Trade Week Analysis for 10/02/14

Last week:  There were seven new TS signals last week: GBP/AUD: 450, A/U= 70, A/J= currently 100, Kiwi=70, E/J=currently 80 and a new Cable & Kiwi signal on my Saturday morning.

This week:

Gold is starting to look a bit bullish on both the daily and weekly charts.

Stocks put in a bullish close for the week but the major S&P500 index still has some possible bearish patterns setting up. I'm hearing and reading a lot of 'doom and gloom' stories about stocks but, at the moment, I'm just not seeing follow through signals of this in any convincing fashion. I did see potential for a pull back to support and we've had a bit of a move this way now. This pull back was not as deep as I'd have liked, but, heh, that might be all we get. I'm still, as ever, on permanent lookout duty here! 

The E/J has had a bit of a pull back too and this was to the top of the monthly Cloud, a zone that was recently broken. The U/J has also had a bit of a pull back too but not to the same extent as the E/J. These pairs look like they could be poised for some bullish continuation now and, if so, this may have consequences for stocks due to recent positive correlation they've had with stocks. This is the 'Holy Trinity' alignment I have been referring to for some time now and, yes, I'm still watching it! 

Stocks and broader market sentiment:

S&P500 stocks closed the week just below the key 1,800 level and the bearish ‘Double Top’ and 'Head and Shoulder' patterns are still a possibility BUT Friday was a very bullish close to a choppy week and not to be ignored.

I'm still 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. Price broke through the daily trend line during the week but rallied towards the end of the week to close back above this support. I’m also watching the bearish ‘Double Top’ and a possible bearish 'Head and Shoulder' pattern form up as well.  A close and hold above the 1,800 level would void the 'H&S' pattern.

We did get a stock pull back but I was thinking that a much deeper one might have been on the way. The pull back was to about 50% of the most recent bull move. It is worth noting though that a 78.6% fib pull back would see price back down near the key 1,685 level. 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 Jan 27^th candle but this signal has closed off on Friday Feb 7^th candle.

Ichimoku S&P500 chart: a clear cross of the blue Tenkan-sen line below the pink Kijun-sen line. A bearish Tenkan/Kijun cross evolved on the daily S&P500 on Thursday 6^th Feb. This cross is deemed 'neutral' though as it evolved within the Cloud. Friday’s bullish action saw this index move back up to trade within the Cloud. Any new bullish cross that evolves above the Cloud would be a strong signal and is worth watching for. There was one recent 'strong' signal back in October last year and this was a bullish signal that delivered a lengthy trending and profitable trade. This can be see on the chart below:

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 this week though back above the monthly 200 EMA. I’ll be watching to see if the EURX holds back up above support or if it was just a temporary reprieve.

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.

Stocks: There are some stocks that are looking quite strong still and I've reviewed this in my Stocks:Jan/Feb page.

Items to watch out for:

• Mon 10^th: nil
• Tue 11^th: JPY Bank Holiday. AUD Business Confidence. CNY Trade Balance. USD Fed Yellen testifies.
• Wed 12^th: GBP: BoE Carney speaks & Inflation Report.
• Thur 13^th: AUD Employment rate and data. USD Retail Sales, Unemployment claims & Fed Yellen testifies.
• Fri 14^th: CNY CPI. USD Consumer sentiment.

E/U: The E/U chopped sideways until Thursday’s ECB meeting. This news triggered some EURX strength and price rallied up to the monthly pivot but the 4hr 200 EMA and psychological 1.36 kept a lid on it after that until Friday. Mixed NFP data then helped to lift the E/U further and price broke up through the 1.36 level. It closed the week sitting above the 1.36, monthly pivot and 4hr 200 EMA but below the intersection of a recent 4 hr chart bear trend line and the key S/R level of 1.365.

Price is trading above the Ichimoku Cloud on the 4hr and in the bottom of the Cloud on the daily chart which suggests choppiness BUT with a bullish bias.

The weekly candle closed as a bullish candle.

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

E/J: Price continued to chop a bit lower to start the week, thereby adding to the pip tally of the bearish H&S pattern, but then started to bottom out. Price rallied after Thursday’s ECB and triggered a new TS signal. This bullish reversal ties in with the possible completion of the daily chart H&S move. This bearish H&S was suggested to yield 450~ 500 pips and the move, thus far, has delivered 420 pips. The recent TS signal to ‘long’ here makes me suspect that the downward momentum may have eased for now.  The daily chart’s bearish H&S pattern also tied in with a test of broken resistance on the monthly Ichimoku chart. Price has now pulled back to test the top of the monthly Ichimoku Cloud (chart below) and I’ll be on the lookout for further signs of bullish continuation.

H&S Pattern Completed now?: The bearish Head and Shoulder pattern on the daily chart seems to be have completed. The ‘neck line’ of this H&S was 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’, was about 500 pips. The theory here suggested that any bearish follow through with this pattern would send price down by an order of 500 pips. This is where it got interesting! A 500 pip move below the neck line would have brought price to around the 135 level. This is roughly where the top of the monthly Ichimoku Cloud is currently sitting. The November and December monthly 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 and this seems to have evolved. This shorter term bearish H&S pattern on the daily E/J chart helped to achieve this pull back to test the monthly Cloud.

Price is trading back up in the Cloud on the 4hr and daily charts and above the Cloud on the weekly and monthly charts. The monthly Cloud chart show how price has pulled back to test this support and, thus, I’m watching for any bullish continuation. The E/J and the S&P500 are quite highly correlated, as the following chart shows, so, any bullish continuation with the E/J might be a signal for stocks:

The weekly candle closed as a bullish candle. I noted last week how the weekly chart has a bit of a ‘Bull Flag’ look to it so I will be watching this ‘flag’ next week and on the lookout for for any trend line breaks.

• There is an open TS signal on this pair. 

A/U: The Aussie broke up and out from the triangle pattern and triggered a new TS signal after RBA news on Tuesday. The weekly chart H&S looks less likely now.

Price was choppy towards the end of the week but the Ichimoku charts might provide some reasons for this. The Aussie broke up through the 4hr Cloud during the week but is currently sitting just under the bottom edge of the Cloud on the daily chart. This is a clear resistance zone for the Aussie and, hence, the choppy price action at the end of the week as it navigates this region.

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 above the Cloud on the 4hr but below the Cloud on the daily and weekly chart and in the bottom of the Cloud on the monthly chart. It is worth noting that there was a bullish Tenkan/Kijun cross on the 4hr chart during the week and that this cross evolved above the 4hr Cloud though so is deemed a ‘strong signal. It has been hard to ‘long’ this pair given recent RBA sentiment but their modified tone last week might just help this pair to trade a bit more ‘technically’.

The weekly candle closed as a large bullish candle.

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

A/J: As with the Aussie, the A/J broke up and out from the triangle pattern and triggered a new TS signal after RBA news on Tuesday. Last week’s bullish-reversal ‘inverted hammer’ candle, following on from 3 bearish weeks, was a good indicator here this week!

Price is now trading above the Cloud on the 4hr but below on the daily and weekly charts which suggests choppiness but with a bullish bias. There was a bullish Tenkan/Kijun cross on the 4hr chart here too during last week. Unlike with the Aussie, this cross evolved below the 4hr Cloud and so is deemed a ‘weak’ signal.

The weekly candle closed as a large bullish candle.

• There is an open TS signal on this pair.

G/U: The Cable chopped up and down again for much of last week. By Friday I had it trading in a bullish descending wedge and, also, in a 4 hr chart bullish ‘inverted H&S’ pattern. The neck line of this H&S being the same level as the major monthly chart trend line. Friday’s trade saw price break up and out of both of these bullish chart patterns and signal a new TS signal off my Saturday 5 am candle. I do like that kind of confluence!

For all of this recent bullish activity though the Cable is still 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. 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 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 only just below the Cloud on the 4hr and in the top edge of the Cloud on the daily suggesting more choppiness but with a bullish bias. There was a bullish Tenkan/Kijun cross on the 4hr chart here too during last week and, like with the A/J, this cross evolved below the 4hr Cloud and so is deemed a ‘weak’ signal.

The weekly candle closed as a bearish coloured Doji candle reflecting indecision.

• There is an open TS signal on this pair.

Kiwi: NZD/USD:  Price rallied early last week and triggered a new TS signal that put an end to the possible bearish H&S pattern! Some choppiness set in but then price rallied again on Friday triggering another TS signal on my final candle for the week. Price is back to trading above the 0.82 level.

Price is now trading above the Ichimoku Cloud on the 4hr and in the top of the Cloud on the daily chart which suggests choppiness but with a bullish bias. There was a bullish Tenkan/Kijun cross on the 4hr chart here too during last week and, like with the A/J and Cable, this cross evolved below the 4hr Cloud and so is deemed a ‘weak’ signal.

The weekly candle closed as a large bullish candle.  

• There is a new TS signal on this pair.

EUR/AUD:  AUD strength with RBA news this week put more pressure on this pair and sent it back below the monthly 200 EMA. This has been a key S/R level for this pair and I’ll be watching to see how price trades around this in coming sessions. I'm finding this pair a bit hard to read at the moment though!

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.

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 in the daily suggesting further choppiness.

The weekly candle closed as a bearish candle.

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

The Yen: U/J: The U/J chopped around below the monthly 200 EMA last week. Price action formed up into a descending wedge and price broke out and up from this wedge during Friday’s Asian session. Mixed NFP data gave this pair little direction though and it finished the week drifting higher from the wedge breakout but still below the resistance of the monthly 200 EMA.

Price is trading just below the Cloud on the 4hr chart, 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 bullish-reversal ‘hammer’ candle. This comes after a decline for the last 5 weeks and the previous week’s candle that had a bullish-reversal style ‘inverted hammer’ look to it.

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 some weeks ago. 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 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.

Price closed just below the 15,000 level again this week but is still above the previously broken trend line.

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 drop on the Nikkei last week was more extreme than that on the U/J but they are still trading with positive correlation.

Nikkei and S&P500: (S&P500: green. Nikkei: black).  The drop on the Nikkei last week was more extreme than that on the S&P500 but they are still trading with positive correlation.

AUD/NZD: The A/N pair continued to grind higher this week on the back of AUD strength following the RBA news. The bullish ‘inverse H&S’ pattern has completed and delivered the full quota of expected pips. Price was trading within a triangle towards the end of the week but broke down from this on Friday. This bearish move did not trigger a new TS signal though.

Price is still 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 a bearish coloured candle with a bit of a bearish ‘shooting star’ look to it.

• I’m watching for any new TS signal.

GBP/AUD: This ended up being the best trade of the week as there was the confluence of a trend line break AND a new TS 'short' signal. Price broke down from the triangle pattern early in week with AUD strength and triggered a new TS signal in a move that delivered a total of 450 pips!

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

The weekly candle closed as large bearish candle. The daily chart has a bit of a bearish 'H&S' look to it at the moment too!

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.

Silver: Silver chopped higher this week and closed back above the $20 support level. It also traded a bit higher so as to break up through the bear trend line on the daily chart and, as such, this is some achievement. 

Silver is now trading above the Ichimoku Cloud on the 4hr, in the Cloud on the daily but below on the weekly and monthly charts. This represents a bullish shift here though.

The weekly candle closed as a bullish engulfing candle. 

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

Gold: Gold chopped sideways and slightly higher this week to hold above the ‘neck line’ of the bullish inverse H&S pattern at $1,255 and above the previously broken bear trend line. The daily chart is starting to look quite bullish though with its ‘inverse H&S pattern’ starting to play out and the weekly chart has a bullish ‘double bottom’ look to it as well. I think that the next direction for the USD will determine the fate of Gold’s move though and, thus, needs watching.

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.

The weekly candle closed as a bullish coloured candle and in a bullish-reversal style ‘railway track’ configuration. This follows on from a similar bullish pattern that appeared on the monthly chart after the recent monthly candle close. 'Railway track' candle patterns that form at support or resistance may indicate possible reversal but, of course, there are no guarantees. The two recent examples for Gold are of bullish candle configurations formed at a support level and, thus, it would be worth watching for signs of any bullish continuation. These candle patterns are highlighted below:

'Railway Track' examples:

Last two weekly candles for Gold: 

Last two completed monthly candles for Gold: 

Gold is now trading above the Ichimoku Cloud on the 4hr, in the top edge of the Cloud on the daily but still below the Cloud on the weekly and monthly charts. 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!  I have been wondering whether Gold is simply rising to test the bottom of the monthly Ichimoku Cloud, following the earlier bearish break down here, so I’ll be watching this region of the monthly Cloud closely over coming sessions.