Trade Week Analysis for 06/01/14

Last week:  There were just a few TS signals for the New Year week: A/U= -50, E/J=130, E/U=60. Two new moves triggered late on Friday with the Kiwi and AUD/NZD though.

This week:

There is quite a lot of significant data this week: Interest rates for EUR and GBP and then USD NFP on Friday. There is also a bit of Chinese data due out this week and the markets might be quite sensitive to any performance swings here. Watch your trading calendar around these announcements and, especially, the AUD and NZD pairs for the latter news items.

Many trading instruments closed the year near significant levels and they may be choppy as they struggle to determine their next pathway and direction. Some of these include:

• E/U: trading under a major trend line from a monthly chart triangle pattern.
• E/J: Chopping just above the recently broken 61.8% fib level of the 2008-2012 down move.
• A/U: hovering above 0.89; lows from back in mid 2010.
• Cable: chopping between the monthly chart’s broken triangle trend line and the monthly 200 EMA.
• U/J: chopping between the monthly 200 EMA and the 61.8% fib of the 2007-2012 down move.
• Kiwi: chopping around the major S/R level of 0.82 (check this on monthly chart).
• S&P500: has set record new highs in 2013 above the 1,800 level. Price pulled back a bit for the first week of 2014 trading but still closed above 1,800.
• NASDAQ: is back above the 4,000 level for the first time since 2000. Price pulled back a bit for the first week of 2014 trading but still closed above 4000.
• DJIA: has set record new highs in 2013 above the 16,000 level. Price pulled back a bit for the first week of 2014 trading but still closed above 16,000.
• Silver: has been struggling to hold above $20 support.
• Gold: has been struggling to hold above $1,200 support.
• The Nikkei ended up closing for 2013, and for the first week of January, above the key 16,000 level and, also, above the major bear trend line and I see this as a rather bullish development. This major trend line had been in place since March 1991, a period of over 22 years, and the apparent change in trend here may have implications for other markets. Thus, I’m continuing to watch the ‘Holy Trinity alignment’ of the U/J, Nikkei and S&P500.

Many of these moves might be determined by the direction of the USD. The USD had a bullish first week of the New Year and many consider that this trend may continue given the onset of USD QE tapering. I find that watching the direction of the USD and Euro indices helps to gauge momentum here. My latest analysis of these indices can be found through this link.

Stocks and broader market sentiment:

S&P500 stocks closed for 2013 and for the first week of 2014 above the 1,800 level. I would not be surprised to see a pause though, or even pull back, to test key breakout levels before any continuation.

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.

Ichimoku S&P500 chart: a clear bearish cross of the blue Tenkan-sen line below the pink Kijun-sen line. There has not been a bearish cross yet. 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 as although the Tenkan and Kijun lines were fused together, they are now back in bullish alignment.

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 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 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.

Calendar events to watch out for:

• Mon 6^th: EUR Bank Holiday (Italy), GBP Services PMI,USD ISM non-manufact PMI & Fed Chairman vote.
• Tue 7^th: AUD trade balance. USD trade balance.
• Wed 8^th: CNY trade balance. USD Non Farm employment change. FOMC minutes.
• Thurs 9^th: AUD building approvals & retail sales. CNY CPI. GBP interest rates. EUR interest rates. ECB Press Conference. USD unemployment claims.
• Fri 10^th: GBP manufact prod. USD NFP.

E/U: The E/U had a bullish 2013. Price edged up towards the end of the year to trade just under the bear trend line of a major triangle pattern on the monthly chart. Price traded just under this trend line and the 1.38 level to close out 2013. It opened lower for the New Year and has continued to drift down from the 1.38/trend line peak and this move triggered a new TS 'short' signal. Price held above the support of 1.365 until Friday but then fell lower to finish the week just above the daily support trend line. I’m watching the daily support trend line to see if this holds price action up at all. A breach of this support trend line though could see price head down to test the bull trend line of the weekly/monthly chart triangle pattern, some 550 pips away.

Price is trading below the Ichimoku Cloud on the 4hr but above on the daily and weekly chart which suggests some short term choppiness.

The weekly candle closed as a bearish, almost engulfing, candle. The monthly candle closed as a bullish candle.

This pair is at an important junction indeed. It needs to figure out whether it will continue with a bullish attempt at the monthly chart triangle trend line or not. It is worth remembering that price is now only about 400 pips below this trend line. I would expect price action to be choppy if it trades up near this level again. Continued USD strength may impact here though to determine the direction of the E/U and a strengthening USD might see the E/U start to slide from these lofty levels.

• There is an open TS signal on this pair. I’m watching the daily support trend line!

E/J: The E/J had a very bullish 2013. It has continued to recover losses that were made in the 2008-2012 down move and it actually closed the year above the 61.8% fib pull back level of this major move. Price has pulled back a bit since breaking through this key level which isn't surprising. The question now is whether price action will continue with this bullish move? 

This pair drifted higher last week until the year end but the New Year saw price fall and break through a daily support trend line and trigger a new TS signal.

Price is still trading above the Cloud on the daily, weekly and monthly charts but has slipped below the Cloud on the 4hr chart. The December monthly candle closed above the Ichimoku Cloud, following on from a similar bullish close with the November candle. The 78.6% fib level at up around 150 might be the next target for any bullish continuation. Price could continue to pull back a bit before this though and a test of the 618% fib down at the 140.50 area might be a possible area to try for any such pull back. This 61.8% fib is also the region of the 4hr 200 EMA which can often be a magnet for price. A breach of the 61.8% fib / 4hr 200 EMA level though could be a bearish signal and point to further falls so I'll be watching this demarcation level closely.

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

• There is an open TS signal on this pair. I'm watching the 61.8% fib level for any reaction.

A/U: The Aussie had a bearish 2013 helped along by concerns about growth in China and some ‘talking down’ by the RBA. Price chopped around the 0.89 July/Aug lows for the last two weeks but ended the year just above this key level. These were lows not seen since mid 2010 but at least it managed to close above this support for the first week of the New Year.

Weekly chart H&S pattern building? There is a possible bearish H&S pattern building up 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 though. 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. So, this is a work in progress, if at all!

Price is trading below the Cloud on the daily and weekly chart and in the Cloud on the monthly chart. Price has moved up above the Cloud on the 4hr chart though and has also given a new bullish Tenkan/Kijun cross here.

The weekly candle closed as a bullish engulfing type candle; the first bullish candle for 10 weeks! The monthly candle closed as a bearish candle.

Chinese data due out this week could trigger moves here so watch out for these news items.

• I’m watching for any new TS signal and the 0.89 level.  

A/J: The A/J had a very choppy 2013. Price drifted higher again this week until it reached the top trend line of the daily chart’s descending channel but then pulled back from this level.

Price is now trading above the Cloud on the 4hr and just above on the Cloud on the daily chart suggesting some bullish potential.

The weekly candle closed as a bullish candle.  The monthly candle closed as a bullish coloured candle but with some bearish reversal ‘Hanging Man’ look to it.

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

G/U: The Cable had a choppy year but finished higher and actually broke up through a monthly chart triangle pattern. It closed the year trading above the support of this triangle trend line but below the monthly 200 EMA.

The Cable continued higher to start the week following on from the break up and out from the major monthly chart triangle pattern. It stalled mid week when it reached up near the resistance of the monthly 200 EMA.  You could say ‘it is between a rock and a hard place’! Price might be just taking a break whilst it gather steam to tackle the resistance of the monthly 200 EMA or it could be on the verge of making a deeper retreat. I would view a break and hold back below the major triangle trend line as rather bearish.

The monthly and yearly candles closed up and out from this triangle pattern and that is a rather bullish signal though. 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 laugh too loud at me.  Now, the Cable could just as easily be rejected by the new resistance of the monthly 200 EMA and make a prompt move back down so I’m watching all of these levels and will trade with the next momentum move, either up or down! The monthly chart shows that there is some resistance in the way of this pair. Firstly, the monthly 200 EMA and, then, the 1.70 whole number level.

Price is now trading above the Cloud on the daily and weekly charts but in the Cloud on the 4hr chart suggesting some choppiness whilst it navigates this difficult section. There was also a bearish Tenkan/Kijun cross on the 4 hr chart at the end of the week.

The weekly candle closed as a bearish candle with a long upper shadow suggesting some indecision. The monthly candle closed as a bullish candle and just below the monthly 200 EMA.

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: The Kiwi has had a choppy 2013 and this can be best seen from the monthly chart. This chart also shows how this choppy action has been confined within a triangle pattern and that price has hovered, lately, around the historically significant S/R level of 0.82. This monthly triangle is significant as it shows that there is a lot more room for sideways choppy action and with predicted USD and NZD strength, this is what we might just see with this pair!

Last week: Price chopped up and down this week under the bear trend line of the daily chart’s descending channel pattern until Friday. Price then broke up and out of the trading channel and triggered a new TS signal.

Price is trading below the Ichimoku Cloud on the daily chart but above on the 4hr chart which suggests further choppiness.

The weekly candle closed as a large bullish candle. The December candle closed as a small, bullish-coloured, almost ‘inside’ candle.

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 an open TS signal on this pair.

The Yen: U/J: The U/J had a very bullish 2013 as it recovered much of the ground that it lost in the fall from 2007 through to 2012.It made it up over the resistance of the monthly 200 EMA but only after a number of months of choppy action. It now faces another hurdle in the 61.8% fib level of the 2007/2012 down move. There are two questions here now though: 

1. Will the U/J keep going and make it up over the 61.8% fib resistance level and, if so, 
2. Will it take as long to navigate this move as it did with getting over the monthly 200 EMA? 

Last week: The U/J chopped sideways under the S/R level of the 61.8% fib (105.5) to see out the month and the year. Price retreated from this high to start the New Year but hasn't fallen too far just yet. I would not be surprised to see price test the previously broken S/R level of the monthly 200 EMA, or even lower, before any bullish continuation. I had also thought that the top of the monthly Ichimoku Cloud might be tested but this seems a long way off now as it is down below the 98 level.

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!

Price has now moved over 650 pips from the daily chart triangle breakout. This 'triangle' is also the ‘Handle’ of the weekly chart ‘Cup ’n’ Handle’ pattern. Price had struggled to get up and over the resistance of the monthly 200 EMA but this level seems to have been cleared now.

The weekly candle closed as a small bearish candle and with a bit of a bearish reversal ‘Hanging Man’ look to it so I’ll be on the lookout for any bearish follow through. This was the first bearish candle for nine weeks! The December candle closed though as a bullish candle above the monthly 200 EMA and, as mentioned above, I would not be surprised to see price pull back to test this level.

Weekly Chart Bullish Cup’ n’ Handle pattern: The bullish break out from the ‘Cup ’n’ Handle’ pattern on the weekly chart has given over 650 pips so far. 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 the monthly 200 EMA and the 61.8% fib level near 105.5. 

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: 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.

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 divergence back in November.

EUR/AUD:  The EUR/AUD had a very bullish 2013. Price closed the month and year out just above the monthly 200 EMA. This is a major development as the EUR/AUD had not traded above this key S/R level since back in 2009. The New Year has seen price slip back below this support though and the 4hr chart now also has a bit of a ‘double top’ look to it that I will be monitoring. Price could be just drifting back down to test the other major S/R level of 1.50 before any bullish continuation so I’ll be watching this level as well. The significance of the 1.50 level can be seen on the monthly chart.

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 1.75 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 the time being and I’m on the lookout for bullish continuation.  

The E/A is still trading above the Cloud on the daily and weekly charts but is below the Cloud on the 4hr chart suggesting some further choppiness might be ahead.

The weekly candle closed as a bearish engulfing candle; the first bearish candle for 7 weeks! The December candle closed as a bullish candle though.

• I’m watching for any new TS signal, the 1.50 level and the ‘double top’. 

AUD/NZD: This pair has suffered huge losses this year as it seems to be drifting down to test the lows set back in 2005. The AUD/NZD had chopped higher from 2005 through to 2011 but has been on just as choppy a decline since then. It opened the year near the 38.2% fib pull back level of this move but eventually moved lower through 50%, 61.8% and 78.6% levels. It now seems like it might be going for a full 100% fib pull back. I have read trading commentary that the slow down in Asian activity has negatively impacted the AUD with reduced demand for Aussie ‘hard’ commodities (coal etc) but that the growing Asian population and relaxed one-child rule is seeing a boost in demand for NZD ‘soft’ commodities (milk/food) and, hence, this is helping to boost the NZD. The chatter about possible higher NZD rates is no doubt helping here too. With this grim picture I’m wondering if this pair will stop at the 100% fib level (1.04 region)!

Last week: This pair chopped a bit lower this week and printed a bearish candle after two weeks of bullish candles.  

The bullish Tenakn/Kijun cross previously noted on the 4hr chart has faded and a new bearish cross has evolved. Price is back trading below the Cloud on the 4hr, daily, weekly and monthly charts which is bearish so, the long awaited reversal might be a bit of a way off just yet. I had thought that this pair might take a trip down to the previous 2005 lows of 1.04 so I’m watching this level closely.

The monthly candle closed as a large bearish candle.

• There was a new TS signal on the last candle on Friday and I’m watching to see if this holds into next week.

GBP/AUD: This pair had a great 2013 as it started to carve its way higher following on from the steady decline it had been in since 2007! Price has now pulled back to the 38.2% fib level of this down move and is struggling here a bit.

Last week: This pair has been very choppy this week as it struggled under the 38.2% fib level of the 2007-2013 move. A daily support trend line seems to be in place though and price closed for the week just above this level.

Price is still trading above the Cloud on the daily and weekly charts but is back below the Cloud on the 4hr chart suggesting that some further choppiness might be in store.

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

The continued hold above the 1.75 level would seem to 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’m watching for any new TS signal, the daily support trend line and the 38.2% fib level.

Silver and Gold: 2013 was a bad year for both of these metals. I have been surprised though to see both of these metals rally this week given the boost with the USD. I'll be watching this week to see if these continue to trade in tandem with the USD.

Silver: Silver was very choppy last week and closed the year out below the $20 level.  The rest of the week and New Year has seen price recover some of this loss though and price closed the week back just above the $20 level. Price is trading under a bear trend line on the daily chart and under a larger bear trend line on the weekly chart.

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

The monthly chart shows how the December candle tested the June low which was also the 78.6% fib pull back level of the 2008-2011 bull move.  This monthly chart also makes it hard to imagine that the $15 level won’t be visited again though.

The weekly candle closed as a bullish coloured Doji candle. The monthly candle closed as a bearish ‘spinning top’ type candle. Thus, some indecision here it seems.

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

Gold: Gold traded the week a bit like Silver. It traded lower but managed to close the year out just above the support of the whole number $1,200 level. The New Year has seen price recover from there though and price closed later in the week above a daily chart bear trend line, suggesting some short term bullish sentiment. There is a larger bear trend line still containing price on the weekly chart though.

Also like Silver, the monthly chart shows how the December candle tested the June low of $1,180 which was just above the 61.8% fib pull back level of the 2008-2011 bull move.  I have adjusted the bottom trend line of the triangle pattern to extend between these two low levels. A break of this level would be quite bearish. The next major support after $1,180 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! So, this latest bullish action may just be price trying to test this broken S/R level.

The weekly candle closed as a bullish candle. The December candle closed as a bearish candle though and below the Cloud.