish-reversal Railway Track’ appearance.

  • I’m watching for any new TC signal and the 1.105 level.

ANmonthly ANweekly ANdaily AN4

GBP/AUD: This pair was very choppy last week with alternating bullish and bearish candles being printed for the last 5 days! Good luck trying to trade this pair at the moment!

Price is now trading just below thin Ichimoku Cloud on the 4hr and daily charts. There is still rather broad bullish cloud below the weekly candle, although, the weekly candle is still sitting in the top edge of this weekly Cloud.

The weekly candle closed as a bullish coloured Doji candle reflecting the continuing indecision with this pair.

  • I’m watching for any new TC signal….but not too closely.      

GAmonthly GAweekly GAdaily GA4

Loonie USD/CAD: The bullish descending wedge pattern breakout continued on the Loonie last week and has now delivered up to 220 pips. This trade had stalled at the 50% fib level of the recent bear move and just under the psychological 1.10 level but weak CAD employment data on Friday helped to trigger bullish continuation here.

The Loonie is now only about 200 pips away from a major bear trend line from the monthly’s chart’s triangle pattern and any bullish continuation will see the Loonie heading to test this trend line.

Price is trading above the 4hr and daily Cloud which is bullish.

The weekly candle closed as another bullish candle.

There isn’t any CAD data until Friday and so USD activity might drive any movement until then. 

  • I’m watching for any new TC signal and the monthly chart’s triangle pattern.

LoonieMonthly LoonieWeekly LoonieDaily Loonie4hr

Silver: Silver opened below the key $20.50 level last week and continued USD strength saw this metal continue to chop lower.  Price eventually found some support from the 61.8% fib level of the recent bull move but closed below other support of the whole number $20 level. Traders need to keep an eye on the USD index though as any renewed weakness could help to support Silver.

Silver is now trading below the Ichimoku Cloud on the 4hr chart daily, weekly and monthly charts which is bearish.

The weekly candle closed as a bearish candle.

  • I’m watching for any new TC signal and the $20.50 level.

SilverMonthly SilverWeekly SilverDaily Silver4hr

Gold: Gold traded higher last week despite the stronger USD on the back of geopolitical concern in a ‘flight to safety’ mode. Gold closed the week sitting at the S/R level of the daily 200 EMA.

The bullish ‘inverse H&S’ pattern is still forming up on the weekly chart. The ‘neck line’ of this inverse H&S is still up around the $1,400 region, which is also up near the weekly 200 EMA level.

Gold is trading above the Ichimoku Cloud on the 4hr and daily chart and in the bottom of the Cloud on the weekly and monthly charts. It is worth remembering that the November candle was the first monthly candle close below the Ichimoku Cloud since January 2002, a period of almost 12 years!  Price had pulled back up to test the Cloud but the March, April and May candles closed back below the monthly Cloud. The June monthly candle closed back up in the bottom of the Cloud but the July candle closed just below the monthly Cloud. This may be a case now of Gold forming a base, as the ‘inverse H&S’ would suggest, and starting to climb its way back.

The weekly candle closed as a large bullish, almost engulfing, candle.

It is worth remembering that Gold has completed a 61.8% fib pull back of the bull move from the last swing low, back in October 2008, to the highs of 2011. Thus, this is as good a place as any to try to carve out a basing pattern.

I’m watching for any new TC signal on this pair and the ‘Inverse H&S’ pattern on the weekly chart.

GoldMonthly GoldWeekly GoldDaily Gold4hr

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