Trade Week Analysis for 23/12/13

Last week:  The TS signals were: A/U= 70, GBP/AUD= 130, Cable: 130 (spike), Kiwi=60, U/J= -30, E/U= -20 and AUD/NZD= currently +20, A/J= currently +20 and GBP/AUD= currently +20.

FOMC news helped to boost the USD but also boosted stocks, to the surprise of many who thought taper talk would bring about a major correction. The Christmas Rally is looking intact.

This week:

I’m not expecting too much movement during the Christmas week BUT I am keen to see if there is any bullish continuation with the AUD/NZD. Many traders are watching this pair with keen interest for any 'long awaited' reversal.

I'm watching with much interest to see the monthly candle close on a number of different stocks,  stock indices and currency pairs. Many are potentially printing new highs or breaking key support/ resistance areas.

I’m also continuing to watch the ‘Holy Trinity alignment’ of the U/J, Nikkei and S&P500. The Nikkei broke 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 for another week. This change in trend and possible bullish reversal may have implications for other markets.

I am away over after Christmas until the New Year and my updates will be brief and less frequent during that period.

Stocks and broader market sentiment:

S&P500 stocks enjoyed a bullish week after FOMC and closed back above the 1,800 level. The S&P500 and Dow actually closed the week at record highs. This will take many traders by surprise as there were predictions of a severe correction following FOMC taper talk. Whilst I could see the logic of this thought process my view was less dramatic and was that any pull back might simply be back to the mean of the daily support trend line. The monthly S&P500 chart keeps me thinking along these different lines here; the current pattern of the high on the monthly S&P500 chart, as I keep re-quoting below each week, looks very different to the print of the previous 2000 and 2007 highs.

There had recently been three ‘indecision’ style weekly candles (a Doji, a ‘Hanging Man’ style candle and then another Doji). These were followed by a large bearish candle. I had mentioned then that I was on the lookout for any bearish follow through but this hasn't evolved as yet. To the contrary, last week’s candle actually closed as a bullish engulfing candle!

With 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: I’m watching for any break of the daily trend line but price is well above this at the moment. 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.

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 was 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 at the moment although the Tenkan and Kijun lines have fused together. I’ll be watching for any future cross.

EURX chart: The November monthly candle closed above the major S/R level of the monthly 200 EMA. This was the first monthly close above this S/R level in almost 2 ½ years! This was 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 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'm not seeing the divergence now that I saw back then. 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: It is a light news week for the Christmas Week:

• Mon 23^rd: JPY Bank Holiday
• Tue 24^th: EUR Bank Holiday, USD new home sales and core durable goods.
• Wed 25^th: Christmas Day
• Thurs 26^th: Boxing Day, USD Unemployment claims.
• Fri 27^th: nil

E/U: Price continued to trade just under the 1.38 level until FOMC. This news brought USD strength and put pressure on the E/U. Price fell below the 1.37 level but found some support on Friday in the form of the 4hr 200 EMA and previous S/R level of 1.365.

Price is trading above the Ichimoku Cloud on the daily and weekly chart but in the bottom edge of the Cloud on the 4hr chart. This suggests further choppiness. There was a ‘weak’ bearish Tenkan/Kijun cross on the 4hr chart on Friday.

The weekly candle closed as a bearish candle.

It is worth remembering that price is only about 330 pips below the major monthly triangle trend line. I am not surprised by the choppiness under this major S/R level.

• I’m watching for any new TS signal.

E/J: Euro and Yen weakness combined to make this pair simply chop sideways all week above the 141 level.

Price is still trading above the Cloud on the 4hr, daily, weekly and monthly charts. The November monthly candle closed above the Ichimoku Cloud and this 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 small, bullish candle.

• I’m watching for any new TS signal.

A/U: Price fell early in the week to test the previous 0.89 lows from July and August but USD strength following FOMC saw the Aussie fall further and down though this support.

This move down to 0.89 completed the daily chart Head and Shoulder pattern for the A/U. This move produced over 400 pips. The 'Head' of this H&S pattern extended about 400 pips above the 'neck line'. Thus, the suggested possible bearish move was 400 below the 'neck line'.

Weekly chart H&S pattern building? There is a possible bearish H&S pattern now building up on the weekly chart. 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 neck line of this weekly H&S is at the 0.89 level. The height of the ‘Head’ on this weekly pattern is about 850 or so pips. Thus, the projected bearish move for this possible pattern would put price down near the 0.80 cent level. This is near the 61.8% fib pull back from the last major up move (2008-2011).

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

The weekly candle closed as a bearish candle but with a bit of a bullish reversal style ‘hammer’ look to it and above the 0.89 level.

The chart of the A/U is looking quite bearish but the AUD/NZD is looking quite bullish.  This discrepancy of the AUD has me cautious here.

• I’m watching for any new TS signal and the 0.89 possible 'neck line' level.   

                

A/J: Price is still chopping in a daily chart descending channel here and bounced off the bottom trend line this week. This bounce produced a new TS signal.

Price is now trading in the middle of the Cloud on the 4hr and just below the Cloud on the daily chart so the choppiness might continue.

The weekly candle closed in the style of a bullish reversal hammer candle. 

• There is an open TS signal on this pair.

G/U: The Cable continued to chop around either side of the monthly chart triangle bear trend. This pair seems to be struggling with what to do next given there has been a bit of positive GBP data but, also, a stronger USD after FOMC.

A clean 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 closed for the week just below the trend line.

Price is trading above the Cloud on the daily and weekly charts but below on the 4hr charts so the choppiness might continue for a bit longer.

The weekly candle closed as a bullish candle but with long upper and lower shadows.

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.

Kiwi: NZD/USD: Price chopped lower this week with USD strength but it is still trading within a descending channel pattern on the daily chart.

Price is trading in the bottom 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.

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.

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

EUR/AUD:  Price traded along the monthly 200 EMA all week but closed the week out just below this S/R level. The EUR/AUD has not traded above the monthly 200 EMA since back in 2009 and, thus, it is no wonder that price is choppy around this region.

The daily and weekly charts show how price on this pair had been trading between the 1.4 and 1.5 levels for 5 months. This hold above the 1.50 level is, thus, 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 1.75 region. The monthly chart shows how the 1.75 is also a major S/R level for this pair and would be a possible target for any continued bullish movement. Price seems to be respecting the 1.50 S/R level and I’m on the lookout for bullish continuation. 

Price closed for the week, again, just under the monthly 200 EMA and this may continue to be a bit of a barrier to bullish continuation. I would not be surprised to see even the 1.5 level tested again before any possible bullish continuation.

The E/A is still trading above the Cloud on the 4 hr (only just), daily and weekly charts which is bullish. The weekly candle closed as a bullish coloured candle but with a bearish reversal ‘shooting star’ look to it.

• I’m watching for any new TS signal, the monthly 200 EMA and the 1.50 level.

The Yen: U/J: The U/J traded sideways under the monthly 200 EMA S/R level this week until FOMC. This news boosted the USD and helped this pair to rally above this resistance zone and to produce a new TS signal. Price has now moved 550 pips from the daily chart triangle breakout that evolved back in Novemeber.

Price is still 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 November 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 weekly candle closed as a bullish candle.

Weekly Chart Bullish Cup’ n’ Handle pattern: The bullish break out from the ‘Cup ’n’ Handle’ pattern on the weekly chart has given 550 pips so far. The ‘Handle’ of this pattern is the same as the triangle or ‘Bull Flag’ break that was watched on the daily chart. The theory behind these patterns is that the height of the ‘Cup’ pattern is equivalent to the expected bullish move from the ‘Handle’ breakout. The following graphic illustrates this theory:

The height of the Cup for the U/J weekly chart is around 2,400 pips. The interesting point here is that a 2,400 pip bullish move up from the ‘Handle’ would put price up near the 124 level. This level is the last major swing high for the U/J from back in 2007 and represents the 100% fib pullback for the move down in 2007 to the lows of 2012. Possible targets along the way include the 61.8% fib retrace level at the 105.5 region and the 78.6% fib up near the 112 region.

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

UJ and S&P500: The U/J and S&P500 have been trading with positive correlation for much of 2013. I’ll be interested to see if this correlation holds and, then, if the bullish Cup ’n’ Handle pattern on the U/J continues as this would suggest a bullish period for the S&P500:

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 levels again this week. 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. 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 are trading 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:

AUD/NZD: This pair chopped sideways this week and actually gave a 4 hr TS signal on Friday to go ‘long’. A bullish Tenkan/Kijun cross was also noted on the 4 hr chart.

Price is still trading below the Cloud on the 4 hr (only just), the daily, weekly and monthly charts which is bearish.

The weekly candle though closed as a bullish reversal ‘hammer’ candle and might be pointing to the long awaited reversal on this pair. This was the first bullish candle in 8 weeks! I had thought that this pair might take a trip down to the previous 2005 lows of 1.04 but I’m keeping an open mind and on the lookout for any further reversal signals.

• There is an open TS signal on this pair.

GBP/AUD: This pair has chopped up and down this week giving TS signals with both moves.

Price is still trading above the Cloud on the 4 hr, daily and weekly charts 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 and I’m still on the lookout for any reversal to possibly test the 1.75 level.

A continued hold above the 1.75 level would be very bullish though. 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.

• There is an open TS signal on this pair.

Silver and Gold: I had suggested that FOMC might decide the fate of these two metals and this seems to have been the case. Both of these metals are struggling now given this latest round of USD strength.

Silver: Silver was choppy but closed lower for the week and back below the $20 level. When you look at the monthly chart it is hard to imagine that the $15 level won’t be visited here.

Silver is trading below the Ichimoku Cloud on the 4hr, daily, weekly and monthly charts.

The weekly candle closed as a bearish candle.

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

Gold: Gold broke down from a triangle pattern after FOMC and looks rather bearish now. The June lows of $1180 might help to offer some ‘double bottom’ support but a break of this level would be quite bearish. Price did come to within $7 of this June low during the week. The next major support after $1180 seems to be down at the whole number $1,000 level and, then, at $850 with the monthly 200 EMA. 

The $1,300 level remains a key level here as it is the 50% fib pullback from the last swing low to swing high. 

Gold is now trading below the Ichimoku Cloud on the 4hr, daily, weekly and 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, almost engulfing, candle and below the triangle trend line.