Trade Week Analysis for April 21/04/14

Last week:  There were only 3 TS signals in the shortened Easter trading week: E/A = -40, Kiwi = 0 and GBP/AUD = 120.

This week:

This coming week is a shorter trading week again with Monday being part of the Easter long weekend. Friday is then a Bank holiday for AUD, NZD and Italy as well. This analysis has been posted earlier than usual as we are heading out early for a rather long day as part of this holiday weekend.

It is a relatively quiet week for data but Chinese PMI, although only the HSBC print, may be a trigger for some movement.

I have been noting for the last few weeks how the E/U, E/J, Kiwi, Cable and the S&P500 have all been trading at pivotal levels. Well, guess what? They still are! I thought we might be getting closer to 'make or break' time but I obviously need to be a bit more patient. So, maybe wake me up when it gets going!

It seems quite appropriate, given it is Easter, that 'The Holy Trinity' alignment of the the S&P500, U/J and Nikkei has 'arisen' again!  I'll be watching for any continuation there.

The lack of many TS signals over recent weeks reveals the current state of market choppiness. It is often noted that the best trends eventually emerge from sideways and choppy markets so traders need to be on the lookout for any such new momentum and sentiment shift. I noted in yesterday's FX Indices Review that I consider the USD index needs to break free from its recent trading range (81.50 - 79) before we will see any new and substantial trends across the broader markets.

The Kiwi could be viewed as having printed a bearish reversal 'Railway Track' pattern following the recent weekly candle. That's how I'm seeing it at least! I'm on the lookout for any follow through here as these patterns have been quite successful predictors of new price direction of late. This pattern dovetails in quite well with what I am seeing on the AUD/NZD too. We shall see!

I am traveling a bit again over the coming week so updates may, at times, be more brief and less frequent.

Events in the Ukraine still have the potential to undermine any developing ‘risk’ appetite and needs to be monitored.

Stocks and broader market sentiment:

It was a better week for the S&P500 last week. Price bounced off the daily support trend line last Monday and kept trading higher from there.

I noted last week how many commentators were calling the previous week’s bearish move on the S&P500 as the start of a major correction. I emphasised though how I considered this 'call' to be premature as the daily support trend line and the Ichimoku Cloud had not been broken. This remains the case to date and I still do not see any indication that a major correction has started just yet. It may well evolve, and surely will at some stage, BUT it hasn't just yet.

The NASDAQ is also still trading above a daily support trend line and a triangle pattern is now evolving here too:

NASDAQ daily

The more sensitive, small cap, Russell 2000 Index had broken through daily support but not through weekly support. This index may now be forming up into a ' Bull Flag' pattern though so traders need to watch the trend lines here for clues as to the next directional move, long or short:

Russell 2000 daily

Russell 2000 weekly

I'm not seeing any warning signals on the Emerging markets yet either. Just more consolidation:

EEM: Emerging market ETF

I have been noting here recently though how I’m seeing divergence on the monthly S&P500 chart and how this might be simply warning of a pause, as the index navigates new highs, but that the chance of a pullback cannot be ruled out either. This is still the case. 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.  I am still being cautious here now even though the daily support of the S&P500 has not been broken.

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. The previous bullish cross did not fully evolve and the Tenkan/Kijun lines have now just triggered a bearish cross. This is deemed a ‘weak’ bearish signal though as the cross evolved above the Cloud and the index is now back trading above the Cloud. Price actually bounced up off the support of the bottom of the Ichimoku Cloud, as suspected, when trading opened last Monday. Price is now back above the Cloud and traders need to be on the lookout for any new bullish Tenkan/Kijun cross.

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. I am seeing divergence on the monthly chart though. 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 nine 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. I actually won’t be entirely comfortable with any bullish continuation move on the S&P500 until this 1,577 level is tested again.

Items to watch out for:

• Mon 21^st: Easter Monday holiday.
• Tue 22^nd: G7 meetings. USD existing home sales.
• Wed 23^rd: AUD CPI. CNY HSBC flash manufacturing PMI. EUR French & German flash manufacturing PMI. GBP Bank rate votes. USD new home sales.
• Thurs 24^th:  NZD cash rate. EUR German Ifo business climate. USD core durable goods order and unemployment claims.
• Fri 25^th: AUD, NZD & Italian Bank Holiday. GBP retail sales.

E/U: Price chopped along all week, in thinner trade, and either side of the major resistance of the 61.8% fib from the 2011-2012 bear move. The E/U managed to close for the week above the psychological 1.38 level though.

The E/U is still at a pivotal level though as it trades just under this 61.8% fib level and also just below the monthly triangle trend line. Whether this level marks a major ‘break out’ zone for this currency pair or proves to be a turning point for a move back lower still remains to be seen.

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; that being 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 trading in the Ichimoku Cloud on the 4hr, above on the daily and weekly charts and is now very close to pushing up through the Cloud on the monthly chart.

The weekly candle closed as a bearish coloured ‘inside’ candle. These candles reflecting ‘indecision’ and /or ‘consolidation’.

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

E/J: Price chopped around for most of the week again just above the bottom trend line of the daily chart’s symmetrical triangle and just above the major level of the 61.8% fib level from the 2008-2012 bear move.  

Like the E/U, this pair continues trading at a pivotal level as it navigates near this 61.8% fib of the 2008-2012 bear move.  This level will possibly 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 now trading in the Cloud on the 4hr but above the Cloud on the daily (just), weekly and monthly charts. The November and December candles were the first to close above the resistance of the monthly Ichimoku Cloud since 2008! 

The weekly candle closed as a bullish coloured, almost ‘engulfing’ style, candle.

I am still seeing the weekly chart as looking like a possible 'Bull Flag' and the hold above the 61.8% fib level as bullish as well. 

• 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 chopped sideways to down for most of the week and just under the psychological whole number level of 0.94. This price action formed up into a descending trading channel and I’ll be watching the trend lines here for clues to any new breakout move.

Price is trading just below 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 bearish coloured ‘inside’ candle. These candles reflecting ‘indecision’ and /or ‘consolidation’.

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

A/J: The A/J spent another week chopping sideways and seems to be consolidating in a descending trading channel, as with the A/U.

Price is trading just below thin and flat Cloud on the 4hr but above on the daily, and monthly time frames.

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

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

G/U: The Cable bounced off the strong support level of the monthly 200 EMA at the start of the week and rallied back to the 1.68 previous ‘triple top’ level. This is the fourth time now that price has ‘knocked’ at this major resistance level. It closed the week just under this key 1.68 level and, although it has not managed a weekly close above 1.68 since mid-2008, it is starting to look a bit threatening.

This bullish action on the Cable continued to see the bullish ‘inverse H&S’ pattern on the 4 hr chart play out. The ‘neck line’ of this pattern is the monthly 200 EMA.

The Cable continues to hold up strongly above 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. An April candle close above the monthly 200 EMA, and the 1.68 level, would be very bullish indeed. I would expect price action to be choppy until the end of month as it possibly tries to carve out this milestone achievement.

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 1,500 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 above the Cloud on the 4hr, daily and weekly charts and in the top section of the Cloud on the monthly chart.

The weekly candle closed as a bullish candle.

• I’m watching for any new valid TS signal on this pair, the monthly 200 EMA and the 1.68 level. 

Kiwi: NZD/USD:  The Kiwi chopped lower last week following some weaker than expected data and moved back below the major monthly chart triangle trend line. I've re-drawn the upper triangle trend line of this monthly chart pattern and this comes in now as the horizontal 0.88 level. This monthly chart pattern is now forming up as an ascending triangle.

I noted another new trend line on the Kiwi as well and this was a new support trend line on the daily chart. This support trend line was broken on Friday and a new TS signal was also triggered but I was wary with the thin trading during the Easter week. I emphasised that I would want to wait until after Easter and, also, to see the monthly pivot and 4 hr 200 EMA support broken as well before considering this trade.

Price is now trading below the Ichimoku Cloud on the 4hr but above on the daily, weekly and monthly charts but this represents a bit of a bearish shift.

The weekly candle closed as a large bearish candle. This candle print could almost be construed as a bearish-reversal ‘railway track’ pattern given the candle configuration AND that price closed just below the major 0.88 resistance level. The Kiwi has been struggling at this 0.88 level recently and bearish-reversal 'Railway Track' patterns do need to print at a resistance level, such as here with the Kiwi:

Kiwi weekly candle print

'Railway Track' example

• There is an open TS signal on this pair BUT I’m waiting for any close below the monthly pivot and 4 hr 200 EMA.

EUR/AUD:  The previous week’s candle had printed as a ‘spinning top’ candle and as an ‘inside’ candle suggesting ‘indecision’. That is exactly what we got last week! Price chopped sideways, again, given strength with both the EUR and AUD.  

Triangle breakdown now completed?: The daily chart shows how the triangle breakdown looks like it may have completed given the recent 3/7 EMA cross. This triangle break down yielded approximately 600 pips which wasn't too far off the projected target. The theory with these patterns is that the breakdown value is equivalent to the ‘height’ of the triangle. The ‘height’ of this triangle was about 700 pips and, thus, the expected breakdown move was also 700 pips so, a 600 pip move wasn't too bad!

The E/A is trading in the top of the Cloud on the 4hr and below the Cloud on the daily chart which suggests more choppiness.

The weekly candle closed as a bullish candle.

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

The Yen: U/J: The U/J chopped higher last week after bouncing off the bottom (bull) trend line of the daily chart’s symmetrical triangle pattern. Price struggled again though once it reached back up to the monthly 200 EMA. This is a resistance region it has struggled with on numerous previous occasions.

The 61.8% fib of the 2007-2012 bear move is still 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 still too soon to say whether this level has been categorically rejected. A break down from the current triangle pattern would lend support to a bearish rejection though.

Price is now trading in the Cloud on the 4hr, below on the daily chart but above the Cloud on the weekly and monthly charts. November was the first monthly candle close above the Ichimoku Cloud since mid-2007 and the bullish hold above the Cloud continues to be noteworthy.

The weekly candle closed as a bullish coloured candle, and almost as an ‘inside’ candle. This might be reflecting either ‘indecision’ or ‘consolidation’ or maybe both!

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.

Nikkei:  The Nikkei recovered a bit last week and closed above the 14,000 level but still just a bit below the previously broken trend line. I'm on the lookout for any continued recovery here.

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.

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 but the Nikkei is still experiencing some slightly larger moves.

Nikkei and S&P500: (S&P500: green. Nikkei: black).  These two are back in sync again.

GBP/JPY: I am still watching the daily chart here as the bullish 'inverse H&S' pattern still seems to be setting up. I do concede it is looking a bit wonky now though!

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

The weekly candle closed as a bullish engulfing candle.

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

AUD/NZD: The A/N chopped higher again last week and this bullish momentum continues 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 of the 2005 low. Price held above the 1.075 level all week and even traded above the key 1.09 level briefly. This ‘double bottom’ is a daily chart pattern and, thus, I would want to see a daily candle close above the 1.09 before getting excited about any bullish continuation.

For those who missed the opportunity to ‘long’ when price was at 1.075 there is still another entry at 1.09 if, indeed, bullish momentum does continue. This entry will be best gauged on the daily chart as the ‘double bottom’ is quite clear here. The ‘neck line’ for this bullish pattern is at the 1.09 level and, thus, a daily candle close above 1.09 might offer an entry opportunity if price continues on its bullish path.

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

The weekly candle closed as bullish candle and engulfing the small body of the previous ‘spinning top’ candle.

• I’m watching for any new TS signal BUT prefer to trade this from the technical levels of either 1.075 or 1.09.

GBP/AUD: This pair chopped higher last week as the GBP got an extra lift from the positive UK employment data. This bullish move triggered a new TS signal that has yielded up to 120 pips.

Daily chart H&S pattern? The daily chart’s H&S pattern looks to have closed off for now but it did give up to 550 pips from a possible 1000 pip move. 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 was about 1000 pips or so but a 550 pip move wasn't too bad.

Price is now trading above the Cloud on the 4hr but below on the daily chart which suggests choppiness BUT with a new bullish bias.

The weekly candle closed as a bullish engulfing candle. 

• There is an open TS signal on this pair but it may be close to closing off.

Silver and Gold: Both metals suffered this week with the rising USD and both have printed weekly bearish engulfing candles!

Silver: Silver broke down from the ‘Flag’ pattern mid-week but found support from the monthly chart triangle bull trend line. It closed the week trading below the psychological $20 level though. The daily chart shows how price is becoming increasingly squeezed as it edges closer towards the apex of the monthly triangle pattern.

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

The weekly candle closed as a bearish engulfing 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 triangle trend lines.

Gold: Gold broke down from the rising trading channel mid-week but found some temporary support at the psychological whole number level of $1,300. It continued drifting lower though towards the end of the week and closed below this $1,300 S/R level.

I am still seeing a possible bullish 'inverse H&S' pattern setting up here now on the daily/weekly chart. This latest bearish move has not undermined this pattern just yet but further losses below the $1,275 level would surely start to question this pattern. The ‘neck line’ of this inverse H&S is a fair way off and up around the $1,400 region, which is also up near the weekly 200 EMA level.

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

The weekly candle closed as a bearish engulfing candle.

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