Trade Week Analysis for 02/09/13

Last week: There were a few TS signals last week but they were rather choppy and with little follow through. I am not at all surprised by this though after tracking the FX index charts with the Ichimoku Cloud: The week started with the USD stuck in the 4hr Cloud, mid week had the Euro index in the 4 hr Cloud and the end of the week had the Euro index in the daily Cloud. Last week was shaped by a return of 'fear', though, with rising Middle East tension due to the conflict in Syria. This resulted in a rally with the USD and a shift in market sentiment.

This week:

There have been some significant technical charting changes since last week. The USD index has bounced off weekly support and the EURO index has broken down through weekly support. This is a major development as this support trend line has held the Euro index since the middle of last year. I see the Euro index as a bit of a proxy for ‘risk’ appetite and this would suggest a warning against trading such sentiment. I discussed this in my post yesterday and this can be viewed through the link here. The FX indices have reacted sharply to this change in global tension but they could react again, and turn, just as quickly with any easing of this situation. As well, a number of bearish and/or reversal style candle patterns have emerged in both the S&P500 index and across many of the currency pairs over multiple time frames.

The critical thing to watch for here now is whether any future rally in the USD is driven out of ‘fear’, due to the Syrian conflict, or due to ‘optimism’ based on any continuing strong US economic data. This will help to shape an understanding of the type of evolving market condition. A ‘fear’ driven USD rally would most likely see a typical ‘risk off’ type of move with stocks, commodities and the A/U, Kiwi etc falling. A ‘US optimism’ driven USD rally would be harder to predict but would probably see the return of a joint USD and stocks rally. The direction with currencies might be harder to predict though with this latter scenario.

There is a fair bit of scheduled 'red flag' news this week and, of course, NFP on Friday. This is all without the Syrian situation added to the mix! This might certainly be a week to trade carefully or even avoid until the dust settles.

Stocks and broader market sentiment:

There have been a few more bearish signals on the S&P500 that have been triggered as a result of two main concerns: the Syrian conflict situation and the tapering of QE.  I'm continuing to watch here for further clues as to any new momentum move. In particular I’m looking out for:

S&P500 daily chart: a break of the daily bull trend line. The daily support trend line is still in place here but has been tested this week. I always expected that price could pull back further to test this as part of any continued, overall uptrend. The TS signal to ‘SHORT’ is still open here. I would not be shorting this index, on a daily time frame though, until there was a clear break, close and hold below the daily trend line.

I mentioned during the week that this chart is starting to form up a possible bearish ‘Head and Shoulder’ pattern. One ‘shoulder’ and the ‘head’ have formed and I’ll be watching to see if the other shoulder forms up too. The previous ‘high’ of 1,685 is, again, key here. A respect of this resistance level could help to form up the other shoulder.

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 but these crosses, positioned above the Cloud, are deemed ‘weak’ signals. There was not a lot of bearish follow through on the last signal like this, but, still, I’m keeping an eye on it anyway. Price now has fallen into the daily Cloud. This is another bearish signal on this chart. The bottom of the Cloud has acted as some support but needs watching.

EURX monthly chart: a break of the monthly support trend line (see monthly chart). This support trend line has now been broken and this is a bearish signal.

S&P500 monthly chart: a break of the monthly support trend line (see monthly chart). 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. Elliott wave suggest a big correction here though. I am still thinking that the 1,600 level might be the new floor for this index. The saying that ‘Old resistance becomes new Support’ rings for me a bit here. 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 break and I would expect a significant level such as this to be tested more than this. The August candle has closed above this key level without testing it at all throughout the month. Also, 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 test this region again as well before any continued move upwards.

There is one other possible bearish development here though and that is the ‘Dark Cloud Cover’ formation that might be setting up on the monthly chart. I have to admit that I haven’t seen many of these patterns follow through but, it bears noting just the same. The September candle close would need to be seen here before this pattern can be confirmed on the monthly charts. Just another thing to watch out for! I have posted a picture to show the details of this bearish pattern and, also, an enlarged snap of the recent S&P500 monthly candles. The last two candles for July and August only show a small gap but, still, it is a gap.

July /August S&P500 monthly candles: Dark Cloud Cover forming?

Some key events to watch out for include:Syrian related news will most likely have an impact on markets this week and care needs to be taken whilst trading around this.

• Mon 2^nd Sept: new monthly pivots and monthly candle closes. Impact of positive Chinese PMI released from w/e. AUD building approvals. GBP manufact. PMI. CAD and USD bank holiday.
• Tue 3^rd Sept: AUD retail sales. AUD RBA cash rate. GBP construct PMI. USD manufact PMI.
• Wed 4^th Sept: AUD GDP. GBP Services PMI. USD Trade Balance.
• Thurs 5^th Sept: AUD Trade Balance. JPY BoJ monetary policy. GBP bank rate. EUR min bid rate.EUR ECB press conference. USD unemployment claims. USD non-manufact PMI.
• Fri 6^th Sept: GBP manufact data. USD NFP. G20 meetings.
• Sat 7th Sept: G20 meetings. Australian election.

E/U: Price is still trading within two symmetrical triangles on the monthly/weekly charts. Price traded down from the psychological 1.34 level this week and drifted back towards the 1.32 level. The weekly support trend line is still intact and well below current price action. Price is trading above the Ichimoku Cloud on the daily but below on the 4 hr chart which suggests choppiness. The monthly candle closed as a small, bearish coloured ‘inside’ candle reflecting indecision or, even, a possible turning point. The weekly candle closed as a bearish engulfing candle. Price closed the week below the weekly 200 EMA which is bearish.

• I’m watching for any new TS signal and the 1.32 level.

E/J: Price trended back down this week from the previous triangle break. The upper trend line has been relaxed here to reflect this latest resistance. Price traded sideways for much of the latter part of the week around the key S/R 130 level again. This level seems to be a magnet for price! The E/J dipped on Friday to test the bottom trend line of the triangle pattern. Price is now trading in the Cloud on the daily and below on the 4 hr Ichimoku Cloud which suggests choppiness. The monthly candle closed as a ‘spinning top’ candle reflecting indecision. The weekly candle closed as a bearish candle. I still see the 140 level as a possible target if any bullish sentiment prevails.

• I’m watching the 130 level and triangle trend line. There is still an open TS signal on this pair.

A/U: Price drifted down this week and headed back below the key 0.90 level. My bullish ‘Cup & Handle’ pattern on the daily chart seems to have been voided! Price action is getting down to previous recent lows and there is a possible ‘double bottom’ formation evident on the daily and weekly chart. Further bearish movement below this level would suggest much lower targets though. As mentioned in previous posts: I don’t see much other support until down at the 0.83 level! The 0.83 is the monthly 200 EMA. After that there is the 80 level that is near the 61.8% fib retrace from the last swing low to high level so this isn’t too ridiculous a notion! Any continued pause or pull back with the stock market might see price visit these low levels.

Price is trading under the Cloud on the daily and 4hr chart which is bearish. The weekly candle closed as a bearish candle. The only suggestion of any possible pause in downward momentum is the potential 'double bottom' on the daily/weekly chart (discussed above) and the latest monthly candle close. The August candle closed as an inverted hammer candle. These often point to possible bullish reversal when they appear in a downtrend as it so happens here.

• I’m watching the 0.90 level and the possible ‘double bottom’. Watch for any positive impact from the w/e Chinese PMI data.

A/J: Price fell heavily at the start of this week to trade below the 89 level. The 89 area is the 61.8% fib level from the recent swing high to the last swing low, a previous triangle breakout zone and a major S/R level for the A/J. Price is now trading below the Cloud on the daily and on the 4hr time frame which is bearish. The A/J closed for the week just above the weekly 200 EMA support level. The weekly candle closed as a bearish candle. The August candle closed as an almost ‘spinning top’ candle suggesting indecision.

• I’m still watching the 89 level, the weekly 200 EMA and for a new TS signal.

G/U: Price drifted down, albeit rather gently, this week. Price is trading above the Cloud on the daily but is now below Cloud on the 4hr time frame which suggests choppiness. The weekly candle closed as a bearish candle but the monthly candle closed as a bullish one! I’m not confident with the pattern I’ve got here on the 4hr but it is looking like a possible bullish descending wedge...at the moment that is. Syrian news could change this in a heartbeat though.

NB: Go Market charts have an error for my weekly 200 EMA with the G/U. I have advised them about this.

• I’m just watching this pair at the moment.

Kiwi: NZD/USD: Price chopped around either side of the weekly 200 EMA and above a monthly chart support trend line this week. It finished the week below the support of the weekly 200 EMA though and only just above the support of the monthly trend line. Price is now trading below the Ichimoku Cloud on the daily and on the 4hr chart which is bearish. The weekly candle closed as a bearish candle and the monthly candle closed as a large bearish candle, and, almost formed a ‘rail road’ track pattern. These are bearish patterns when the second candle is bearish.

As with the A/U, any recovery with risk sentiment might help to boost the Kiwi but a fall in stocks would most likely see the Kiwi fall heavily. The monthly 200 EMA, at around 0.68, would seem to be the next level of support if this pair returns to being bearish. 

• I’m watching the weekly 200 EMA and the monthly chart support trend line.

EUR/AUD: This pair is still trading in an ascending triangle pattern. Price rallied up to the key 1.5 level this week but bounced back down from this major S/R level. The monthly chart shows how price is now trading just under the monthly 200 EMA and the 38.2% fib retrace level from the last swing high back in 2008! The E/A is trading above the Cloud on the daily and on the 4hr time frame which is bullish. The weekly candle closed as a bearish reversal style, ‘shooting star’ candle though. The monthly candle closed as an indecision style ‘spinning top’ pattern.

• I’m watching the 1.5 level and the triangle trend lines.

The Yen: U/J: This pair is still trading within a symmetrical triangle pattern. Price drifted back down to the 97 level this week and then bounced back up. The 97 level is a key level on the daily chart. Price is now trading in the Cloud on the 4hr and just below the Cloud on the daily time frame so, price action might be choppy. The weekly candle closed as a bearish coloured ‘inside’ candle and the monthly candle closed as an indecision style ‘spinning top’ candle.

• I’m watching for any symmetrical triangle break here.

AUD/NZD: you will be aware that I have been tracking this pair for some weeks now as it has trended down in a descending trading channel. Price actually broke out to the upside from this daily chart channel recently. The weekly chart shows another bearish candle after last weeks, essentially, bullish engulfing candle. This was the first bullish candle after 8 bearish weeks.

Price is just below the Ichimoku Cloud on the daily chart but above the Cloud on the 4hr chart so might continue to be a bit choppy. The weekly candle was a small bearish candle and the monthly candle closed as a bullish coloured 'inside' candle reflecting some indecision.

I have drawn in Fibonacci retracement levels from the last major swing, back in Feb 2011, to the most recent low. This enables one to see possible target areas for any 'Long' trades: Firstly, the 38.2% fib level coincides with the monthly 200 EMA at around 1.22. Secondly, the 61.8% fib pullback from the last swing high that, incidentally, coincides with the weekly 200 EMA at around 1.25. These both seem as good a place as any to aim for.

• I'm watching the 1.145 level and for any new TS signal.

Silver: Price stalled this week once the USD rally started. The weekly candle closed as almost a bearish reversal style ‘shooting star’ pattern but the monthly candle closed as a bullish candle. Silver is trading in a descending channel on the 4hr chart.

Silver is trading just above the Ichimoku Cloud on the 4hr, above on the daily chart but below on the monthly and weekly charts so might be choppy. Further bullish movement with the USD might spell trouble for Silver. The next major support level below $20 seems to be down at $15, near the monthly 200 EMA.

Gold: Gold traded this week much the same as Silver. The Gold rally stalled once the USD started to rally. The weekly candle closed as a bearish reversal style ‘shooting star’ pattern but the monthly candle closed as a bullish candle.

Price is still well above the key $1,300 level for the time being and trading in a descending channel on the 4 hr chart. The $1,300 level is the 50% fib pullback from the last swing low to swing high. The next major support after $1,300 seems to be down at the whole number, $1,000 level and, after that, at $850 in the monthly 200 EMA.

Gold is trading above the Ichimoku Cloud on the 4hr, daily and monthly chart but below on the weekly chart so it might also be prone to some further choppiness. As with Silver, further bullish moves with the USD might cause some problems for Gold. An exception would be, though, if the USD rally was more due to a ‘flight to safety’ sentiment amid continued Syrian concern. Gold might possibly rise in this ‘fear’ scenario too.