Trade Week Analysis for 16/12/13

Last week:  There were quite a few new signals last week but in choppy trade. The TS signals were: Gold: 250, A/U= 140, EUR/AUD= 200, U/J= 80 Silver=40 Gold=150 AUD/NZD= 70, GBP/AUD= 100.

This week:

USD FOMC on Wednesday will most likely dictate future momentum with all trading instruments as traders wait anxiously for some direction with the ‘will we’ or ‘won’t we’ QE taper talk. An early taper will most likely boost the USD and this will probably reverse, or at least slow, the latest moves with the E/U and Cable, crush the Aussie and rattle stock markets at a minimum. A delay with tapering though could send the USD lower and prompt a 'risk on' type of rally. I suspect that the markets might be fairly quiet until after FOMC news.

I’m 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 but this hasn't evolved as yet.

NB: I have been away this w/e and apolgise in advance for any typos etc.

Stocks and broader market sentiment:

S&P500 stocks had a bearish week, primarily due to concern about an early QE taper. It does seem odd that ‘good news’, in the form off less need for economic stimulus, is interpreted with ‘risk off’ but that’s the way markets have reacted lately. The daily support trend line and the key support level of 1,685 both held but price closed below the psychological 1,800.

The previous three weekly S&P500 candles were ‘indecision’ style candles: a ‘Hanging Man’ style candle and two Doji candles. I had mentioned that either a large gap down or a large bearish candle would be needed to suggest a pullback could be on the way. Last week’s candle was a large bearish candle so I am on the lookout for further bearish follow through. Early QE taper talk might trigger such a move: 

Recent S&P500 weekly candles:

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. I don't have a 'sell' signal on the S&P500 with my TS system just yet but one looks to be building.

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 is 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 AND price held above the Cloud all week which is still bullish.

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 held above this level again last 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 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 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:

• Mon 16^th: CNY manufact PMI, EUR manufact PMI.
• Tue 17^th: AUD RBA minutes, GBP CPI, EUR economic sentiment, USD CPI.
• Wed 18^th: NZD business confidence, EUR IFO business climate, GBP employment data & USD building permits & FOMC statement.
• Thurs 19^th: NZD GDP,GBP retail sales, USD unemployment claims, existing home sales, Philly manufact index.
• Fri 20^th: JPY BoJ monetary policy, GBP current account.

E/U: Traders need to check out the monthly and weekly chart for this pair. The E/U is trading right up under a major triangle trend line and is only about 270 pips away from the upper trend line. I believe that US FOMC might dictate which way the E/U heads from here. An early QE taper should boost the USD and this might send the E/U packing from these lofty levels and back down towards the bottom triangle trend line. A delay with tapering could be the catalyst to project the E/U up towards a triangle breakout though.

Price continued to grind higher until Thursday where it peaked at the 1.38 level. It retreated from this high but didn't park too far away. It chopped along for the rest of the week just under this key resistance level and formed up into a bit of a ‘Bull Flag’ pattern. 

Price is trading above the Ichimoku Cloud on the 4hr chart, daily and weekly chart which is bullish. It is pushing up to trade just under the monthly Cloud too. There was a ‘weak’ bearish Tenkan/Kijun cross on the 4hr chart on Friday though.

The weekly candle closed as a bullish coloured candle BUT with a bearish reversal style ‘shooting star’ look to it. 

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

E/J: Price chopped higher above the 140 level until Thursday. Price has held above the psychological whole number level and the 140.5 as well. The latter being the 61.8% fib retrace level of the major down move from 2008-2012. Some U/J strength towards the end of the week boosted this pair but that faded on Friday with FOMC jitters.

Price is now 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!

Like the E/U, the weekly candle closed as a bullish coloured candle BUT with a bearish reversal style ‘shooting star’ look to it.

• I’m watching for any new TS signal.

A/U: The A/U has continued to chop lower under the ‘neck line’ of the daily chart Head and Shoulder pattern. It moved a bit higher with USD weakness to start the week but some poor AUD data and further comments from RBA Governor, Glenn Stevens, then sent this pair lower and back down on Thursday to near the August lows thereby almost completing the daily chart H&S pattern.

Price has held below the daily chart 'neck line' of the bearish H&S pattern. 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 'Head' of this H&S pattern extended about 400 pips above the 'neck line'. Thus, the suggested possible bearish move would be 400 below the 'neck line'. A 400 pip move would price back down near the previous lows of July and Aug and down at the 'double bottom' zone of around 0.89. This was the suggested 'take profit' zone on this trade. The H&S move on the 4hr chart has almost completed now and has delivered 370 pips thus far.

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

The weekly candle closed as a large bearish candle.

Weekly chart H&S pattern building? I was looking at this pair on Friday and noted a possible bearish H&S pattern building up on the weekly charts. The height of the ‘Head’ on this weekly pattern is about 850 or so pips. The 'neckline' of this weekly H&S pattern would be near the August lows at around the 0.89 level. Thus, the projected bearish move for this possible move would put price down near the 0.80 cent level. Interestingly, this is the low I had been keeping an eye on as it is near the 61.8% fib pull back from the last major up move (2008-2011). Between the 0.89 and the 0.80 level is the 0.83 support level of the monthly 200 EMA.

Any FOMC 'early taper' decision could push the Aussie lower and I'd then be looking for a break of the 0.89 level. A delay with US tapering could trigger a bit of a relief rally with this pair though. 

• There is an open TS signal on this pair. 

A/J: I’m still seeing ‘Roller-coaster’ here! Price has been very choppy again here last week as it continues to contend with both AUD and Yen weakness. Price action still looks better on the daily chart as it trades in a descending channel.

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

The weekly candle closed as an, almost, bearish engulfing candle. 

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

G/U: Traders need to check out the monthly chart of the Cable before making any assessments on this pair. The Cable is trading right near the upper trend line of a monthly chart triangle pattern and seems to pondering its next move. It traded either side of the S/R level of the monthly chart triangle bear trend line and, also, the 38.2% fib retrace level of the major down move from 2007-2009. This pair seems to be waiting for FOMC to help it decide its next move. As with the E/U, an early QE taper should boost the USD and this might send the Cable packing from its lofty levels and back down towards the bottom triangle trend line. A delay with tapering could be the catalyst to project the Cable up towards a triangle breakout though.

A clean break out and up from the triangle pattern on the monthly chart though 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 is trading above the Cloud on the daily and weekly charts but below on the 4hr charts and there was also a bearish Tenkan/Kijun cross on the 4hr chart this week. The weekly candle closed as a bearish 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 the monthly chart triangle trend line and FOMC.

Kiwi: NZD/USD: Price was choppy again here last week. As with the A/J, this choppy action still appears more orderly on the daily chart as it trades in a descending channel pattern.

Price is also still trading in the middle of the Ichimoku Cloud on the daily chart and above on the 4hr chart which suggests further choppiness but there was a bearish Tenkan/Kijun cross on the 4 hr chart on Thursday. The weekly candle closed as a bearish coloured ‘spinning top’ 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 top of the 1.50 level until Thursday. Some AUD weakness after jobs data sent this pair higher and triggered a new TS signal. Price stalled later in the week when it reached up to the resistance of the monthly 200 EMA.

The weekly chart shows how price on this pair had been trading between the 1.4 and 1.5 levels. This close 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 1.74 region. The monthly chart shows how this 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 just under the monthly 200 EMA and this may be a bit of a barrier to bullish continuation.

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

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

The Yen: U/J: The U/J stuck its head above the monthly 200 EMA S/R level again this week but, like last week, it seemed to get a bit spooked and pulled back to trade in another descending channel/flag pattern. The major resistance of the monthly 200 EMA is proving to be significant resistance. Price has now moved 500 pips from the daily chart triangle breakout though.

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, again, as a bullish candle but with a ‘spinning top’ look to it which isn't surprising given the pause under major resistance.

This pair still looks like it could be simply poised and gathering steam before it makes another attempt at breaking through the monthly 200 EMA resistance area.  The bullish ‘Cup ’n’ Handle’ pattern on the weekly chart seems to have evolved though as price has now broken out of the ‘Handle’ from this pattern. The 61.8% fib retrace level from the major down move (2007-2012) is up at the 105.5 region and this might be a possible target for any continued bullish momentum. After that, the 78.6% fib up near the 112 region would be the next target.

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

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 was a significant trend line break for this index. Price held above both of these levels again this week even with FOMC jitters. 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.

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.

Nikkei and U/J: (U/J: black. Nikkei: green). The Nikkei and U/J diverged a little this last week.

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: Not much has changed here from last week. This pair continued to chop lower under the resistance of the previous ‘double bottom’ zone and the 1.12 levels. This support zone and the 1.12 area are near the 78.6% fib pull back level of the last major bull move from Dec 2005 to March 2011.

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.

You would have to suspect now that a trip down to the previous lows of 1.04 might be on the cards here. I’m keeping an open mind though and on the lookout for any reversal signals.

• There is an open TS signal on this pair.

GBP/AUD: This pair has essentially chopped sideways above the major S/R level of 1.75 for the last two weeks.

Price is still trading above the Cloud on the 4hr, daily and weekly charts which is bullish. The weekly candle closed as a bullish candle BUT I’m still on the lookout for any reversal to test the 1.75 level.

A continued hold above the 1.75 level would be very bullish. 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 had been hoping for a pull back to test the 1.75 level here but I’m starting to lose hope.

• I’m watching for any new TS signal and the 1.75 level.

Silver and Gold: I had said last week that ‘what goes up must come down’ and that the reverse must be true for Silver and Gold at some stage. Well, we did get a bit of reversal starting last week with both of these punching up through their 4hr chart bullish ‘inverse Head and Shoulder’ patterns. These moves delivered some good pips but were quickly exhausted. 

Any continued falls with the USD could help to keep boosting both of these metals and so I’ll be watching the USD for guidance with these two. Any renewed USD rally though could see these two continue their slide. FOMC on Wednesday might decide the fate of these two metals.

Silver: Silver broke up from the inverse H&S pattern and gave a 70 pip move. This put Silver back above the $20 level and up just under the monthly pivot. It paused there for a bit before pulling back to close the week below the $20 level.

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

The weekly candle closed as a bullish reversal ‘inverted hammer’ candle so I’ll be watching for any bullish continuation.

The major support levels below $21.50 and $20 seem to be down at $15, near the monthly 200 EMA. 

Gold: Gold broke up from its wonky inverse H&S pattern and also gave a new TS signal that delivered up to 250 pips. This move brought Gold to trade back just under the monthly pivot but it pulled back later in the week.

The $1,300 level remains a key level here as it is the 50% fib pullback from the last swing low to swing high. As suspected, there was some support this week at $1,200 given this is a ‘whole’ number and a possible ‘double bottom’ zone following the last push lower back in June. The next major support after $1,200 seems to be down at the whole number, $1,000 level and, after that, at $850 in the monthly 200 EMA.

As with Silver, Gold is now trading below the Ichimoku Cloud on the daily, weekly and monthly charts but has moved 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!

Like Silver, the weekly candle closed as a bullish reversal ‘inverted hammer’ candle so I’ll be watching for any bullish continuation here too. 

I do think technical moves on Silver and Gold will be at the complete mercy of FOMC though.