Trade Week Analysis for 03/02/14

Last week:  There were only a few TS signals last week and the first of these was not received until Thursday! AUD/NZD: 130, E/U= 100 EUR/AUD = currently would be positive but stopped out-100.

This week:

Monday will be the first day of the new trading month. These days are often, but not always, bullish for ‘risk on’.

Check out how the monthly candles closed and watch for new monthly pivot levels. For me, the most interesting monthly candles were probably those on the AUD/NZD, U/J and Gold.

There is a lot of important economic data out next week and these releases need to be monitored.

Some markets will be closed for much of the week due to Chinese New Year celebrations.

There was Chinese manufacturing PMI data released over the w/e that was only slightly lower than expected and above the key 50 level so this may feed positively into the markets on Monday.

I'm still watching the 'Holy Trinity' alignment of the S&P500, Nikkei and USD/JPY.

NB: I will be travelling on Monday and may not update until late in the day.

Stocks and broader market sentiment:

S&P500 stocks have closed below the 1,800 level and the bearish ‘Double Top’ is still a possibility. The Dow closed below the 16,000 but the NASDAQ scraped in a close above 4,000. Apparently, January was the worst month for stocks in a year as well. 

I'm still continuing to watch out for further clues as to any new major 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 above this at the moment. I’m also watching the bearish ‘Double Top’ develop.  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. I received a TS signal to short the S&P500 on the close of the Monday 27^th candle but I would prefer to see a close below the daily support trend line first.

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 looks to have closed off now as the recent bearish action has brought price down to trade within the Ichimoku Cloud and a new bearish Tenkan/Kijun cross might be on the way as these lines are currently fused.

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 but it has failed to hold these levels for the January close. Price closed below the monthly 200 EMA and the major support trend line. This is a significant breach and I’ll be looking for any bearish follow through.

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, December and January 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.

Items to watch out for:

• Mon 3^rd Feb: CNY Bank holiday. AUD Building approvals. GBP Manufacturing PMI. USD Manufacturing PMI.
• Tue 4^th Feb: CNY Bank holiday. AUD RBA cash rate. GBP Construction PMI.
• Wed 5^th Feb: CNY Bank holiday. NZD Unemployment rate. GBP Services PMI. USD non-manufact PMI & ADP non farm employment data.
• Thurs 6^th Feb: CNY Bank holiday. NZD Bank holiday. AUD retail sales and Trade Balance. GBP BoE cash rate. EUR cash rate & ECB conference. USD Trade Balance & unemployment claims.
• Fri 7^th Feb: AUD RBA statement. GBP manufact prod M/M. USD NFP.

E/U: The E/U chopped sideways above a previous support zone at 1.365 until Wednesday’s FOMC. This news brought USD strength which hurt this pair and price eventually fell to test the daily support trend line. Further worries with emerging markets saw this pair fall through the support trend line and trigger a new TS signal. This breach of trend line could see price head down to test the bull trend line of the weekly/monthly chart triangle pattern, some 370 pips away.

Price is trading below the Ichimoku Cloud on the 4hr and daily charts which is bearish.

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

• There is an open TS signal on this pair.

E/J: The 61.8% fib level of the huge 2008-2012 bear move remains a key level here. Price chopped around this key level to start the week but eventually drifted lower but within the confines of a descending trading channel. The H&S on the daily chart seems to have evolved here now. The choppy bearish action did not produce a clean TS signal and, in hindsight, the H&S technical ‘short’ would have been the better trading strategy to take here. A ‘short’ taken from the 61.8% fib level gave a move of up to 280 pips with a pullback of only about 70 pips. Thus, a quite reasonable risk/reward.

H&S Pattern: The bearish Head and Shoulder pattern seems to be evolving on the daily chart. The ‘neck line’ of this H&S is 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.  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 might just help to achieve this pull back.

Price is trading below the Cloud on the 4hr, in the bottom edge of the Cloud on the daily and above the Cloud on the weekly and monthly charts. The monthly Cloud chart shows how price is indeed pulling back and I’ll be watching to see how the top edge of the Cloud impacts here, if at all!

The weekly candle closed as a bearish candle although the weekly chart does have a hit of a possible 'Bull Flag' look to it at the moment! The monthly candle closed as a large bearish candle.

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

A/U: The Aussie chopped up and down this week and I now see it trading in more of a triangle pattern. Any interest rate hold by the RBA this week might trigger further bullish movement. The weekly chart H&S may still be building but this pair is being driven more by ‘fundamentals’ than ‘technical’ of late given the RBAs wish to see the A/U trading much lower.

Weekly chart H&S pattern building? A bearish H&S pattern may still be unfolding on the weekly chart. A monthly close below the 0.89 would help support any such move. 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.

Price is trading below the Cloud on the daily and weekly chart but in the bottom of the Cloud on the 4hr and monthly charts.

The weekly candle closed as a bullish coloured ‘inside’ candle reflecting some indecision. The monthly candle closed as bearish coloured BUT with a bit of a bullish-reversal style ‘inverted hammer’ look to it.

• I’m watching for any new TS signal, the 0.89 ‘neck line’ level and the triangle pattern.

              

A/J: Price has been choppy this week and this pair holds little appeal for me at the moment.

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

The weekly candle is noteworthy as it closed as a bullish-reversal ‘inverted hammer’ candle following on from 3 bearish weeks.  The monthly candle closed as a large bearish candle though following 4 bullish months.

• I’m watching for any new TS signal.

G/U: The Cable chopped up and down this week within various 4 hr chart triangle patterns and did not trigger any new TS signals. I said last week that ‘This pair will struggle though if both the GBP and USD continue to try and grind higher’ and this may be what we’re seeing. The Cable seems to be stuck in ‘no man’s land’ at the moment as it trades between two major S/R levels: the monthly 200 EMA above price and the broken monthly triangle trend line below price. I would expect the choppiness to continue until a clear break is made out from this zone, either up or down. I will keep adjusting the triangles to reflect S/R until such time as a break comes with any new TS signal.

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 1,700 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 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 candle with a long upper shadow. The monthly candle closed as, essentially, a bearish coloured ‘inside’ candle but with long upper and lower shadows; no doubt reflecting the indecision with this pair as it struggles under major resistance and with deciding on its next move.

• I’m watching for any new TS signal, the monthly 200 EMA and the triangle trend lines.

Kiwi: NZD/USD:  Price chopped up and down to start the week but then fell after RBNZ interest rates were left on hold. Price had held pretty well above the 0.82 level since last December but the Kiwi gave up on that this week closing well below at just under 0.81.

The 4 hr chart has a bit of a H&S look to it, albeit a bit of a wonky one, with the neck line at 0.82 which has now been broken. The height of the ‘Head’ here is about 230 pips. Thus, the projected move of any bearish follow through would be 230 pips and this puts price down just below the 0.80 level. This pair holds no appeal for me at the moment though and I actually missed a TS short here during the week.

Price is trading below the Ichimoku Cloud on the 4hr and daily charts which is bearish.

The weekly candle closed as a large bearish candle.  The monthly candle closed as a bearish candle but with along upper shadow suggesting indecision.

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

• I’m watching for any new TS signal.

EUR/AUD:  The EUR/AUD was choppy again this week and some AUD strength brought it back down towards the monthly 200 EMA, a level that has been a bit of a magnet for price action here.

The monthly chart still looks bullish though and suggests that price has broken through key resistance of the monthly 200 EMA, tested this level and looks poised for bullish continuation. I do note that the January candle closed above this key level of the monthly 200 EMA which I see as a bullish signal.

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.

The E/A is trading below the Cloud on the 4hr but above on the daily suggesting further choppiness.

The weekly candle closed as a large bearish candle. The monthly candle closed as a bearish coloured ‘spinning top’ with long upper and lower shadows suggesting much indecision but it did close above the support of the monthly 200 EMA.

• I’m watching for any new TS signal here.

The Yen: U/J: The U/J chopped around all week, either side of the monthly 200 EMA.

Price is trading below the Cloud on the 4hr, in the Cloud on the daily and above the Cloud on the weekly and monthly charts suggesting further choppiness. November was the first monthly candle 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. This may be what is evolving at the moment.

The weekly candle closed as bearish coloured BUT with a bullish-reversal style ‘inverted hammer’ look to it. The monthly candle closed as a bearish engulfing candle though.

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’m watching for any new TS signal, the monthly 200 EMA 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 was a significant development for this index and a rather bullish signal. Price closed back just below the 15,000 level for January though and right on top of the previously broken trend line.

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.

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 U/J and the Nikeei are still trading in sync too:

Nikkei and S&P500: (S&P500: green. Nikkei: black).  Trading in sync here too:

AUD/NZD: The A/N pair chopped higher this week and formed up into a bullish ‘inverse H&S’ pattern. Price broke out and up through the ‘neck line’ of this pattern on Thursday and also gave a new TS signal in a move that has given 130 pips so far. Price pulled back to test the previous S/R level of 1.075 level after the breakout but this S/R level managed to hold out the week.

Price is now trading above the Cloud on the 4hr but below the Cloud on the daily, weekly and monthly charts which suggests choppiness but with a bit of a bullish bias.

The weekly candle closed as, essentially, a bullish engulfing candle. The monthly candle closed as a bearish coloured Doji BUT, after such a lengthy down trend, this candle may be suggesting some bullish reversal is ahead!

• There is an open TS signal on this pair.

GBP/AUD: Price chopped lower here this week and has formed up into a triangle pattern on the 4hr chart. I’m not that keen on this pair this week.

Price is now trading in the bottom edge of the Cloud on the 4hr and above the Cloud on the daily chart suggesting more choppiness may be ahead.

The weekly candle closed as bearish candle. The monthly candle closed as a small bullish candle, almost a ‘spinning top’, but with very long upper and lower shadows suggesting a bit of indecision here!

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.

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

Silver: Silver chopped lower this week with the rising USD and FOMC news and closed back below the $20 support level. It traded up near 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 below the Ichimoku Cloud on the 4hr, daily, weekly and monthly charts which is bearish.

The weekly candle closed as a bearish candle.  The monthly candle closed as a bearish coloured ‘spinning top’ candle reflecting the indecision in the market.

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

Gold: Gold tried to hold above the broken ‘neck line’ of the bullish inverse H&S pattern at $1,255 but couldn't quite manage it. USD strength following FOMC made this endeavour just too hard. Price fell late in the week and also fell back below the previously broken daily trend line. I had been wondering whether Gold was simply rising to test the bottom of the monthly Ichimoku Cloud following the earlier bearish break down here and this may end up being the case.

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 4hr, weekly and monthly charts but in the Cloud on the daily 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 continuing with any further bearish move.

The weekly candle closed as a bearish engulfing candle. The monthly candle closed as a bullish coloured candle though; the first in 4 months and in a ‘railroad track’ configuration. These patterns suggest bullish reversal.

Continued USD strength will make life hard for Gold but any return of fear could help this metal.