Trade Week Analysis for 28/10/13

Last week: Ichimoku alignment helped the Euro-pair trades but some other signals were choppy : A/U -100, E/U 100, G/U -90, EUR/AUD 90. The no-brainer trade of the week was the 'long' on the AUD/NZD =100. This was a major trend line break and a TS signal rolled into one! 

This week:

The Euro index has held out another week above the significant S/R level of the monthly 200 EMA. This is a major achievement and one that had been brewing since January. There is no guarantee that this level will continue to hold but, if it does, then I would expect some trending 'risk on' markets to return. We have already seen this with the E/U.

The Euro and USD index charts are still aligned for ‘risk on’ across the 4hr and daily time frame Ichimoku charts. This alignment kicked in on Thursday 17^th October and I’m looking to see if this continues to hold and, then, for new TS signals in line with this momentum. The ‘Polarity Shift’ I have been discussing over recent weeks stills seems to be evolving and I went over this again yesterday in my FX Indices Review post. This week's FOMC could shake the USD and other things up a bit though! 

A few currency pairs are trading close to major trend lines and these need to be monitored for potential break out trades.

Friday is the first trading day of the new month. These days are often bullish days for ‘risk appetite’.

The Nikkei is hovering above a daily support trend line and a breach of this could see much larger falls. It's one to watch this week.

Stocks and broader market sentiment:

US Stocks had another positive week. The daily support trend line on the S&P500 held all week and price also held above the key support level of 1,685. Price closed the week above the psychological 1,700 level and after having printed a new, all-time high which is yet another bullish signal.

I still don’t see a confluence of technical signals pointing to any major bearish stock market and, thus, ‘risk’ reversal just yet but I am keeping an open mind. A major bearish turning point could evolve if the EURX is categorically rejected again by the key resistance of the monthly 200 EMA. This index has made a second weekly close above this key S/R level now though and I’ll be watching to see if it continues to hold. Wednesday's FOMC is the 'elephant in the room' here though and, depending on the outcome, could possibly reverse this momentum. With all of this in mind then, 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 held above the key 1,685 and psychological S/R level of 1,700 and, also, closed at a fresh high this week.

Ichimoku S&P500 chart: a clear bearish cross of the blue Tenkan-sen line below the pink Kijun-sen line. In fact, a bullish Tenkan/Kijun cross evolved on Wednesday 23rd! This bullish cross is deemed a ‘strong’ signal as the cross was positioned above the Cloud.  My own TS system gave a ‘buy’ signal on Monday 21^st after the Friday’s close. Price also held above the Cloud all week which continues to be bullish.

EURX chart: Price has made another weekly candle close up through a major S/R level of the monthly 200 EMA. A break and hold above this key S/R level with a monthly candle close would be quite bullish. A rejection of this level could prove to be a bearish turning point though.

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 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 and September candles closed above this key level and without testing it at all throughout their months. 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.

BTW: I have updated my Stocks:Oct page.

Some key events to watch out for include:

• Mon 28^th: NZD Bank Holiday.
• Tue 29^th: USD pending home sales. AUD RBA speech. USD retails sales, PPI & consumer confidence.
• Wed 30^th: USD employment data, FOMC and CPI.
• Thursday 31^st: NZD interest rates & business confidence. AUD building approvals. JPY BoJ monetary policy. USD unemployment claims.
• Friday 1^st: AUD PPI. CNY PMI. GBP PMI. EUR Bank Holiday. USD PMI.

E/U: Price chopped sideways between the 1.365 and 1.37 levels until Tuesday. The E/U then rallied above the 1.37 and triggered a new TS signal. Price closed the week just above the psychological and S/R level of 1.38 after hovering around there for much of Friday. The 1.38 is another key level that can be seen on the monthly chart. The other feature to note on the monthly chart is that price is only about 200 pips below the major triangle trend line and the 1.40 region so there is still some possible further space for this current move.

You can see from the weekly chart though how price has stalled at the 61.8% fib pull back level of the last major move down. The 4hr chart shows how price spiked up into this fib level on Friday. I am aware of the warning signal coming from the divergence on the 4hr chart but I don’t find this surprising given the lofty levels that this pair has reached up to.

The psychological impact of a weekly close above the 1.38 may prove significant to start next week but I think that FOMC on Wednesday might be of more importance. I think that the E/U will most likely dance to whatever QE tune emerges from FOMC. I suspect that suggestions of delaying QE will further hurt the USD and, thus, lift the E/U.

The E/U is trading above the Ichimoku Cloud on the 4hr, daily and weekly chart which is bullish. Price is now just under the monthly Cloud which, being rather thin and flat, may not pose too much resistance. It is worth noting that the bear triangle trend line of the monthly chart (mentioned above) is in the same region as the top of the Cloud on the monthly Ichimoku chart at around the 1.40 level. A break above the 1.40 would be a rather bullish signal. The weekly candle closed as a bullish candle.

I see this weekly E/U close above the 1.38 as a bullish signal and, with a caveat allowing for FOMC, suspect that the next stop for this pair would most likely be at 1.40.

Ichimoku Index alignment kicked in on Oct 17^th and the E/U has moved about 260 pips since this time. I'm still long this pair.

NB: My MT4 charts show an E/U closing price just below 1.38 but most other sources show a close of 1.3804.

• There is an open TS signal on this pair.

E/J: Price rallied to test the 135 level earlier in the week but U/J weakness dragged this pair back down too. Price is still lurking below this key level though. I am watching the 135 with keen interest as I see a break of this level as being quite bullish. The monthly chart shows the 140 as the next major S/R level as it is the 61.8% fib level and, thus, price might make this area the next port of call.

Price is now trading above the Cloud on the daily and on the 4 hr Ichimoku Cloud which is bullish. It is trading above the weekly Cloud and is close to emerging from the top of the monthly Cloud. The weekly candle closed as a small bullish candle but with a bit of an upper shadow. I still see the 140 level as a possible target if any bullish sentiment prevails.  

• I’m watching for any new TS signal and the 135 level.

A/U: I suggested over recent weeks that 0.97 would be a possible target for any bullish A/U movement and price touched there this week. It didn't manage to get much higher though and is back below this level but trading in a possible bullish descending wedge pattern. The pull back down this week didn't come with any significant ADX momentum or new TS signal. Price is trading above the Cloud on the daily but in the Cloud on the 4hr chart suggesting choppiness. The weekly candle closed as a bearish coloured ‘inside candle’ suggesting indecision.  

I had been stating 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 0.97 area being the region of the daily and weekly 200 EMA so a possible target for any continuing bullish moves. Now that price is up around this region one needs to look a little higher for possible further targets if any bullish momentum returns. The 61.8% fib is up at the 0.99 area and would have to be considered a possibility if the USD remains weak.

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’m watching for any new TS signal, the wedge trend lines and the 0.97 level:

A/J: Price traded much the same as for the A/U this week. It traded up to the 50% fib level of the last major down move and, subsequently, pulled back down to now trade in a possible bullish descending wedge. The bullish move following the break up and out from the previous descending wedge yielded up to 400 pips! Price is trading above the Cloud on the daily but in the Cloud on the 4hr chart suggesting choppiness. As with the A/U, the weekly candle closed as a bearish coloured ‘inside candle’ suggesting indecision.  

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 for any new TS signal.

G/U: Price chopped sideways for most of the week as it lurks just under a major monthly chart bear trend line. This is best seen on the daily chart time frame or higher. Price is trading above the Cloud on the 4hr, daily and weekly time frames which is bullish. The weekly candle closed as an indecision style ‘spinning top’ candle.

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 for any new TS signal.

Kiwi: NZD/USD: Price chopped downwards this week and through the previously broken S/R level of 0.835. In doing so price has formed up into a possible bullish descending wedge pattern although price action does look quite bearish! A major, monthly chart bear trend line is lurking just above price and seems to be putting a lid on this bullish momentum.

Price is now trading above the Ichimoku Cloud on the daily chart but below on the 4hr charts which suggests further choppiness. The weekly candle closed as a large bearish candle. Price is now down about 350 pips below a major wedge/triangle trend line on the monthly chart. A break above this level would be very bullish and thus it needs watching.

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 for any new TS signal, the wedge trend lines and the 0.835 level.

EUR/AUD: Price chopped higher this week with all the EUR strength but still holds little appeal for me. The E/A is trading below the Cloud on the daily but is now above on the 4hr charts suggesting choppiness but with a bullish bias. The weekly candle closed as a large bullish, almost engulfing style, candle.

• There is an open TS signal on this pair.

The Yen: U/J: This was rejected by the 4hr 200 EMA this week and fell heavily on Tuesday.  I've still got this in a 4 hr chart ‘broadening wedge’ but set within a daily chart ‘triangle’. Price found support at 97 on Friday and rallied a little to close the week above this level.

Price is now trading below the Cloud on the 4 hr and on the daily chart which is bearish. Price is also still struggling to break up and out of the Ichimoku Cloud on the monthly chart. The weekly candle closed as a small bearish candle.

This pair still looks like it could be simply poised and gathering steam before it makes another attempt at breaking through the monthly 200 EMA resistance area. I also still see what looks like a possible bullish ‘Cup ’n’ Handle’ pattern setting up on the weekly chart though. So, some mixed signals here.

• I’m watching for any new TS signal and the 97 level.

Yen and Nikkei Correlation: the positive correlation is still holding here:

Yen and S&P500 Correlation: 

The recent divergence, or negative correlation, is still evident though on the 1 year chart:

The 5 year Yen vs S&P500 chart reminds us that this 'divergence' is not unheard of:

Nikkei: this is still triangle bound and trading down near support. There is a lot of room to fall if this support trend line is broken.

I keep wondering if the Nikkei will join in on the fun that the S&P500 is having. The one year chart below shows that this divergence between the two is fairly recent:

AUD/NZD: Price took on the 1.145 level early in the week and has managed to close the week above this key S/R level and, in doing so, gave a new TS signal. The 1.12 has formed a triple bottom level. The 1.12 level is a major S/R level as can be seen on the monthly chart. This level represents the 78.6% pull back of the last move up from the swing low back in 2005 to the swing high of 2011. Thus, it is major support.

The weekly chart is worth looking at too. There is the look of a major, new 'double bottom' pattern forming up on this chart. The neck line for this possible 'double bottom' appears to be at around the 1.70 level. This is also the region of the 61.8% fib level so, it looks like the next major region to watch for sure.  Price is now trading above the Cloud on the daily chart and on the 4 hr time frame which is bullish. The weekly candle closed as a large bullish candle.

• There is an open TS signal on this pair.  I’m still watching the 1.145 level.

GBP/AUD: This pair has chopped a bit higher this week but still holds no interest for me at the moment. It seems range bound between the 1.75 and 1.65 levels. Price is trading in the bottom edge of the Cloud on the daily chart and just above the Cloud on the 4 hr chart suggesting choppiness. The weekly candle closed as a bullish coloured ‘inside’ candle suggesting indecision.

• I’m watching for any new TS signal and the 1.65 & 1.75 levels.

Silver: Continued USD weakness saw Silver chop higher this week to close above the monthly pivot. Price has held above the key $21.50 and, also, up and out from the bullish descending wedge. The $21.50 level is key support and was a turning point back in 2007.

Silver is now only trading below the Ichimoku Cloud on the weekly and monthly charts. It is in the middle of the Cloud on the daily and above on the 4hr chart. The weekly candle closed as a bullish candle.

• The next major support level below $20 seems to be down at $15, near the monthly 200 EMA.

Gold: As with Silver, continued USD weakness saw Gold chop higher this week to close above its monthly pivot. Price has held above the key $1,300 and, also, up and out from the bullish broadening descending wedge.

The $1,300 level remains a key level as it 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 now only trading below the Ichimoku Cloud on the weekly chart. It is above the Cloud on the 4hr, in the middle of very thin Cloud on the daily chart and in the middle of thickening Cloud on the monthly chart. The weekly candle closed as a bullish candle.

FOMC will most likely impact both Gold and Silver this week. Both of these metals need to be monitored in the wake of FOMC in case new trends emerge.