Trade Week Analysis for 11/03/13

Yet another choppy week.

Last week: It’s more of the same for this new month: Cloud divergence, choppy markets, few TS signals and some good 30 min chart trades during the US session.  There were only a few 4hr TS signals: G/U =0, Kiwi = 50, G/U = -40, E/J=220 and E/U =-100. The Yen started to move again though but I missed these moves. I had a few distractions last week.

This week: I’m watching to see if the USD continues to rally along with stocks. It's not the first time these two have rallied in tandem but it hasn't occurred, in a prolonged way, for some time. There is a disconnect at the moment with the usual inverse correlation of Stocks/Risk to the USD. The question is: will this disconnect be temporary OR is this the new trading paradigm for the broader markets post GFC? The currency markets have been choppy for the past few weeks and I'm not sure whether this has been due to flow on effects from the 'topping action' with many global stock markets OR due to this possible new paradigm being forged. Thus, I’m only quoting levels of interest with currency pairs for the time being; until the picture becomes a bit clearer. Please refer to my earlier FX Indices Review to understand how I am seeing the current status of the USD.

Stocks: Many global stock markets are experiencing record highs, or are close to achieving this. This phenomenon has many traders asking whether the bull trend will be sustained or whether this top is a signal of imminent reversal. The current print of the monthly chart of the S&P500 is worth looking at here:

To me, this market top LOOKS a bit different to the previous two tops from back in 2000 and 2007. Note the ADX at the bottom of the chart. In 2000 and 2007 momentum was falling (black ADX line) and bullish momentum (green DMI line) was also waning. The current ADX trend looks different though. Momentum only looks like it is starting to build (black ADX line) and the bullish momentum looks like it is just starting to build up as well. So, I am keeping an open mind about the future direction for stocks. I'm not making predictions of any sort here. I'm a trend follower and, thus, always a few steps behind the main herd. I'm simply noting how I am seeing the charts and that the herd seems like it could go either way from here. The one thing bothering me a bit though is that I would have thought we'd see a bit more of a pause, or a pullback, before the next major move higher. This was only to conform with the weekly print of the S&P500 chart though (below):

BTW: I have posted a new page for Stocks:March with trades I am planning. This is a HUGE post with lots of great trade Options. Pun intended!

Some key events to watch out for include: make sure you check your trading calendar each day!

• Saturday 9^th: Chinese CPI data came out on Saturday and was positive. This may impact on the Aussie and general 'risk appetite'.
• Sunday 10^th: Daylight Saving time shift USA & CAD.
• Wednesday 13th: US retail data.
• Thursday 14^th: NZD Interest Rates.
• Thursday 14^th : AUD employment data.
• Friday 15^th: USD CPI and Sentiment data.

Pairs I’m leaving for the time being: I am leaving out the USD/SGD as there has been a lot of noted and documented anomalies with this pair. I’m also leaving the USD/CHF too whilst there is pegging of the CHF to the Euro. I’m leaving the Loonie out too. I’m realising it is better to watch fewer pairs, the ones that are delivering trends, and to watch them well.

E/U: Price has now broken down from trading within a symmetrical triangle on the monthly chart. Price has been choppy all week but supported by the 1.3 again. Price is trading below the Cloud on the daily and 4hr Ichimoku chart which is bearish. The weekly candle closed as an indecision style ‘spinning top’ candle and sitting right on top of the 1.3 level. The positive Chinese data may impact here.

• I’m watching the 1.30 level.

E/J: Price traded sideways for most of the week until it broke up and out from a bull flag pattern on Thursday. Price is now trading above the Cloud on the 4hr and on the daily time frame which is bullish. The weekly candle closed as a bullish candle.

• I‘m watching the 125 level.

A/U: Price broke below the key 1.02 level to start the week but scrambled back up above this rather quickly. It is trading below the Cloud on the daily but is in the top of the Cloud on the 4hr chart which is divergent so price action may be choppy. The weekly candle closed as a bullish candle with long upper and lower shadows reflecting the indecision with this pair. Price has managed to close the week above the 1.02 level. This level will be a ‘line in the sand’ for this pair again next week. The positive Chinese data from Saturday might help to support this pair.

• I’m watching the 1.02 level.

A/J: Price dropped to start the week but then rallied from the 95 level without really looking back. Price broke out and up from the 97 level on Friday, this level had formed the upper trend line of the bull flag pattern. Price is now trading above the Cloud on the daily and on the 4hr chart which is bullish. The weekly candle closed as a bullish engulfing candle. The positive Chinese data from Saturday might also help to support this pair.

• I’m watching the 97 level and, thereafter, other whole numbers.

G/U: Price has again traded in a narrow range for most of the week between the 1.520 and 1.50 levels all week. Price spent most of the week just above the psychological whole number support level of 1.5. It is trading below the Cloud on the daily and on the 4hr chart so which is bearish. The weekly candle closed as a bearish candle. Price finished the week just below the 1.5 support level. I had a signal to SHORT here this week that I closed out at -40 but it went on to make over 100 + pips! NB: Go Market charts have an error for my weekly 200 EMA with the G/U. I have advised them about this.

• I’m watching the 1.5 level to short.

Kiwi: NZD/USD: Price has again chopped up and down all week. Price has closed below a weekly support trend line and also below the daily 200 EMA. It is now trading below the Cloud on the daily and the 4hr chart which is bearish. The weekly candle closed as an ‘inverted hammer’ candle though which suggests possible reversal. The Chinese data might help boost this pair though.

• I’m watching the daily 200 EMA.

EUR/AUD: Price has chopped up and down this week within the descending trading channel that it has been in for the last 5 weeks. Price has remained below the 1.28 support level for most of the week. It is trading just under the Cloud on the daily chart but below the Cloud on the 4hr chart which suggests further choppiness. The weekly candle closed as a bearish candle.

• I’m waiting for a clear break out of the trading channel.

The Yen: U/J: Price chopped sideways to start the week but then rallied to close out and up from the bull flag pattern and above the key S/R and psychological level of 95. Price is now trading above the Cloud on the daily and on the 4hr chart which is bullish. The weekly candle closed as large bullish candle.

• I’m looking to LONG this from the 95 level. Target: the monthly 200 EMA near 103!

EUR/GBP: I am back looking at this pair as it is trading at an interesting level. It is trading near the upper edge of a trading channel on the monthly chart that dates back to 2009. Price is currently trading within a smaller ascending channel pattern on the 4hr chart but, in doing so, is chopping around just under the monthly trend line. Price is now trading above the Cloud on the daily and on the 4hr chart which is bullish. The weekly candle closed as a small bullish, almost ‘inside’ candle.

• I’m watching for any break above the upper trend line on the monthly channel.

Silver: Silver has broken below the long term monthly support trend line. Price is still trying to hold above the $28 level and chopped sideways above this level all week. The $26 level is the next major support level after $28.

Gold: Gold has also broken down through major monthly support that dates back to early 2008. This is a major break down for the metal. The next major support level seems to be at $1,525. Price has chopped sideways all week. Price looks like it might go on to test this lower support level. The weekly candle closed as an indecision style Doji. I think that if the USD continues to rally then $1,525 is almost a certain bet.