Trade Week Analysis for 07/04/14

Last week:  There were only 4 TS signals being tracked for most of last week and 3 of these gave good pips: E/J: 170, Kiwi: 90, AUD/NZD: 80 with the A/U being the loser at -50. Four new signals were triggered late on Friday though and two of these, that I profiled on Friday before their breakout, have already made substantial moves: E/A=140, GBP/AUD= 140, A/U= 20 and Gold= flat.

The S&P500 made a bullish triangle breakout last week and also triggered a new bullish Tenkan/Kijun cross but Friday and NFP saw the ‘double top’ respected.

This week:

GBP/AUD and EUR/AUD: I wrote a separate report on these two yesterday. Both had a relatively quiet start to the week, following their major moves from the week before, but they seem to have picked back up with their evolving technical patterns: a triangle break on the EUR/AUD and a H&S break down on the GBP/AUD.

The AUD/NZD 'double bottom' is still forming up but this needs to break up through another key level to be more convincing.

China announced stimulus measures last week and this seemed to be help support the AUD and also some 'hard' commodities (Gold, Copper and Iron Ore).  I'm watching for any follow through there.

As has been the case over recent weeks, many instruments are trading at pivotal levels: E/U, E/J, U/J, Cable and, even despite Friday's carnage, the S&P500. Friday did bring a shift in sentiment but I'm wanting to see further signs of follow through before being convinced that this is the decisive turning point on these instruments.

Geo-political events, such as issues in the Ukraine, Turkey and elections in India and Afghanistan, still have the potential to undermine any developing ‘risk’ appetite and needs to be monitored.

I am travelling today and on Monday, hence this earlier than usual update. I may not get to update again until later in the day on Monday.

Stocks and broader market sentiment:

The S&P500 made a bullish breakout from trading within the symmetrical triangle mid-week but the bearish ‘double top’ loomed large ahead of NFP. This bullish triangle break also triggered a new ‘bullish cross’ signal on the Ichimoku chart although the trend lines would need to tick higher to be at all convincing.  Although the NFP data was slightly weaker than expected, traders clearly saw the data as good enough to support the planned QE tapering regime and this prompted a sell off at the ‘double top’. 

Whether Friday’s sell off was a ‘double top’ knee jerk reaction, something akin to 'taking candy from a baby', or the start of a possible pull back remains to be seen. I have been noting here recently how I’m seeing divergence on the monthly S&P500 chart and how this might be just warning of a pause, as the index navigates new highs, but that the chance of a pullback cannot be ruled out either. There has not been any real deep pull back since the break up through the 1,577, 1,600, 1,700 and 1,800 levels and the major break of the 1,577 level was only tested once.  Friday’s sell off was just one day and, as we all know, ‘one swallow does not a summer make’ so I’d be looking for further signs before getting too worried just yet. Remember, the daily support trend line is still intact for the S&P500. Also, small cap stocks are often hit first and hardest in the start of a true bear sell off. The Russell 2000 is a small cap stock index and the chart below shows how a daily support trend line is still intact for this index too. This may well change in coming days but this index hasn't buckled yet:

Small Cap Index:Russell 2000

Thus, with all of this, I continue to watch out for further clues as to any new momentum move, long or short though! 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 holding above this for the time being.

Ichimoku S&P500 chart: a clear cross of the blue Tenkan-sen line below the pink Kijun-sen line. A new bullish Tenkan/Kijun cross evolved on Thursday 3^rd April. This cross was deemed ‘strong as it evolved above bullish Cloud although the Tenkan/Kijun lines were angled fairly flat to start. This new bullish Tenkan/Kijun cross, if it develops, will be quite significant as the last such bullish cross marked the start a long running uptrend.

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 failed to hold these levels for the January close. Price closed back above the monthly 200 EMA for February and March though and this is rather bullish. 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. 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 BUT I am seeing a bit of divergence creeping in now on the monthly chart. This may just be as the index pauses and ponders this new high or it could be warning of a pull back. Elliott wave suggest a big correction here though. I am still thinking that the 1,600 level might be the new base line for this index. The saying that ‘Old resistance becomes new Support’ holds here. I still believe that 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 breakthrough and I would expect a significant level such as this to be tested more than once. Maybe I’m wrong here though as there have now been seven consecutive months of candles that have closed above this key level, and, without testing this region at all. To add to this thought of bearish pull back potential, 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 even test this region again before any continued move upwards.

Items to watch out for:

• Mon 7^th April: CNY Bank holiday.
• Tue 8^th April: NZD Business confidence. AUD Business confidence. BoJ monetary policy & press conference. GBP manufacturing prod. JOLTs job openings.
• Wed 9^th April: USD FOMC minutes.
• Thurs 10^th April: AUD unemployment rate. CNY Trade Balance. GBP Bank rates. USD Unemployment claims.
• Fri 11^th April: G20 meetings. CNY CPI. USD PPI & Consumer sentiment.
• Sat 12^th April: G20 meetings.

E/U: Price chopped sideways under the major resistance of the 61.8% fib from the 2011-2012 bear move until Thursday and ECB interest rate news. Dovish comments from the ECB President resulted in the E/U slipping further and down to test 1.37 support during Friday’s Asian trade and this is where price closed for the week. This bearish move did not trigger any new TS signal though.

The E/U is still at a pivotal level though as it trades just below the 61.8% fib level and the monthly triangle trend line. Whether this level marks a major break out for this currency pair or proves to be a turning point for a move back lower still remains to be seen but I had stated that this period would be marked by choppiness and we have seen this again last week.  

Monthly chart triangle breakout looming? The E/U is still poised just below the bear trend line of a major triangle pattern that has been setting up on the monthly chart since back in 2007; the start of the major bear move. Traders need to be on the lookout for any triangle break here as the suggested move from any such breakout could be of the order of upwards of 3,000 pips! The theory behind these breakouts is that the ‘height’ of the triangle represents the possible pip quota for any breakout move.

Price is still trading below the Cloud on the 4hr chart, above the Ichimoku Cloud on the daily and weekly charts and is trying to push up through the Cloud on the monthly chart.

The weekly candle closed as a bearish candle.

• I’m watching for any new TS signal on this pair, the 61.8% fib and the monthly triangle trend line.

E/J: Price chopped higher within the symmetrical triangle and just above the major level of the 61.8% fib level from the 2008-2012 bear move and triggered a new TS signal last Monday.  I had suggested that the first profit target might be at the 143 level as this was also the region of the triangle trend line. Price stalled near there until ECB news on Thursday but not before delivering up to 170 pips on the TS signal. Dovish comments from the ECB dampened the EUR and this saw the E/J fall back down from this key 143 level. Price sold off further after Friday’s NFP but, quite surprisingly, no new TS signal was triggered. Price closed lower for the week but still trading above the key 61.8% fib level.

Like the E/U, this pair is still trading at a pivotal level as it navigates near this 61.8% fib of the 2008-2012 bear move.  This level will ultimately also prove to be a demarcation point for price action here and I’m watching for clues as to which direction this will be, either bullish continuation or bearish reversal, but there are no clear signs as yet.

Price is trading above the Cloud on the 4hr, daily, weekly and monthly charts which is bullish. 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 test this key break out level before any possible bullish continuation and this seems to have evolved. Price has already pulled back to test the top of the monthly Cloud.

The weekly candle closed as a bearish Doji candle. The weekly chart still has a 'Bull Flag' look to it though!

• I’m watching for any new TS signal on this pair, the 143 level and the 61.8% fib level.

A/U:  The A/U spent most of the week consolidating near the daily 200 EMA and this gave the 4 hr chart a bit of a ‘Bull Flag’ look. Price actually made a bullish break out from this triangle late on Friday though and this move triggered a new TS signal off my Friday midnight candle. I find this bullish activity quite odd though given the sell off with US stocks as the Aussie has often been the ‘'risk' canary in the coal mine’. I can only suspect that the news of Chinese stimulus helped to support the Aussie. The same support has been evident with some hard commodities too such as Gold and Copper.

Daily chart inverse H&S: This technical pattern has delivered 240 pips of the ‘suggested’ 380 pips. The theory with these patterns is that the suggested bullish continuation is equivalent to the height of the H&S, that is, the height of the ‘Head’ from the ‘neck line’. The height of this H&S is about 380 ~ 400 pips or so. This would suggest a target for any bullish follow through to be up near the 0.945 region. The Aussie is trading below the Ichimoku Cloud on the weekly time frame but the bottom edge of the weekly Cloud comes in at around the 0.94 region. This isn't too far from the inverse H&S target so it would seem like a good 'take profit' region:

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

The weekly candle closed as a bullish candle.

• There is an open TS signal on this pair.   

A/J: The A/J continued to grind higher after the earlier breakout from the bullish broadening descending wedge. Price is just above the highs reached last October but the daily chart still has a possible ‘double top’ look to it.

Price is still trading above the Cloud on the 4hr, daily, and monthly time frames which is bullish.

The weekly candle closed as a bullish candle.

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

G/U: The Cable chopped lower last week but is still not too far below the resistance of the monthly 200 EMA. This bearish moved triggered a new TS signal but this signal was not valid from an Ichimoku or Bollinger band perspective. The choppy action on the Cable gave rise to what looks a bit like a bullish ‘inverse H&S’ pattern on the 4 hr chart though. Interestingly, the ‘neck line’ of this pattern is at the monthly 200 EMA.

The Cable continues to hold up fairly well under the major resistance of the monthly 200 EMA. It is important to remember that February was the first monthly close above this S/R level since September 2008 and, also, the highest monthly close since the bear move of 2007-2009. These were major achievements. Whether this zone marks a demarcation before the next major move higher or marks a turning point before moving to trade lower still remains to be seen here.

A possible target for any continued bullish movement is best determined from the monthly chart. The 50 % fib level of the 2007-2009 bear move is up at around the 1.73 region and the 61.8 % fib is at the 1.82 region. Both of these levels might be possible profit targets. The 61.8% fib level is only about 1,600 pips away 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 idea. 

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

The weekly candle closed as a bearish candle.

• I’m watching for any new valid TS signal on this pair and the monthly 200 EMA. 

Kiwi: NZD/USD:  The Kiwi traded lower last week on concern about soft commodity (milk) pricing. Price fell through a support trend line and triggered a new TS sell signal that delivered 90 pips. Price pulled back to 38.2% fib of the recent bull move but I had thought it might fall a bit further and down to test the 4 hr 200 EMA.

The previous 2011 high, up at near the 0.88 region, still looms as forming a potential target for any renewed bullish momentum here but this would also be quite a strong resistance zone as it would be a ‘double top’ region.

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

The weekly candle closed as a bearish candle. I had thought that a bearish reversal 'railway track' pattern might form up here but Friday's small rally helped to avoid this formation.

• I’m watching for any new TS signal and the monthly triangle trend line. 

EUR/AUD:  I posted an extra report on the EUR/AUD and GBP/AUD during Friday’s Asian session as both of these looked to be forming up with new TS signals and both looked like they were forming ‘Bear Flags’. TS signals and ‘Bear Flag’ breaks have subsequently evolved on both of them.

Price chopped sideways all week on the EUR/AUD and this gave the 4hr chart a bit of a ‘Bear Flag’ look. There was a new TS signal on Friday before NFP off my 4pm candle. This signal has moved on to deliver a ‘Bear flag’ break and 140 pips.

Triangle breakdown: The daily chart shows how the triangle breakdown looks to still be in play. This triangle break down has yielded approximately 500 pips so far. This move, from the previous week, came along with a very profitable TS signal. The theory with these patterns is that the breakdown value is equivalent to the ‘height’ of the triangle. The ‘height’ of this triangle is about 700 pips and, hence, the expected breakdown move is also 700 pips. I am wary though now as price has pulled back to the 61.8% fib of the recent bull move. Price might stall, or even put in a bounce, from this key technical level.

The E/A is still trading below the Cloud on the 4hr and the daily charts which is bearish.

The weekly candle closed as a bearish candle.

• There is an open TS signal on this pair.

The Yen: U/J: The U/J made a bullish breakout on Monday from trading within a daily chart triangle pattern. This move followed on from a TS signal that had been triggered towards the end of the previous week. The panic with stocks on Friday caused a pull back here though but no new TS signal was triggered.

The 61.8% fib of the 2007-2012 bear move is still just above current price. This is a major demarcation point here: a continued hold below this level would be bearish but any new close and hold above would most likely signal bullish continuation. It is too soon to say whether this level has been categorically rejected yet though.

Even with Friday’s pull back, price is still trading above the Cloud on the 4hr, daily, weekly and monthly charts which is bullish. November was the first monthly candle close above the Ichimoku Cloud since mid-2007 and the bullish hold above the Cloud is most noteworthy.

The weekly candle closed as a bullish candle, albeit with a long upper shadow but still above the monthly 200 EMA.

Weekly Chart Bullish Cup’ n’ Handle pattern: 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 and the 61.8% fib level.

Nikkei:  Price closed above the 15,000 level this week and also above the previously broken trend line. The March monthly candle closed as bullish coloured but as a 'long legged Doji' candle. These types of candles reflect the huge amount of indecision that currently exists in the markets.

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.

UJ and S&P500: The U/J and S&P500 traded with positive correlation for much of 2013 and, after some recent divergence, they are back in sync.

Nikkei and U/J: (U/J: black. Nikkei: green). These two are still pretty highly correlated:

Nikkei and S&P500: (S&P500: green. Nikkei: black).  A bit of divergence is evident here again.

AUD/NZD: The A/N traded higher again last week and this bullish momentum continued to support the evolving ‘double bottom’ pattern. The daily chart shows how this developing bullish-reversal pattern is forming up just above the 100% fib pull back level drawn off the 2005 low. Last week's concern about soft commodity prices helped to weaken the NZD, with respect to the AUD, thereby boosting this pair and this move triggered a new TS signal. Price also moved up through the 1.075 level which has been a key S/R level for this pair.

I was travelling on the day that this pair made its move and missed the TS signal entry near the 1.075 level. I have an order in to ‘long’ there but, if price does not pull back and continues with bullish momentum, there appears to be another entry region higher up the chart and one that is best seen on the daily chart. The ‘double bottom’ is quite clear on the daily chart and the ‘neck line’ for this bullish pattern is at the 1.09 level. Thus, this level might offer an entry opportunity if price continues on its bullish path.

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

The weekly candle closed as bullish candle. The March candle closed as a bullish candle, albeit a 'spinning top' but this is the first bullish candle after 4 bearish months and it has formed at major support so this may be the start of the long awaited reversal here......finally:

• There is an open TS signal on this pair.

GBP/AUD: I posted an extra report on the EUR/AUD and GBP/AUD during Friday’s Asian session as both of these looked to be forming up with new TS signals and both looked like they were forming ‘Bear Flags’. TS signals and ‘Bear Flag’ breaks have now evolved on both of them.

This pair traded flat all week but a new bearish TS signal started to form up on Friday during the Asian session and this eventually triggered off my Friday 8 pm candle. The daily chart’s H&S pattern still looks like it is open and evolving here too.

Daily chart H&S pattern? The theory with these patterns is that the suggested bearish move would be equivalent to the height of the H&S, that is, the height of the ‘Head’ from the ‘neck line’. The height of this H&S is about 1000 pips or so. This would suggest a target for any bearish follow through to be down near the 1.70 region which isn’t too far from the weekly 200 EMA.

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

The weekly candle closed as a bearish candle.  

• There is an open TS signal on this pair.

GBP/JPY: This pair rallied to start the week until it reached the resistance of the  'neck line' of the 'inverse H&S pattern' and the monthly 200 EMA. Price failed to make a daily candle close above these two key levels though and Friday's 'risk off' mood sent this pair tumbling but without triggering any new TS signal.

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

The weekly candle closed as a bearish coloured Doji candle.

• I'm watching for any new TS signal and the inverse H&S pattern.

Silver: Silver chopped sideways last week under the $20.50 support level and the 4hr chart now looks like a bit ‘Bear Flag’ like.

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

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

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

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

Gold: Gold chopped sideways and under the $1,300 for most of the week. Price spiked higher on Friday after NFP though and closed above this key $1,300 S/R level. This move triggered a new TS signal off my Sat 4am candle.

The daily chart shows how price had pulled back to almost the 61.8% fib level of the recent bull move. Thus, it isn't too surprising to see price turn around at this technical support level.

Gold is now trading in the Ichimoku Cloud on the 4hr, daily and monthly charts and below on the weekly. 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!  Price had pulled back up to test the Cloud but the March candle weakened and closed below the monthly Cloud. The new April candle is trading up in the bottom edge of the monthly Cloud though.

The weekly candle closed as a small bullish candle.

• There is an open TS signal on this pair.