Trade Week Analysis for 09/12/13

Last week:  There were only a few new signals last week and again the cross pairs gave the better trades. This continues to be of no surprise given that the USD index traded within the Ichimoku Cloud all week. 

The TS signals were: E/A=-80 & flat, E/G= -20, Silver =45 Gold=80, A/N=120, GBP/AUD= -100 and A/J= 70, E/U=30 and E/J= 120.

A number of stock indices put in a late surge to close the week out above key psychological, whole number S/R values: The Nikkei above 15,000, S&P500 above 1,800. Dow above 16,000 and the Nasdaq above 4,000. This bullish first week of December might be signalling a Christmas Rally.

This week:

I’m continuing to watch the ‘Holy Trinity alignment’ of the U/J, Nikkei and S&P500. The Nikkei broke through a major trend line following the November monthly candle close. This trend line had been in place since March 1991, a period of over 22 years and price held above this key level for another week. I mentioned last week that this possible bullish change in trend may have implications for other markets. The weekly close that we've just had for the S&P500, Dow and Nasdaq seems to support this view. I am fully aware that ‘One swallow does not a summer make’ though so I’m watching for bullish follow through here.

Many would have thought that the positive NFP result might have triggered a USD rally on the back of renewed QE tapering thoughts. This was not the case as of Friday but I'll be watching to see how the USD responds this week.

I started the w/e on Bondi Beach but I'm now writing this update from Tamworth, home of the Country Music Festival. I'm traveling home on Monday and may not update until Monday evening.

Stocks and broader market sentiment:

S&P500 stocks had a bit of a choppy week as they digested the latest batch of new ‘highs’. The daily support trend line, the key support level of 1,685 and even the psychological 1,800 level ended up holding for the week though. This is now the third 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 still 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. I had mentioned last week that the two recent S&P500 weekly candles, a Doji and a Hanging Man style candle, suggested some indecision but that either a large gap down or a large bearish candle would be needed to suggest a pullback might be on the way.  Last week’s candle was bearish coloured but it wasn't a large bearish candle. It was another Doji candle and, although this was in a reversal style Hanging Man configuration, next week’s candle will be needed to confirm any real new bearish sentiment:

Recent weekly S&P500 candles:

Personally, I would like to see a short pull back before any bullish continuation but I’m not sure when this might evolve. Given I'm in Tamworth, the following song seemed appropriate for some traders.

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 held for the 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 but this closed off on Tue 3^rd December.

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. Price has held above this key S/R level again this week.

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. I am still not seeing the divergence that was evident back on those two occasions. 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.

Some key events to watch out for include:

• Sat 7^th: JPY BoJ speech.
• Sun 8^th: CNY Trade Balance.
• Mon 9^th: CNY CPI.GBP: BoE Carney speaks. FOMC Bullard speaks. Eurogroup meetings.
• Tue 10^th: AUD business confidence. CNY Industrial production. GBP manufact production. ECOFIN meetings.
• Wed 11^th: nil!
• Thurs 12^th: NZD interest rate. AUD employment data. USD retail sales and unemployment claims.
• Fri 13^th: USD PPI.

E/U: Price chopped sideways under the key 1.365 S/R level until Thursday’s ECB interest rate news. This news triggered a rally that sent price higher and above this key level. Price continued to rally after NFP and closed the week above the psychological 1.37 level.

Price is trading above the Ichimoku Cloud on the 4hr chart and has just popped up and out of the Cloud on the daily chart which is bullish. There was a strong bullish Tenkan/Kijun cross this week on the 4hr chart and also a bullish cross on the daily chart although that cross evolved within the Cloud and is deemed neutral.

The weekly candle closed as a bullish candle.

It is worth noting that price is now only about 300 pips below the major monthly triangle trend line. I have had this triangle in place for AGES! This triangle boundary coincides with the top of the monthly Ichimoku Cloud and, thus, any break and hold above this region would be a major bullish development. This major triangle trend line comes in just above the 61.8% fib retrace level of the last major down move (2011-2012). Price made it as far as this 61.8% fib level back in October but couldn't quite push on. These would be two levels to watch if there is any bullish continuation from this point on.

• There is an open TS signal on this pair.

E/J: Price chopped sideways under the 140 level all week until Friday. The 140 is a psychological whole number level and is just below 140.5 which was the 61.8% fib retrace level of the major down move from 2008-2012. Price rallied on Friday though to give a new TS signal and close above both of these key S/R levels!

Price is now trading above the Cloud on the 4 hr, daily, weekly and monthly charts. The monthly candle closed above the Ichimoku Cloud and was 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. Thus, whilst reaching up over 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 pullback or continued bullish momentum. The close above the 61.8% fib at 140.5 level suggests that momentum might now continue to be bullish. If so, the 78.6% fib level up around 150 might be the next target!

The weekly candle closed as a bullish candle.

• There is an open TS signal on this pair.

A/U: The A/U chopped lower under the ‘neck line’ of the daily chart Head and Shoulder pattern. It moved down through the 0.91 but found support mid week at the 0.90 level. USD weakness towards the end of the week seemed to help lift this pair back up to the 0.91 level.

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 down to the 0.90 level has meant this pair has delivered up to 290 pips so far.

Price is still 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 with a bearish colour but in a reversal-style hammer configuration and just below the whole number support of the 0.91 level.

Further bearish movement below the 0.90 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 after the 0.90 level 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 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 but I'm watching to see if this divergence holds. Any continued bearish move with the USD might lift Gold and help to lift the AUD.

• I’m watching for any new TS signal.

A/J: When I look at this pair I think ‘Roller-coaster’! Price was very choppy again here last week as it continued to contend with both AUD and Yen weakness. Price fell early in the week on the back of some weak AUD data and this produced a new TS signal. Price continued to slide and actually closed below the daily 200 EMA on Thursday. This was the first candle close below this support for almost 2 months. I had mentioned, then, that a weekly candle close below the daily 200 EMA would be a bearish signal and that the 0.89 level might be a possible target for any continuation move. Price actually rallied on Friday to avoid this bearish close though. Price action on the daily chart looks a little more ordered as it seems to be forming up into a bullish descending wedge pattern.

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

The weekly candle closed as a Doji suggesting continued indecision. 

• I’m watching for any new TS signal and the wedge trend lines. 

G/U: The Cable chopped sideways last week as it pondered its next move. This pair is sitting just under a major S/R level in the form of a monthly chart triangle trend line. This level is also just under the 38.2% fib retrace level of the major down move from 2007-2009. It is now trading in a possible ‘Bull Flag’ pattern on the 4 hr chart and just under this key S/R level.

A break out and up from the triangle pattern on the monthly chart would be a very bullish signal indeed. A possible target for any continued bullish movement might be the 61.8% fib level of this same move. This 61.8% fib level is about 1,900 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 although there was a bearish Tenkan/Kijun cross on the 4hr chart this week. Also, the weekly candle closed as a bearish coloured ‘spinning top’ candle suggesting ‘indecision’ at a minimum.

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 monthly chart triangle trend line and the 'Bull Flag'. 

The Yen: U/J: The U/J pulled back a bit last week after breaking out from a daily chart triangle pattern 4 weeks ago and giving up to 400 pips in that bullish move. The major resistance of the monthly 200 EMA proved to be a bit too much resistance for it. This pull back did not produce a new TS short signal and, by the end of the week, price action had shaped up into a bit of a ‘Bull Flag’. Price broke out from this Bull Flag on Friday though and gave a new TS signal although it closed just below the monthly 200 EMA S/R level.

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 as this was the first monthly close above the Ichimoku Cloud since mid 2007! 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 or continued bullish movement. The bullish move on Friday suggests continuation but I would want to see price break and hold above the monthly 200 EMA before being confident of bullish momentum.

The weekly candle closed as a bullish candle but with a bit of a ‘spinning top’ look to it which isn't surprising given the pause under major resistance.

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. After that, the 78.6% fib up near the 112 region would be the next target.

• I’m watching the monthly 200 EMA and, also, keeping an eye on the 100 level.

Nikkei: The Nikkei closed for November above the 15,000 level and, also, above a major bear trend line that has been in play for over 20 years. This is a significant trend line break for this index. Price held above both of these key levels again for this first week of December. The next hurdle will be to close above the 16,000 level. The daily chart shows this as a bit of a 'double top' pattern at the moment. I would not be surprised to see price pull back to test the 15,000 before any possible continuation.

Note how the 15,000 level is near the 38.2% fib retrace level of this huge down move. The 61.8% fib level is back up near the whole number 20,000 level and would be an obvious target for any continued bullish momentum.

Nikkei and U/J: (U/J: black. Nikkei: green). The Nikkei and U/J 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 weekly chart shows how price on this pair had been trading between the 1.4 and 1.5 levels. Price chopped higher this week and finally broke up through the 1.50 level.

This close above the 1.50 level is 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 could still end up being rejected by the 1.50 S/R level but I’m the lookout for any reaction here, bullish or bearish.  Price closed for the week above the 1.50 level but just below the 38.2% fib retrace level and the monthly 200 EMA and these may be a bit of a barrier to bullish continuation.

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.

• I’m watching for any new TS signal.

Kiwi: NZD/USD: Price was choppy again here last week as it contemplated the ‘neck line’ of the daily chart’s bearish ‘Head and Shoulder’ pattern. It seems to have rejected this now though. Price gapped higher at market open and ended up putting in a bullish week. As with the A/J, this choppy action appears more orderly on the daily chart and it also seems to be forming up into a descending wedge pattern.

Price is now trading in the middle of the Ichimoku Cloud on the daily chart and above on the 4hr chart which suggests further choppiness. The weekly candle closed as a large bullish 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.

The Kiwi seems more positively correlated to stock sentiment than the Aussie does at the moment.

• I’m watching for any new TS signal and the wedge trend lines.

GBP/AUD: This pair was choppy last week after closing above the major S/R level of 1.75 the week before.

Price is still trading above the Cloud on the 4hr, daily and weekly charts which is bullish. The weekly candle closed as a bullish coloured candle, above the key S/R level of 1.75 BUT with a bearish reversal ‘shooting star’ look to it. There could also be a bearish Tenkan/Kijun cross building on the 4hr chart so I’m on the lookout for any reversal to test the 1.75 level.

A continued hold above the 1.75 level would be very bullish. The monthly chart shows how this pair had made a major move down starting back in 2007 and this 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.

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

AUD/NZD: This pair gave one of the better TS trades of the week (120 pips) as it drifted lower under the resistance of the previous ‘double bottom’ zone and the 1.12 levels. This support zone and the 1.12 area are near the 78.6% fib pull back level of the last major bull move from Dec 2005 to March 2011.

Price is now trading below the Cloud on the 4 hr, daily weekly and monthly charts which is bearish. The weekly candle closed as a large bearish candle and obviously took its cue from the November 'bearish engulfing' candle.

You would have to suspect now that a trip down to the previous lows of 1.04 might be on the cards here. Dean Malone, from Compass FX, produced a video about this pair during the week that is worth watching and can be viewed through this link. He is looking towards some eventual pull back but I think this current bearish move might have a little further to run. I’m keeping an open mind though and on the lookout for any reversal signals.

• I’m watching for any new TS signal.

Silver and Gold: They say that ‘what goes up must come down’ and I think the reverse must be true for Silver and Gold at some stage. These have both been falling for ages so I’m on the lookout for any signs of reversal. The positive US jobs data on Friday prompted some ‘risk on’ trading but the surprise was that the USD did not rally. There surely must have been renewed thoughts about early QE tapering yet, although the USD had a spike on Friday, it eventually closed lower for the day, albeit only just. Any continued falls with the USD could help to lift both of these metals and, so, I’ll be watching the USD for guidance with these two. Any renewed USD rally though could see these two continue their slide.

Silver: Silver was a bit more choppy last week as it traded sub $20 and was obviously wondering about the next direction of the USD.

Silver is trading below the Ichimoku Cloud on the 4 hr, daily, weekly and monthly charts but there has been a recent bullish Tenakn/Kijun cross on the 4 hr chart. I’m also seeing a possible bullish ‘inverse Head and Shoulder’ pattern on the 4 hr chart.

The weekly candle closed as a bearish candle.

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

Gold: Gold was also very choppy during NFP week. It, too, could be seen to forming a bullish ‘inverse Head and Shoulder’ pattern on the 4hr chart but this is not as clean as the one on Silver.

The $1,300 level remains a key level here as it is the 50% fib pullback from the last swing low to swing high. As suspected, there was some support this week at $1,200 given this is a ‘whole’ number and a possible ‘double bottom’ zone following the last push lower back in June. 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 now trading below the Ichimoku Cloud on the 4hr, daily, weekly and now also on the monthly charts. It is worth remembering that the November candle was the first monthly candle close below the Ichimoku Cloud since January 2002, a period of almost 12 years!

The weekly candle closed as a bearish engulfing candle.