Trade Week Analysis for 24/02/14

Last week:  There were only 5 TS signals last week in choppy trade. I had noted how the EURX became bogged in the resistance of the daily Cloud and this should have warned me to stay clear! The initial two signals were ok but the final three, at the end of week, were losers: E/U= 90, Kiwi= flat, A/U= -60, A/J= -100 and Kiwi = -50.

I analysed these final three trade signals in a bit more detail and wrote this up on Friday. These three losing signals were triggered when price was  stuck within either their 4hr or daily Ichimoku Cloud and, thus, this should have voided these signals.

There was a bit of mixed global data last week plus some tension in the Ukraine yet many risk averse instruments held their ground. I suspect that the E/U, E/J, Cable and S&P500 must have been in some pub, somewhere, singing this with a fair bit of spirit. The Aussie would no doubt have been nearby but with eyes glued on the cricket.

This week: 

Watch out for any potential market-moving comments emerging from the w/e G20 meeting.

Much was made last week of the weaker than expected Chinese manufacturing PMI data that was published by HSBC. A more accurate reading of this Chinese PMI data is released next Saturday so watch out for this data release. This subtle distinction was pointed out during a talk I attended on Friday given by Clifford Bennett.

Next Friday is the last day of the trading month so watch out for monthly candle closes thereafter.

Monthly charts: a number of trading instruments are still sitting at major levels on their monthly charts and, thus, much of the analysis below has changed little over recent weeks. Some are sitting at all-time highs, such as the S&P500 and Dow Jones. Others are sitting near recent highs or at breakout levels such as the E/J, U/J, Cable, EUR/AUD and Nikkei. There has been a bit of choppiness on these as they navigate these major levels and I suspect that this could continue until at least the end of the month. This needs to be considered in your trading as each may offer shorter term ‘short’ and ‘long’ opportunities but it pays to be aware of the ‘big picture’ on all of them. The February monthly candle close will be very interesting on many instruments!

The USD isn't looking too strong just at the moment and I'm on the lookout for any renewed weakness. I reviewed the EURX and USDX indices yesterday and this can be found through this link.

Gold and Silver: both of these are sitting under the key resistance of their daily 200 EMAs and any close and hold above these levels would be quite bullish. The next direction of the USD will most likely dictate their fate though; any continued USD weakness would help to boost Gold and Silver but a strengthening USD will make their job just that much harder.

The AUD/NZD pair has really got my attention. Not only for the developing technical pattern that is building on its daily chart but, also, for what this might be suggesting about the next direction for 'hard' vs 'soft' commodities.

S&P500: this is a major trading instrument and, as I saw tweeted last week, it hosts 11 of the top 20 global companies and contributes about 35% to the weight of this total. This index has been consolidating under major resistance over recent weeks and failed to break up through this last week. I noted on Friday how I believe that, like at a wedding when guests have to sit back and wait to dance until after the bridal waltz, I believe that traders are going to need to sit back and wait to see how the S&P500 tip toes around this major level. Will it be 'third time lucky' and make a break up through this major resistance or will this be the bearish turning point that so many traders are speculating about?  Given the weight of this significant index I don't think that any clear trend momentum with risk appetite will emerge, on any trading instrument, until after there is a clear 'make' or 'break' of this region on the S&P500.

Stocks and broader market sentiment:

The S&P500 has closed above the key S/R 1,800 level but it is still navigating a potentially bearish 'triple top’ situation. This potential barrier has held price in check last week and may continue to shape activity here next week. I consider that any close above this key demarcation level would be a rather bullish signal.

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 is holding above the daily trend line but I’m watching the ‘Triple Top’.  

Ichimoku S&P500 chart: a clear cross of the blue Tenkan-sen line below the pink Kijun-sen line. A bullish Tenkan/Kijun cross evolved on the daily S&P500 during last week on Wed 19^th Feb. This cross is deemed ‘weak’ as it evolved below the Cloud. Price is back up trading above the Cloud though now and starting to look bullish. Any new bullish Tenkan/Kijun cross above the Cloud would be quite significant. The last such bullish cross marked the start of 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 last week though. A close above this level for February would be quite bullish.

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.

Items to watch out for:

• Sun 23^rd: G20 meetings.
• Mon 24^th: EUR German Ifo Business Climate.
• Tue 25^th: GBP Inflation report hearings. USD CB Consumer confidence.
• Wed 26^th: GBP: Second estimate GDP. USD New home sales.
• Thurs 27^th: NZD Trade Balance. AUD Private capital expenditure.  USD Core durable goods order and Unemployment claims.
• Fri 28^th: NZD: ANZ Business confidence. EUR CPI flash estimates. USD prelim GDP & pending home sales. GBP BoE Carney speaks.
• Sat 29^th: CNY manufacturing PMI.

E/U: Price chopped up and down above the major 1.37 level all week. Price is only about 200 pips below a major resistance zone. This zone posts the intersection of the bear trend line of the major monthly chart triangle pattern and the 61.8% fib pull back level of the 2011-2012 bear move. This is a major resistance zone ahead of the E/U and, thus, I’m not surprised that price action is choppy here!

Price is trading above the Ichimoku Cloud on the 4hr and daily chart which is bullish. Although, there was a ‘weak’ bearish Tenkan/Kijun cross noted on the 4hr Cloud chart late last week.

The weekly candle closed as a small bullish candle.

• I’m watching for any new TS signal on this pair, the 1.37 level and the intersection of the monthly triangle and the 61.8% fib.

E/J: Price chopped up and down all week around the major level of the 61.8% fib level from the 2008-2012 bear move. This 61.8% fib level is a significant demarcation price for the E/J. A rejection here might signal the start of a downward spiral but another break and hold above this level would suggest that a bullish reversal might be setting in. Price did manage to close for the week above this key level though which is noteworthy but I will be more interested to see where it closes for the end of February, that is, at the end of next week. The E/J also broke out and up from the recent bear trend line that had been forming up the ‘Bull Flag’ pattern thus adding weight to the bullish move.

Price has pulled back to test the top of the monthly Cloud. 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 is trading above the Cloud on the 4hr, in the Cloud on the daily and above the Cloud on the weekly and monthly charts. I note that the top of the daily Cloud is just below the 143 level. Any bullish continuation might be choppy until it emerges from the daily Cloud. Bullish follow through after the 143 level looks like it could offer a fairly clear passage though.

The weekly candle closed as a bullish candle, engulfing the body of the previous spinning top candle.

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

A/U: The Aussie essentially chopped around under the resistance of the 0.905 and above the support of the 0.89 levels all week.

I’m still seeing what looks like a bullish ‘inverse H&S’ on the daily chart and with a neck line at the 0.905 region.

Price is trading just below the Cloud on the 4hr chart and in the bottom edge of the Cloud on the daily chart suggesting further choppiness.

The weekly candle closed as a bearish candle.

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

A/J: The A/J also chopped around this week but under a daily bear trend line that continues to be resistance for this pair.

Price is trading just above the Cloud on the 4hr and just below on the daily and weekly charts which suggests choppiness.

The weekly candle closed as a bearish coloured ‘spinning top’ candle.

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

G/U: The Cable had a bit of rest last week following the sensational efforts of the week before. It pulled back below the monthly 200 EMA but hasn't strayed too far below this key S/R level. I will be more interested to see where this closes at the end of next week though as this will form up the monthly candle. 

The previous weeks break and close above the monthly 200 EMA was a major achievement for the Cable. Price had been stuck ranging between the two major S/R levels of the monthly 200 EMA and the previously broken monthly triangle trend line for many weeks and, thus, the close above this key S/R level was a rather bullish signal. This is a major level that has been broken though and I had mentioned that I would anticipate some choppiness as the Cable navigates this new region. This is what we have seen unfold last week and I would not be surprised if this choppiness continues until the end of the month. A close above the monthly 200 EMA for February would suggest bullish continuation here so I’m waiting to see how February closes. This could also mark a bearish turning point though if the monthly 200 EMA level is rejected.

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 now 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.  I had raised a few eye brows when I suggested this target some weeks ago but it doesn't seem so out of order now!

Price is now trading above the Cloud on the daily and weekly and in the Cloud on the 4 hr and monthly.

The weekly candle closed as a bearish candle.

I would not be surprised to see price pull back a bit further this week though. Possible targets could be the 1.65 region as that is near the monthly pivot and the 61.8% fib pull back level of the recent bull move.

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

Kiwi: NZD/USD:  The Kiwi chopped lower last week and under a daily bear trend line that continues to be resistance for this pair. It is still trading within a descending trading channel on the daily chart. The daily chart shows how price has been pretty range bound here, basically, since last October. I had stated last week that I’d be watching to see if price bounces back down from here, thereby continuing its range bound pattern and this is exactly what happened. This move generated two badly timed TS signals though! This move was clearly a better technical ‘short’ trade taken off a bounce down from resistance than a momentum-move based ‘short’ trade.

Price is now trading below the Ichimoku Cloud on the 4hr and within a narrow Cloud band on the daily suggesting further choppiness.

The weekly candle closed as a bearish engulfing candle. 

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

EUR/AUD:  Price hopped higher last week. It broke out and up from a bullish broadening descending wedge pattern on the 4hr chart but found the resistance of the monthly 200 EMA just a little too much to contend with.

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. Price is currently below the monthly 200 EMA but only just and this month has only one week to go. So, I’ll be quite interested to see if the EUR/AUD can close back above the monthly 200 EMA for February.

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

The weekly candle closed as a bullish candle and engulfing the body of last week’s spinning top’ candle.

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

The Yen: U/J: The U/J chopped sideways all week and just under the key resistance of the monthly 200 EMA.

The 61.8% fib of the 2007-2012 bear move still looms large above above current price. This is a major demarcation point for the U/J: a continued hold below this level would be bearish but any new close and hold above would most likely signal bullish continuation.

Price is now trading above the Cloud on the 4hr chart, in the middle of 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.

The weekly candle closed as bullish candle and with a bit of a bullish reversal ‘railway track’ formation 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. 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 monthly 200 EMA. 

Nikkei: Price closed below the 15,000 level again this week but is still just above the previously broken trend line. I will be very interested to see where the monthly candle closes and if it can manage to close back above these two key levels.

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 have been trading with positive correlation for much of 2013. Price has diverged a bit over the last two weeks though.

Nikkei and U/J: (U/J: black. Nikkei: green). The moves on the Nikkei have been a bit more extreme than those on the U/J but they are still trading with reasonable positive correlation.

Nikkei and S&P500: (S&P500: green. Nikkei: black).  Some divergence has crept in here between these two indices after being fairly positively aligned for the last 12 months.

AUD/NZD: The A/N pair chopped sideways all week and is still looks like it is setting up in a bullish ‘inverse H&S’ pattern on the daily chart. The ‘neck line’ of this pattern is at 1.09.

Price is trading above the Cloud on the 4hr, in the bottom of the Cloud on the daily and below the Cloud on the weekly and monthly charts which suggests further choppiness but with an bit of a bullish shift.

The weekly candle closed as a bullish coloured ‘spinning top’ candle reflecting the ongoing indecision here. This follows on from the previous two weekly candles that were also indecision candles.

This pair seems to have put in a bottom now. The monthly chart shows how last month's Doji candle had touched down very close to the 100% re-tracement of the 2005-2011 bull move. 

• I’m watching for any new TS signal, the bullish ‘inverse H&S pattern’ and the 1.09 'neck line' level.

Thoughts based on AUD/NZD + other things: Much has been made of this AUD vs NZD flow with respect to the demand for 'hard' vs 'soft' commodities. Trading commentary has noted that the population growth in China has increased their demand for soft commodities (milk, wool, protein etc), that NZD excels in, relative to their demand for hard commodities (coal, iron ore, minerals etc), that the AUD excels in. I'm wondering if this chart of the AUD/NZD suggests that maybe this flow and balance might be about to change though?  I'm seeing chart patterns setting up on some Aussie resource/mining stocks that would lend weight to this thought process. I am seeing potentially bullish triangle breakouts on the weekly charts of three such stocks and these charts are posted below. This is no guarantee of course but, when you see patterns starting to align across a range of trading instruments, then it pays to take notice. To add further support to this possible demand shift, I was at a presentation on Friday where Clifford Bennett put forward his belief that the Australian mining boom has, in fact, not faded and the next wave of development throughout much of the huge, non-seaboard region of China is just about to begin!

BHP:

RIO:

FMG:

GBP/AUD: This pair chopped sideways all week. I’m still noting the look of a possible bearish H&S pattern setting up on the daily chart. The right hand shoulder would need to turn at around the monthly pivot for this pattern to form up so I’ll continue watching this area this week.

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

The weekly candle closed as bullish coloured ‘spinning top’ reflecting some indecision though.

The continued hold above the 1.75 level remains as bullish though. The monthly chart shows how this pair 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 and the monthly pivot.

Gold and Silver: both of these spent last week consolidating under the resistance of their daily 200 EMAs after big moves from the week before.  I'm watching next week to see how the USD moves as any bearish shift might help the metals to break above these resistance levels.

Silver: Silver chopped sideways all week under the resistance of the daily 200 EMA and is shaping up with a ‘Bull Flag’ look to it.

The major bear trend line of the monthly chart triangle pattern is now only about $3 above current price. This bear trend line has contained price since the peak back in April 2011 and any break above this trend line would be a major bullish development.

Silver is now trading above the Ichimoku Cloud on the 4hr and daily chart but below the Cloud on the weekly and monthly charts. This is still a significant bullish shift though.

The weekly candle closed as a small but bullish candle. 

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

• I’m watching for any close above the daily 200 EMA.

Gold: Gold also chopped sideways all week under the resistance of the daily 200 EMA and is shaping up with a 'Bull Flag' look to it. This was after completing the daily chart’s bullish ‘inverse H&S’ pattern. The expected move of this bullish pattern was $70; which was the height of the ‘Head’ to the ‘neck line’. Thus, the expected bullish move above the neck line would be projected to be around $70 and up at the $1,330 level which was achieved last Monday.

There have been a number of bullish signals on Gold charts over recent weeks and all of these patterns were pointed out in my blog updates:

• Daily chart: bullish ‘inverse H&S’ pattern: This was first noted in my Trade Week Analysis back on Jan 13^th 2014.
• Monthly chart: the bullish reversal ‘railway track’ pattern noted at the close of the January monthly candle.
• Weekly chart: the bullish reversal ‘railway track’ pattern noted 2 weeks ago.

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. This 61.8% fib has offered decent support for Gold and it continues to trade higher from this junction.

Gold is still trading above the Ichimoku Cloud on the 4hr and daily chart but below the Cloud on the weekly chart. The current monthly candle is still pushing up into the bottom edge of the Cloud. 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 as the February candle completes and to see where it eventually closes.

The weekly candle closed as a small bullish candle.

• I’m watching for any close above the daily 200 EMA.