Trade Week Analysis for 02/12/13

Last week:  There were only a few new signals last week but consistency is improving! Again, I’m not at all surprised by the few signals given that the USD index traded within the Ichimoku Cloud all week and there were no Central Banks talking down their currencies, as with the AUD the week before. Also, the 'Thanksgiving' Holiday made for much lighter trading during the latter part of the week.

The TS signals were: E/J=120, Cable=100, GBP/AUD= 200, EUR/AUD= 100 and U/J=80.

This week:

I’m continuing to watch the 'Holy Trinity alignment' of the U/J, Nikkei and S&P500. The Nikkei has also now broken above a major monthly chart bear trend line that had been in place since March 1991; a period of over 22 years. This is suggesting some possible bullish reversal for Nikkei stocks and this may have implications for other stocks as well.

The monthly candle close on a number of trading instruments has allowed me to see that many of these are notching up major achievements: the Euro index, Nikkei index, S&P500 index, U/J, E/J, GBP/AUD and Gold (under achievement?). To me, it feels like something significant is trying to build here although I'm not sure just what it will turn out to be. I have asked this before but I'm asking again.....

Last week was fairly quiet and not a lot has changed, thus, much of the analysis from last week is still valid. I've tweaked it here and there though. There is a lot of ‘red flag’ news this week across all major currency pairs so traders will need to watch their trading calendars closely!

AUD: the Aussie has been hammered lately and there is a lot of AUD data due out this week. Surprises to the upside with any of this data could spark a bit of a relief rally here. Of course, negative surprises could just as easily accelerate the losses so make sure you watch your trading calendar. 

Monday will be the first day of the trading month and this fact needs to be noted. These days are, more often than not, bullish for ‘risk on' appetite.

Stocks and broader market sentiment:

S&P500 stocks had a strong week and have again printed new ‘highs’. The daily support trend line, the key support level of 1,685 and the psychological 1,800 level all held for the week again. The index actually made a second weekly close above the psychological 1,800 level.

Many traders are suggesting that this run of ‘highs’ is reason enough to short the market. I’d rather wait for signs of weakness and I’m not seeing a confluence of technical signals pointing to any major bearish stock market and, thus, ‘risk’ reversal just yet. The S&P500 November candle closed as fairly strong bullish candle although I do note that the last two weekly candles have not been as convincing. Last week's S&P500 candle was a 'Doji', and the first bearish coloured candle in 10 weeks, and the week before there was a 'Hanging Man' style of candle (as shown below). Both of these types of candles, after a long run upwards, suggest buying pressure is weakening and they can even point to potential bearish reversal. It is important to note, though, that any such reversal has not set in as yet. Note how the previous 'Hanging Man' style candle didn't amount to much. We would need to see a big gap down, or a large red weekly candle, to confirm any bearish reversal.

Personally, I would like to see a short pull back before any bullish continuation but I’m not sure when this might evolve. 

With all of this in mind 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: Price held above the daily trend line, the key 1,685 level and the psychological S/R level of 1,800 again this week. It is worth noting that a 78.6% fib pull back of this latest bull move would see price back down near the key 1,685 level. The Elliott Wave indicator on my chart is suggesting a bearish move is in store for the S&P500. It would not be unreasonable for price to pull back to test this 1,685 region and, in fact, I would see this as a more sustainable outcome for any continued bullish move. My TS system gave a ‘buy’ signal on Wednesday 13^th November that is still valid.

Ichimoku S&P500 chart: a clear cross of the blue Tenkan-sen line below the pink Kijun-sen line. A bullish Tenkan/Kijun cross though evolved back on Wednesday 23^rd October! This bullish cross is deemed a ‘strong’ signal as the cross was positioned above the Cloud and this signal has delivered a strong performance. This signal is still open AND price held above the Cloud all week which is still bullish.

EURX chart: The November monthly candle closed above the major S/R level of the monthly 200 EMA. This is the first monthly close above this S/R level in almost 2 ½ years! This is a major achievement for the index and I’ll be watching to see if price can hold above this major level.

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’ holds 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, September, October and November candles closed above this key level and without testing this at all. 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 been stalking some stocks as they closed out the month and looked like making bullish closing levels. I have posted some of these stocks in my Stocks:Oct/Nov page.

Some key events to watch out for include:

• Mon 2^nd: Watch for new monthly pivots. Watch for reaction to the Chinese PMI data released on w/e. AUD: building approvals. JPY: BoJ speech. GBP: manufact PMI. USD Ben Bernanke speech and manufact PMI.
• Tue 3^rd: AUD: retail sales & interest rates. GBP: construction PMI.
• Wed 4^th: AUD: GDP. GBP: services PMI. USD trade balance, employment data, new home sales and non-manufact PMI.
• Thurs 5^th: AUD: trade balance. GBP interest rates. ECB: interest rates and press conference. USD: GDP & unemployment claims.
• Fri 6^th: USD NFP, unemployment rate & consumer sentiment.
• Sat 7^th: JPY BoJ speech.

E/U: There were few catalysts for movement here this week and, as a result, the E/U just drifted along slightly higher, above the 1.35 psychological S/R level, and up towards the monthly pivot and 1.365 S/R level. The 1.35 level is a strong S/R level and is also the region of the 50% fib pull back level of the last major down move (mid 2011- mid 2012).

Price is trading above the Ichimoku Cloud on the 4hr chart but in the top edge of the Cloud on the daily chart suggesting some further choppiness.

The weekly candle closed as a bullish candle. The monthly candle closed as a bullish coloured Doji candle. This Doji candle reflects the indecision in the market with this pair at the moment and some traders will be looking at this Doji as sign of possible bearish reversal.

• I’m watching for any new TS signal and the 1.35 and 1.565 levels.

E/J: Price chopped sideways under the 138 level but broke up higher mid week following continued U/J strength. Price eventually drifted up to test the 140 area. I have been saying for weeks that I viewed 140 as a possible target for this pair and that is what has, essentially, evolved here this week. The 140 is a psychological whole number level that is just below the 61.8% fib retrace level of the major down move from 2008-2012. The 61.8% fib level comes in at around 140.5 and will be the next level to watch, after 140, if bullish momentum continues.

Price is now trading above the Cloud on the 4hr, daily, weekly and monthly charts. The monthly candle close above the Ichimoku Cloud is a very bullish development. The top edge of the monthly cloud is down at around the 135-136 area though and it would not be unreasonable for price to pull back a bit to test this support level before any continued bullish momentum. Given also that price has now made close to a 61.8% retrace it might not be out of the question to see some pause or pull back either. Thus, whilst reaching up to the 140 area has been a huge achievement thus far, I’m watching this pair with some caution and will be prepared for either situation: a possible pullback to test the 135 area or continued bullish momentum.

The weekly candle closed as a bullish candle. The monthly candle closed as a bullish candle.

• There is an open TS signal on this pair.

A/U: The A/U has drifted lower under the ‘neck line’ of the daily chart Head and Shoulder pattern. Price did pull back a bit to test the 0.92 S/R level this week but didn't get much further up than that.

Price has held below the 'neck line' of the bearish H&S pattern. The theory behind these patterns is that the predicted bearish move below the 'neck line' is equivalent to the height of the 'Head' of the pattern. The 'Head' of this H&S pattern extends about 400 pips above the 'neck line'. Thus, the suggested possible bearish move would be 400 below the 'neck line'. A 400 pip move like this would price back down near the previous lows of July and Aug and down at the 'double bottom' zone of around 0.89. This would be a suggested 'take profit' zone on this trade. The H&S move has delivered up to 230 pips so far.

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

The weekly candle closed as a small bearish candle just above the whole number support of the 0.91 level. The monthly candle closed as a large ‘bearish engulfing’ candle but it is worth noting that this candle engulfed the whole body of the previous candle but not the upper shadow.

Further bearish movement below the 0.91 and the H&S neck line would suggest much lower targets though.  As mentioned in previous posts: I don’t see much other major support until down at 0.90 and, then, 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’t too ridiculous a notion! Any pause or pull back with the stock market might see price visit these low levels. There is still clear divergence between the Aussie and stocks.

There is a lot of AUD data due out this week and this might determine the next major direction for the AUD.

• I’m watching for any new TS signal. 

A/J: Price has been very choppy again here this week as it contends with both AUD and Yen weakness.

Price is now trading in the top edge of the Cloud on the daily but in the bottom edge of the Cloud on the 4hr chart so the choppiness might continue.

The weekly candle closed as a bullish coloured ‘inside’ candle suggesting indecision.  The monthly candle closed as a ‘spinning top’ adding to this confused sentiment.

• I’m just watching this pair but the 0.89 level might be a bit of a magnet if the AUD continues to weaken.

G/U: The Cable chopped higher again last week as it moved up even closer to a major triangle trend line. Price is trading just below this key S/R zone now. The daily chart shows how price had been trading in a kind of horizontal ‘Bull Flag’ pattern since September. Price broke out and up from this ‘flag’ pattern during the week and drifted up towards the monthly chart triangle trend line.

A break out and up from the monthly chart triangle pattern would be a very bullish signal indeed. A possible target for any continued bullish movement might be the 61.8% fib retrace level of the last major down move (2007-2009). This 61.8% fib level is about 1,800+ pips away at the 1.82 area and might seem an impossible task but I’d advise you to look at the monthly chart of the E/J and U/J before you laugh too loud at me.  Now, the Cable could just as easily be rejected by the resistance of this monthly triangle trend line level and make a prompt move back down so I’m watching for any reaction and will trade with the next momentum move, either up or down!

Price is trading above the Cloud on the 4hr, daily and weekly charts which is bullish. The weekly candle closed as a bullish candle. The monthly candle closed as a bullish engulfing candle.

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

• There is an open TS signal on this pair.

Kiwi: NZD/USD: Price has been rather choppy here this week as it navigates the region of the ‘neck line’ of the daily chart’s bearish ‘Head and Shoulder’ pattern.

Price is now trading in the bottom edge of the Ichimoku Cloud on the daily chart and below on the 4hr chart which suggests further choppiness.

The weekly candle closed as a bearish candle. The monthly candle closed as a bearish candle.

As with the A/U, any continued risk appetite 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 final level of support if this pair continues being bearish. 

H&S pattern: the height of the ‘Head’ of this pattern is about 340 pips. This would suggest that any bearish follow through might extend 340 pips below the neck line. This would put price down near the 0.78 region. The H&S pattern has delivered almost 100 pips already though.

• I’m watching for any new TS signal.

The Yen: U/J: This pair has now moved almost 400 pips since the triangle breakout. It drifted slightly higher this week but without any real guidance. It seems to be ‘marking time’ whilst many stock indices hesitate at their new ‘highs’. It also has the major resistance of the monthly 200 EMA just above current price.

Price is now trading above the Cloud on the 4hr, daily, weekly and monthly charts which is bullish. This is a major bullish development for the U/J and it is the first monthly close above the Ichimoku Cloud since mid 2007! In a similar manner as discussed with the E/J, I see potential for a possible pause or pull back here though. The top of monthly Cloud is down below current price and near the 100 region. It would not be unreasonable to expect that price might test this area before any continued bullish movement. Thus, I’m keeping an open mind here and will be prepared for any pullback to the 100 level or for continued bullish movement.

The weekly candle closed as a bullish candle. The monthly candle closed as a large bullish candle just below the monthly 200 EMA S/R level.

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. The bullish ‘Cup ’n’ Handle’ pattern on the weekly chart seems to have evolved though as price has now broken out of the ‘Handle’ from this pattern. The 61.8% fib retrace level from the major down move (2007-2012) is up at the 105.5 region and this might be a possible target for any continued bullish momentum.

• There is an open TS signal on this pair.

Nikkei: The Nikkei closed the month above the 15,000 level and, also, above a major bear trend line that had been in play for over 22 years. This is a significant trend line break for this index. The next hurdle will be to close above the 16,000 level as there is a bit of a 'double top' pattern evident at the moment. The Nikkei might fall back to test this 15,000 level before any possible bullish continuation.

Any continued alignment between the Nikkei and the S&P500 might suggest there is some further bullish momentum for the S&P500 given this recent bullish trend line break on the Nikkei.

Nikkei +Fib levels: Placing Fib levels on the Nikkei shows that the 15,000 level was near the 38.2% retracement level. The 61.8% pull back level is up near the whole number level of 20,000 and might be a possible target if there is any bullish follow though:

It's been a relatively quiet w/e here as Gen Z son is away on Cadet Camp. Thus, some older music play lists have been able to get some oxygen and this one seemed like one the Nikkei might relate to as it, possibly, looks up towards the 20,000 zone!

Nikkei and U/J: (U/J: black. Nikkei: green). The U/J and Nikkei continue to trade with positive correlation:

Nikkei and S&P500: (S&P500: green. Nikkei: black). Note how both of these stock indices are back trading with positive correlation after some recent divergence.

EUR/AUD:  The daily chart shows how price on this pair has been trading between the 1.4 and 1.5 levels. Price drifted higher this week to test the upper boundary of the 1.50 level.

A close above the 1.50 level would be a rather bullish signal. The monthly chart shows how this pair made a big move down from 2008 to 2012. The 61.8% fib retrace level of this big down move is back up at the 1.74 region. The monthly chart shows how this is also a major S/R level for this pair and would be a possible target for any continued bullish movement.

Price may end up being rejected by the 1.50 S/R level but I’m the lookout for any reaction here, bullish or bearish. The monthly 200 EMA is just above the 1.50 level and may be a barrier to price as well.

The E/A is now trading above the Cloud on the 4 hr, daily and weekly charts which is bullish. The weekly candle closed as a bullish candle. The monthly candle closed as a bullish engulfing candle but below the monthly 200 EMA.

• I’m watching for any new TS signal and the 1.50 level.

AUD/NZD: Price chopped around this week under the resistance of the previous ‘double bottom’ zone and the 1.12 level. This is best seen on the daily chart time frame. This support zone and 1.12 area are at the 78.6% fib pull back level of the last major bull move from Dec 2005 to March 2011. Price closed for the week, again, just slightly below this zone and also just below the 1.12 level.

This pair still holds little appeal for me at the moment.

Price is now trading below the Cloud on the 4hr, daily weekly and monthly charts which is bearish. I do note there has been a bullish T/K cross on the 4hr chart.

The weekly candle closed as a bearish coloured indecision style Doji that might even suggest some bullish reversal potential. The monthly candle closed as a bearish engulfing candle though suggesting the exact opposite!

• I’m watching for any new TS signal, the H&S pattern and the 1.12 level.

GBP/AUD: This pair closed above the major S/R level of 1.75 last week. Price drifted back down a little to start the week but then recommenced on its bullish path.

A continued hold above the 1.75 level would be very bullish. The monthly chart shows how this pair has had a major move down starting back in 2007 and only bottomed out in April 2013. The 61.8% fib retrace level of this down move is back up at the 2.1 area and this is also the region of the monthly 200 EMA, just for added confluence. This 61.8% fib area might be a possible target for any continued bullish momentum. Price may not end up holding above the 1.75 S/R level but I’m the lookout for any reaction here, bullish or bearish.

Price is now trading above the Cloud on the 4hr, daily and weekly charts which is bullish. The weekly candle closed as a bullish candle and above the key S/R level of 1.75. The monthly candle closed as a bullish engulfing candle.

• I’m watching for any new TS signal and the 1.75 level.

EUR/GBP: I don't trade this pair but noted this bearish 'H&S' pattern during the week. The height of the 'Head' is about 250 pips suggesting that any bearish move below the 'neck line' might extend by the same margin. This would put price down near the bottom trend line of the monthly chart triangle pattern and at around the 0.80 level:

Silver: Silver chopped sideways this week following the break of $21.50 support three weeks ago. The $21.50 level was key support and a turning point back in 2007. Price closed for the week below the $20 level.

Silver continues to trade below the Ichimoku Cloud on the daily, weekly and monthly charts but is back up and trading within the bottom edge of the Cloud on the 4hr chart.

The weekly candle closed as a bullish coloured ‘spinning top’ candle suggesting ‘indecision' but the monthly candle closed as a bearish engulfing candle.

The next major support level below $21.50 and $20 seems to be down at $15, near the monthly 200 EMA. 

Gold: Gold chopped sideways and a little higher this week as there was no real clear direction from the USD but it is still below the $1,300 level.

The $1,300 level remains a key level as it is the 50% fib pullback from the last swing low to swing high. There might be some support at $1,200 given it is a whole number and is also a possible ‘double bottom’ zone following the last push lower back in June 2013. The next major support after $1,200 seems to be down at the whole number, $1,000 level and, after that, at $850 in the monthly 200 EMA.

As with Silver, Gold is trading below the Ichimoku Cloud on the daily, weekly and now also on the monthly charts but is back up and trading within the bottom edge of the Cloud on the 4hr chart. It is worth noting that this is the first monthly candle close below the Ichimoku Cloud for Gold since January 2002; almost 12 years ago!

The weekly candle closed as a bullish coloured ‘inside’ candle suggesting 'indecision' but the monthly candle closed as a large bearish candle.

Gold Monthly Ichimoku Cloud: