Trade Week Analysis for 23/09/13

Last week: Many of the TS signals were choppy last week: A/N=-100, Kiwi= 180, E/U= currently down 40, A/J=closed for -80, G/U=-100, E/A= currently up 60.

Last week saw the USD fall heavily following FOMC. It finished the week trading below a major, weekly chart support trend line. The Euro index rallied on the back of this USD weakness to end the week trading just under the major resistance level of the monthly 200 EMA. The USDX and EURX index charts clicked into alignment for ‘risk on’ with the FOMC move but I want to see if this alignment holds. I reviewed the indices yesterday and the article can be accessed through this link.

This week: FOMC helped to shape the USD last week and the German elections and US debt ceiling concerns might have a similar impact this week. Any ‘relief rally’ with the Euro following these elections might help to push the USD down further. I believe that traders need to watch the USD to help to shape an understanding of the type of evolving market condition. 

The markets have had glimpses of looking like they could be shaping back up into a conventional style ‘risk on’ type of rally with a lower USD, higher AUD/EUR/NZD etc and higher stocks, Gold and Silver/Commodities. I’m watching out for any return to ‘risk on’ or ‘risk off’ though.

NB: these posts seem to be getting longer and longer! I do take great care to edit them BUT please drop me a note if you do see a glaring error or oversight!

Stocks and broader market sentiment:

Stock have come under greater scrutiny this week as many indices continue to hold above long term highs in what many see as challenging conditions and with very mixed global fundamentals. There haven’t been any new bearish signals on the S&P500 this week though. In fact, there were two more bullish signals with a bullish ‘cross’ on the Ichimoku daily chart and a bullish weekly close above key support. However, I continue to see an increasing number of reports about stock market impending doom and one such example is posted here: http://www.cnbc.com/id/101049191. 

I don’t see a confluence of technical signals pointing to a major bearish stock market, and thus ‘risk’, reversal just yet but I am keeping an open mind. In fact, I actually see more bullish signals than bearish signals at the moment! Having said that though, I do see that a major bearish turning point could evolve if the EURX is categorically rejected again by the key resistance of the monthly 200 EMA. 

I think the issue for many traders is that they see a number of stocks at their 'tops' or breaking out of their recent trading ranges and printing major highs. Thus, the thought seems to prevail that 'what goes up must go down'. That may well end up being the case BUT I am also open to the idea that new 'floor prices' may be being printed instead with old resistance becoming new support. A case in point is with the materials (steel) stock Nucor (NUE). NUE has looked bullish for some time now and closed out the week above $50. It has not had a weekly candle close above $50 since back in September 2008! It may well pull back a bit from here but a hold and monthly close above this level would be a very bullish signal indeed.

Now I am not predicting a general 'risk on' rally here at all but I am keeping an open mind based on the variety of technical signals that I am seeing around with both stocks and currencies. I am a trend trader and I'm on the lookout for the next new trend to evolve and, then, I hope to follow it and catch a slice of the action. Thus, I'm continuing to watch out for further clues as to any new momentum move, long or short! In particular I’m looking out for:

S&P500 daily chart: a break of the daily bull trend line. Price continued to trade above both the daily trend line and the key 1,685 level this week which is rather bullish.

Ichimoku S&P500 chart: a clear cross of the blue Tenkan-sen line below the pink Kijun-sen line. The bearish Tenkan/Kijun cross has now closed and a new bullish Tenkan/Kijun cross formed. This cross, positioned in the Cloud, is deemed a ‘neutral’ signal though.  Price held up out of the Cloud this week which is bullish.

EURX monthly chart: a break of the monthly support trend line (see monthly chart). This support trend line is still broken and continues to be a bearish signal, but it is the ONLY bearish signal I have at the moment.

S&P500 monthly chart: a break of the monthly support trend line (see monthly chart). The monthly trend line remains intact at the moment. 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 still 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 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.

Dark Cloud Cover possibility: There is possible bearish ‘Dark Cloud Cover’ formation that might be setting up here on the monthly chart BUT this has not evolved as yet. 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 will need to be seen here before this pattern can be confirmed and it is currently printing a bullish candle with only one trading week to go. 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, it is still a gap.

Some key events to watch out for include:

• Mon 23^rd: Watch for impact from German elections. CNY: PMI. EUR PMI. EUR ECB Draghi speaks. JPY Bank holiday.
• Tues 24^th: EUR Ifo business climate. USD cons confidence.
• Wed 25^th: NZD Trade Balance.USD durable goods and new home sales.
• Thurs 26^th: GBP current account. USD unemployment claims. USD pending home sales.
• Fri 27^th: EUR ECB Draghi speaks.

E/U: Price broke up and out from trading within one of its two, monthly chart symmetrical triangles this week. Price rallied after FOMC to break through the 1.34 S/R level and the upper trend line of the triangle. This move eventually produced a TS signal but I am still concerned that price might test the broken 1.34 region again before any continued up move.  Price is trading above the Ichimoku Cloud on the daily and on the 4 hr chart which is bullish. It is also now trading above the weekly Cloud but just under the monthly Cloud. The weekly candle closed as a large bullish candle above the psychological 1.35 level.

• There is an open TS signal on this pair BUT it looks set to close off at market open. Watch for any impact from the German elections with all Euro pairs!

E/J: Like the E/U, price rallied after FOMC and gave a new TS signal that has yielded up to 180 pips. It also broke up and out from a symmetrical triangle. Price is now trading above the Cloud on the daily and the 4 hr Ichimoku Cloud which is bullish. It is also trading above the weekly Cloud and is close to emerging from the top of the monthly Cloud. The weekly candle closed as a bullish candle. I still see the 140 level as a possible target if any bullish sentiment prevails.

• There is an open TS signal on this pair. Watch for any impact from the German elections with all Euro pairs!

A/U: Price rallied with FOMC here too and moved up through the 0.94 level and settled afterwards near the 0.95 level. Price drifted back though, post FOMC, and ended up closing the week back below the 0.94 level and, also, below a daily support trend line. Price is still trading above the Cloud on the daily and 4hr chart which is bullish. The weekly candle closed as a bullish coloured candle but with a bit of a bearish reversal ‘shooting star’ look to it.

The A/U has dipped back below the 0.94 level and, whilst above the 0.92 level, this might still be viewed as a bearish signal. Further bearish movement back below the 0.92 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.

I still see that any continued bullish behaviour with the A/U could see a 50% pullback to the last major swing high at about the 0.97 area. This is also the region of the daily and weekly 200 EMA so might be a possible target for any continuing bullish moves. 

• I’m watching the 0.94 level and for any new TS signal.

A/J: Price just drifted higher this week but missed much of the big FOMC action. This move eventually produced a TS signal but this closed off on Friday. Price drifted lower on Friday but still managed to close just above the support of a daily bull trend line. As with the A/U, price is trading above the Cloud on the daily and on the 4hr chart which is bullish. The weekly candle closed as a bullish candle.

A 61.8% pullback to the last major swing high would be to about the 98 area. The 50% fib pullback is in the 96 area. These might be targets for any continuing bullish moves.

• I’m watching the daily support trend line and for any new TS signal.

G/U: Price continued upwards last week after breaking out from a descending wedge pattern two weeks ago. This bullish break yielded up to 630 pips. The Cable also rallied after FOMC and broke up through the 1.6 S/R level. This move produced a new TS signal but it subsequently failed as price retreated to test the broken 1.6 S/R level. Price is trading above the Cloud on the daily and on the 4hr time frame which is bullish. It is still also trading above the Cloud on the weekly chart too. The weekly candle closed as a bullish coloured candle but with some long shadows reflecting indecision. Price is now only 300 pips or so below a major, monthly chart, triangle trend line. Price closed the week sitting right on top of the major S/R level of 1.60!

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 1.60 level at the moment.

Kiwi: NZD/USD: Price gave a new TS signal early in the week and then rallied after FOMC, breaking through the 0.83 S/R level. The significance of this level can be seen on the weekly chart. Price is now trading above the Ichimoku Cloud on the daily and on the 4hr chart which is bullish. The Kiwi is also trading above the Cloud on the monthly chart and has poked up through the Cloud on the daily chart now too. The weekly candle closed as a bullish candle above the key 0.83 level.

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. 

• There is an open TS signal on this pair that has yielded up to 180 pips.

EUR/AUD: Price continued trading in a descending channel on the 4hr chart giving this pair a bit of a possible ‘bear flag’ look to it or, it could also be viewed as a bottoming pattern. A new TS signal came through on Friday and this was shortly followed by a trend line break up and out of the trading channel. The E/A is trading in the bottom edge of the Cloud on the daily and in the top edge on the 4hr charts which suggests further choppiness. The weekly candle closed as a small, bullish candle and with a bit of a bullish reversal-style 'hammer' look to it.

• There is an open TS signal on this pair. Watch for any impact from the German elections with all Euro pairs!

The Yen: U/J: This pair chopped up and down this week with FOMC.  I’ve got the U/J trading in a symmetrical triangle on the daily chart. Any bullish trend line break here would be near the psychological 100 level and the top edge of the monthly Ichimoku Cloud too and that is significant. Price is now trading above the Cloud on the daily but in the bottom edge of the Cloud on the 4 hr frame which suggests further choppiness. Price is also struggling to break out of the Ichimoku Cloud on the monthly chart. The weekly candle closed as a small, but bullish coloured, candle. This pair still looks like it is simply poised and gathering steam before it makes another attempt at breaking through the monthly 200 EMA resistance area.

• I’m still watching the 100 level, trend line breaks and the top of the monthly Ichimoku Cloud.

AUD/NZD: This pair continued to trade lower this week after breaking down from the daily chart trading channel last week. This is looking more like a continuation ‘bear flag’ move and has yielded over 180 pips! Care needs to be taken now though as it is approaching a possible ‘double bottom’ level so price could stall a bit here.  Price is trading below the Cloud on the daily and on the 4 hr time frame which is bearish. The weekly candle closed as a bearish candle.

• I’m watching the potential ‘double bottom’.

GBP/AUD: Price held below a broken daily support trend line this week as it chopped lower under the key S/R level of 1.75. It is trading in a flag like pattern on the daily chart which could be viewed as a ‘Bull Flag’ BUT it also has a bit of a bearish H&S look to it on the daily chart as well....just to thoroughly confuse me! Price is trading just above the Cloud on the daily but in the Cloud on the 4 hr chart which suggests further choppiness. The weekly candle closed as a bearish coloured candle BUT with a bit of a bullish reversal style ‘hammer’ look to it after a few weeks of decline. The weekly chart definitely has more of a ‘Bull Flag’ look to it and the monthly chart clearly shows how the 1.75 S/R level has helped this ‘Flag’ to form up.

NB: Thee GBP/AUD chart has a lot in common with the EUR/AUD. The E/A had a long run up and then paused below the 1.5 S/R level. The GBP/AUD had a similar long run up and then paused below the 1.75 S/R level.

• I’m simply watching this pair at the moment and the 1.75 level. 

Silver: Silver rallied this week with FOMC and USD weakness. This rally stalled though and price retreated to end up chopping around in what now looks like a bullish pattern setting up on the 4hr chart; a bullish ‘broadening descending wedge. Panning out to the daily chart has this wedge forming up the ‘handle’ of what looks like a possible bullish ‘Cup & Handle’! Now, I’ve seen these patterns before and they have not evolved so I’m not getting too excited BUT I’ll be on the lookout for any trend line breaks here that confirm or reject this pattern.

There is a possible TS short signal building here too but I do see price approaching support at $21.50. This level looked like it was only recent support on the daily chart but I do note on the monthly chart that it was a turning point back in 2007 so, it may offer some support to price. Thus, if any TS ‘short’ signal evolves I’d want to see a break, close and hold below this level before trading.

Silver is trading above the Ichimoku Cloud on the daily chart but below on the 4hr, monthly and weekly charts so might continue to be choppy. The next major support level below $20 seems to be down at $15, near the monthly 200 EMA. The weekly candle closed as a small bearish candle.

Gold: Gold, like Silver, rallied this week with FOMC. It then also fell back down to be chopping around in a similar 4hr chart pattern of a bullish style ‘broadening descending wedge’. I don’t see the same, clear cut, ‘Cup & Handle’ pattern here as with Silver though.

Price is still above the key $1,300 level for the time being, albeit only just, which is still a bullish support signal. 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 below the Ichimoku Cloud on the 4hr and the weekly chart, above on the daily and in the Cloud on the monthly so it might also be prone to some continuing choppiness. The weekly candle closed as an indecision style ‘spinning top ‘candle with long upper and lower shadows reflecting indecision.