Trade Week Analysis for 20/01/14

Last week:  There were lots of TS signals last week and the big AUD move, following weak AUD employment data, factored in a number of these moves. My TS trend trading system delivered hundreds of pips last week although many were in correlated trades: E/U= -50, Kiwi= 100, E/J = 60, GBP/AUD=240 & 380, U/J=60 & 70, EUR/AUD= 100 & 240, A/U= 60 & 170 and AUD/NZD= 170.

This week:

There have been some big moves on the AUD currency pairs but, still, many other trading instruments are chopping around as they struggle to determine their immediate future:

• E/U: was chopping sideways but fell on Friday to close below a daily support trend line.
• E/J: spent another week chopping below the 143 but above the 61.8% fib level of the 2008-2012 down move. A possible H&S building here, and, it is one with an interesting twist!
• A/U: Poor data sent this tumbling below key support and the weekly H&S may have started. Will Gold come to the rescue here though?
• Cable: still chopping along above the monthly chart’s broken triangle bull trend line but below the monthly 200 EMA.
• U/J: still chopping along above the monthly 200 EMA but below the 61.8% fib of the 2007-2012 down move. Another bullish pattern setting up here too?
• Kiwi: still chopping around and just above the major S/R level of 0.82 (check this on monthly chart).
• S&P500: Printed another new high during the week and still above 1,800.
• NASDAQ: still above the 4,000 level for the first time since 2000.
• DJIA: Still above 16,000.
• Nikkei: is still above the broken trend line and 15,000 level.
• Silver: holding above $20 support.
• Gold: holding above $1,200.

Chinese data: there is Chinese GDP on Monday at 1 pm (Sydney time) and this could sway momentum on the broader markets. Monday is also a USA holiday (Martin Luther King Day).

H&S patterns: I am seeing a number of ‘Head and Shoulder’ (H&S) technical patterns around and the odd ‘inverse H&S’ pattern too. It is important to see the ‘neck line’ of these patterns hold the trend break to confirm these patterns though. We saw this evolve a few weeks ago on the A/U daily chart and one may well be forming up now on the A/U weekly chart. We have had one weekly close below the neckline of this latest A/U weekly H&S and we would need to see this 'neck line' hold price for at least next week as well to confirm the formation of this pattern. The H&S on the daily GBP/AUD last week gave only one daily candle close below the ‘neck line’ but no more than this so, this pattern was voided. BTW: The same logic applies to the 'neck lines' of 'double' or 'triple top' patterns too.

I'm into week 6 of my son's 8 week summer holiday and the pressure is starting to show. In an attempt to reclaim our house and music space from assorted teens we dosed him with some music from our Uni days tonight. Some lyrics seemed quite relevant here though and appear sprinkled below.

The USD seemed to get its Mojo back last week and I'll be watching for any bullish continuation here. I reviewed the FX Indices yesterday and this analysis can found through this link here. I'm sure the USD would be singing something like this for motivation.

In contrast, the EURX is trading down near support but further falls here could see the both USDX and EURX indices aligned for 'risk off'. I'll be watching for any further weakness with the EURX, and for any 'risk off' type movement across currencies as this would be starting to line up with a bit of weakness I'm seeing across some stocks. The S&P500 is currently struggling at a potential 'double top' and a few big cap stocks are setting up with potentially bearish pull back patterns. I would not be surprised to see a bit 'risk off' across a number of trading instruments before any further bullish continuation. Many stocks, and the S&P500 index itself, have traded in a fairly straight line higher for some time now and this can't go on forever. A pause on the index, or even a pull back to the daily support trend line, would be entirely reasonable. Similarly, I'm seeing potential for 'risk off' pull backs to support levels with some currency pairs. I'm not making any prediction here. I'm simply stating what I'm seeing set up across a range of trading instruments and how there seems to be a common theme developing. Ultimately though I am trend trader and I will follow whatever trend evolves, long or short. It pays, though, to keep your mind open as well as your eyes!

NB: My charts may look a little different as I have transferred platforms to a new lap top.

NB: I am away next w/e for the Australia Day holiday and there will not be any w/e updates.

Stocks and broader market sentiment:

S&P500 stocks closed above the 1,800 level again this week. The daily chart still has a bit of a ‘Double Top’ look to it at the moment and I’ll be watching to see if this index can break back above the recent high so as to avoid this bearish pattern. A respect of this resistance level though might point to some further bearish activity.

I'm still 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 still well above this at the moment. I’m also watching the possible bearish ‘Double Top’ that could be forming up.  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.

EURX chart: The November and December monthly candles closed above the major S/R level of the monthly 200 EMA. November 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 closed below this key level this week BUT did manage to hold above the major support trend line, albeit only just. I’ll be watching these key levels early next week to see if there is any bearish continuation here. The EURX may well be singing this over the w/e!

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 not seeing the divergence now that was evident 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, November and December 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.

Stocks: I have updated some charts on my Stocks:Jan page. Some stocks are still looking quite bullish.

Items to watch out for:

• Mon 20^th:   CNY GDP & Ind production. USD Bank Holiday (Martin Luther King Day).
• Tue 21^st:    NZD CPI. EUR German Economic sentiment &
• Wed 22^nd:  AUD CPI. JPY monetary policy. GBP Bank rate votes & unemployment rate.
• Thurs 23^rd:  EUR manufact PMI. USD unemployment claims & existing home sales.
• Fri 24^th:  nil.

E/U: The E/U chopped sideways above the daily support trend line and either side of the key 1.365 S/R level until Friday. Bearish moves on Friday saw the E/U fall to break and close down below this recent daily support trend line. This breach of the trend line though could see price head down to test the bull trend line of the weekly/monthly chart triangle pattern, some 450 pips away.

Price is now trading below the Ichimoku Cloud on the 4hr and daily charts which is bearish and there have been recent bearish Tenkan/Kijun crosses on both time frames as well.

The weekly candle closed as a bearish engulfing candle.

• There is a new TS signal on this pair.

E/J: Price bounced up from the 61.8% fib level of the 2008-2012 bear move early in the week and then pushed back up to the psychological and whole number S/R level of 143. It seems that price is keen to hold above this significant fib level for the time being.

H&S Pattern: I am seeing the start of a possible bearish Head and Shoulder pattern forming up on the daily chart though. The ‘neck line’ of this H&S appears to be at the important junction of the 61.8 % fib level; at around 140.5. The height of this H&S pattern, from the ‘neck line’ to the ‘Head’, is about 500 pips. The theory here would suggest that any such bearish follow through with this pattern would send price down by an order of 500 pips. This is where it gets interesting! A 500 pip move below the neck line would bring price to around the 135 level. This is roughly where the top of the monthly Ichimoku Cloud is currently sitting. (chart below) The November and December candles were the first to close above the resistance of the monthly Ichimoku Cloud since 2008!  I had thought that price might pull back down to possibly test this key, monthly Cloud break out. This possible shorter term bearish H&S pattern on the daily E/J chart, if it evolves, might just help to achieve this pull back to test this key support level at the top of the monthly Cloud.

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

The weekly candle closed as a bearish candle.

• I’m watching for a new TS signal, the 61.8% fib level and the daily chart H&S pattern.

A/U: The Aussie drifted higher to start the week with NFP and some USD weakness still fresh in its mind. Enthusiasm for this rally seemed to wane though and, then, AUD employment data on Thursday sent the AUD tumbling against most other currencies. Price fell through the 0.89 support and made the weekly H&S pattern seem like it was coming to life. This bearish move triggered a TS signal that gave up to 200 pips and is still open. Friday’s US session didn’t see quite the same falls here that were seen on the E/U and Kiwi though and I’m wondering if Gold is helping to hold this pair up a bit now. Any continued USD rally would most likely continue to help these bearish moves but, also, any bullish momentum with Gold might help to offer some support here.

Weekly chart H&S pattern building? A bearish H&S pattern seems to be unfolding 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). This pattern could take a while to evolve. The left hand shoulder took about 10 weeks to form up so it is feasible that the right hand shoulder could take a similar length of time to form as well. There has now been one weekly candle close below the neck line of this pattern. We would need to see this 'neck line' level of 0.89 continue to contain price to confirm the formation of this bearish pattern though.

Price is 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 large bearish candle and below the 0.88 level.

Fundamentals, more than technicals, seem to be in the driving seat for the Aussie lately. The RBA is keen to see this pair trading lower and the weak AUD employment data may have given them more ammunition for their campaign. If the A/U could sing then I'm sure it would be standing up very proud but singing this mighty loud so that the RBA could hear!

Watch out for Chinese GDP on Monday as this result could trigger moves here with the Aussie.

• There is an open TS signal on this pair.

A/J: Price chopped sideways this week under the bear trend line of the daily chart’s descending trading channel until Thursday. The poor AUD employment data sent this pair tumbling though too.

Price is now trading under the Cloud on the 4hr, daily and weekly chart which is bearish.

The weekly candle closed as a large bearish candle. 

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

G/U: The Cable has been very choppy this week and did not trigger any new TS signals. It chopped lower to start the week following some weaker than expected GBP data but then found some support near the major triangle trend line where is spent most of the remainder of the week. It also formed up into a symmetrical triangle on the 4hr chart. GBP retail sales data on Friday was positive though and this boosted the Cable, lifting it up to the top of the 4hr triangle pattern. This pair will struggle though if both the GBP and USD continue to try and grind higher.

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 1,800 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 reject this. Price might continue to struggle given that the monthly 200 EMA is looming above and this resistance zone could reject price and cause it to make a prompt move back down. Thus, I’m watching for any reaction here and will trade with the next momentum move, either up or down!

Price is now trading below the Cloud on the 4hr but above on the daily suggesting more choppiness.

The weekly candle closed as a bearish, almost ‘inside’ 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, the monthly 200 EMA and the triangle trend line. 

Kiwi: NZD/USD:  Price broke up and out from the daily chart’s descending channel pattern on Monday, continuing on from the bull move after NFP and on the back of some USD weakness. This move eventually faded but not before giving 100 pips from a TS signal.

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

The weekly candle closed as a bearish candle with a long upper shadow.

The monthly 200 EMA, at around 0.68, would seem to be the final level of support if this pair returns to being bearish.

• There is a new TS signal on this pair.

EUR/AUD:  The EUR/AUD was choppy again this week as it traded under the resistance of the monthly 200 EMA. AUD strength at the start of the week saw this pair fall and trigger a new TS signal. AUD weakness after Thursday’s employment data saw this pair rally and give another TS signal and, also, move up through the resistance of the monthly 200 EMA. Price closed the week out sitting just above this key S/R zone.

The monthly chart looks bullish and suggests that price has broken through key resistance of the monthly 200 EMA, tested this level and now looks poised for bullish continuation. The daily chart though is suggesting that a possible ‘triple top’ is building with a barrier at the 1.56 level. Perhaps any possible bullish signals might best be taken only if price can close and hold above this ‘triple top’ zone.

The monthly chart also 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 for now but this key level may end up being tested again before any possible bullish continuation.

The E/A is trading above the Cloud on the 4hr, daily and weekly charts now which is bullish.

The weekly candle closed as a bullish candle. This follows the lead from last week’s bullish reversal ‘inverted hammer’ candle.

• I’m watching for any new TS signal, the 1.56 and the ‘triple top’ and the monthly 200 EMA. 

The Yen: U/J: The U/J traded lower to start the week following on from USD weakness after NFP. I had mentioned last week that price may fall to at least test the previous breakthrough level of the monthly 200 EMA and that is exactly what happened; price bounced up from this region early in the week. The 61.8% fib (105.5) of the 2007-2012 bear move is still above price and is proving to be a major barrier to bullish continuation for the time being. Interestingly, the U/J didn't rally along on Friday as the USD index did. The U/J basically marked time and seems to have been keeping the S&P500 index company for the session. The S&P500 traded flat as it struggles at possible 'double top' region.

I have been tracking a bullish Cup 'n' Handle pattern on the monthly chart for some time and this is discussed below. There now also appears to be a bullish inverse H&S pattern setting up on the 4 hr chart.

Price is trading above the Cloud on the 4hr (only just), daily, weekly and monthly charts which is bullish. The November was the first monthly close above the Ichimoku Cloud since mid 2007! A look at the monthly Cloud chart shows how a test of the monthly 200 EMA, and even the top edge of the Cloud, would seem quite reasonable even if there was to be bullish continuation.

The weekly candle closed as a bullish reversal style ‘hammer’ candle following on from two bearish weeks.

Weekly Chart Bullish Cup’ n’ Handle pattern: The bullish break out from the ‘Cup ’n’ Handle’ pattern on the weekly chart has still peaked at 600 pips for the time being. The ‘Handle’ of this pattern is the same as the triangle or ‘Bull Flag’ 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 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 suspect that if the U/J could sing anything it would likely be pumping this one out loud for some motivation.

• I’m watching the inverse H&S pattern on the 4hr chart and the 61.8% fib level.

Nikkei: The Nikkei closed for December and for 2013 above the 16,000 level and, also, above a major bear trend line that had been in play for over 20 years. This is a significant development for this index and is a rather bullish signal.

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.

Price closed below the 16,000 level this week but still above the trend line and the 15,000 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. They are still in sync at the moment.

Nikkei and U/J: (U/J: black. Nikkei: green). The Nikkei and U/J are still trading with positive correlation.

Nikkei and S&P500: (S&P500: green. Nikkei: black).  There was some divergence here in the previous week but both were back in sync last week.

AUD/NZD: The A/N pair chopped lower this week with AUD weakness but, again, stalled at the December low near the 1.075 level. It didn't stay there too long though and price fell through this support and triggered a new TS signal. This move continued after Thursday’s poor AUD employment data. I had thought that this pair might take a trip down to the previous 2005 lows of 1.04 and this seems more likely now. The slide lower slowed on Friday and I’m wondering if price might pull back to test the broken 1.075 region before any further bearish follow through?

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

The weekly candle closed as a large bearish candle.

• I’m watching for any new TS signal on this pair.

GBP/AUD: What a bumpy week here for the GBP/AUD as it chopped up and down. AUD strength at the start of the week saw this pair fall and trigger a TS short signal that gave 240 pips. It also looked like the bearish H&S on the daily chart might be setting up. AUD weakness crept in then though and reversed this move. Continuing AUD weakness then triggered a new long signal here that delivered up to 380 pips and that is still going.

Price is now trading above the Cloud on the 4hr, daily and weekly charts which is bullish.

The weekly candle closed as large bullish candle.

The continued hold above the 1.75 level is still rather 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: Silver chopped along this week above the $20 support level. It briefly touched up at the triangle trend line of the daily chart but this technical pattern is still containing price for the time being. The base of this triangle is formed up by the 78.6% fib retrace level of the 2008-2011 bull move. The monthly chart shows an even larger triangle pattern with a longer term bear trend line. There seems to be the option of two bases for this monthly triangle though; the same 78.6% fib level or an even lower base down at $15.

Silver is now trading in the Ichimoku Cloud on the daily, below on the weekly and monthly charts but above the Cloud on the 4hr chart.

The weekly candle closed as a bullish coloured ‘spinning top’ suggesting indecision.  

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

Gold: Gold traded higher to start the week and touched up at the S/R level of $1,255. This level is also the ‘neck line’ of the possible bullish ‘inverse H&S’ that might be forming up on the daily chart. As with the H&S setting up on the weekly A/U, this inverse H&S may take its time to form up here. The left hand shoulder of this inverse H&S on Gold took over 2 weeks to form and so it may be a bit longer before any pattern develops fully here, if at all. Price rallied on Friday though to touch up near this ‘neck line’ level again and also triggered a new TS signal on the 4hr chart. I think it would be best to wait and see if price can close and hold above the $1255 neck line level before getting excited about any bullish follow through though.

The monthly and weekly charts shows how the December candle tested the June low of $1,180, a level that was just above the 61.8% fib pull back level of the 2008-2011 bull move.  A break of this $1180 level would be quite bearish. The next major support after this seems to be down at the whole number, $1,000 level and, after that, at $850 in the monthly 200 EMA.

Gold is now trading below the Ichimoku Cloud on the daily (only just), weekly and monthly charts but is still back above the Cloud on the 4hr chart. 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! So, price may still just be trying to test this broken S/R level before any bearish continuation.

The weekly candle closed as a bullish candle.