Trade Week Analysis for 03/03/14

A rather lengthy market update this w/e but there is so much to discuss!

Last week:  It was a very choppy week, as I had expected, and the only 2 TS signals that triggered did not evolve until Friday.

I had suspected that the broader markets might remain choppy until the S&P500 index made a clear ‘make or break’ of the ‘triple top’ resistance area. The markets were choppy whilst the index navigated this significant resistance zone. There was a bullish close for this index above this 'triple top' on Thursday and, then, another on Friday where a ‘record close’ was achieved to see out the month. There was a bit of selling late on Friday but an encouraging sign, for me at least, was the buying that stepped in for the last half hour or so of trade. In fact, 'risk appetite' across many instruments waned just before the market closed on Friday as many traders seemed reluctant to hold positions over the weekend given the potential impact from events developing in the Ukraine.

My TS signals are not always winners but one of the strengths of the algorithm is when there is an absence of signals and traders are thereby kept out of choppy markets and potentially losing trades. This was the situation that existed last week and the fact that I was expecting choppy markets, given the situation with the S&P500, the absence of TS signals merely confirmed this fact. The SP500, and the Cable too, where battling key levels and I had suspected they might wait until months end to make their move and, that they did. Both closed above key levels and this is discussed in more detail below. I had likened this period of traders waiting for the SP500 to make a move to that of wedding guests waiting for the bridal waltz to conclude before the dance floor was free. Well, I'm wondering if this move on the S&P500 is sufficient to clear the ‘dance floor’ and make way for some broader market instruments to start their moves! There is a lot of ‘red flag’ data this week so this might provide the ‘music’ to get some trading instruments moving!

This week:

Chinese PMI data was released on Saturday and, whilst lower than that for January, the data came in as expected which more than likely can and will be viewed as a positive. There is Chinese Trade Balance data released next Saturday and that might impact overall risk appetite too.

It is a rather busy week for 'high impact' data with a fair bit for the AUD, more Chinese data, interest rate decisions for AUD, GBP, CAD and EUR and, then, the big kahuna of USD NFP on Friday.

Last Friday was the last day of the trading month so watch your charts for monthly candles and any significant closing levels and for new monthly pivots.

The Cable has closed above major resistance and looks rather bullish. The E/U is trading just under major resistance and is looking a bit bullish too. 

The poor A/U has been a bit lost lately BUT, quite surprisingly, there are now two bullish patterns setting up on the charts for this pair.

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

Stocks and broader market sentiment:

The S&P500 is a major global stock index and, as such, carries a lot of influence with overall 'risk appetite' across the broader markets. S&P500 stocks have closed above the key 1,800 level, above the ‘triple top’ and now at an all-time high. I consider the close above this key demarcation level to be a rather bullish signal. I'm not seeing as many 'doom and gloom' emails about stocks but I am reading that many are shorting the index at these levels. Personally, I can't see any reason to do this at the moment. The weekly S&P500 candle closed as a large bullish candle, almost engulfing the previous weekly candle:

S&P500 weekly candles:

The S&P500 monthly candle was also a large bullish candle and almost engulfing the previous monthly candle:

S&P500 monthly candles:

These chart prints, plus the usual array of other indicators that I monitor (as per below), do not confirm any bearish reversal with stocks just yet. One caveat here though would be if the situation in the Ukraine takes a more dramatic turn for the worse.

I continue to look for further clues as to any new momentum move, long or short! In particular I’m watching 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 and, also, the ‘triple top’ region has now been broken; all of which seems quite bullish. 

Ichimoku S&P500 chart: a clear bearish cross of the blue Tenkan-sen line below the pink Kijun-sen line. In fact a bullish Tenkan/Kijun cross evolved on the daily S&P500 on Wed 19^th Feb. This cross is deemed ‘weak’ though as it evolved below the Cloud but price is still trading above the Cloud and looking bullish. Any new bullish Tenkan/Kijun cross above the Cloud would be quite significant as the last such bullish cross marked the start 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 for February though and this is rather bullish.

S&P500 monthly chart: a break of the monthly support trend line (see monthly chart). The monthly trend line remains intact. A break of this support level would suggest to me of a more severe pull back or correction. The look of this ‘market top’ still appears quite different to that of the previous two market tops from back in 2000 and 2007. I am 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 base line for this index. The saying that ‘Old resistance becomes new Support’ holds here. I still believe that it would not be at all surprising to this 1,600 level tested again. It has only been tested once by a monthly candle since the bullish breakthrough and I would expect a significant level such as this to be tested more than once. Maybe I’m wrong here though as there have now been seven consecutive months of candles that have closed above this key level, and, without testing this region at all. To add to this thought of bearish pull-back potential, the previous candle close ‘highs’ from back in 2000 and 2007 were down near the 1577/1580 area so it is entirely feasible that price may even test this region again before any continued move upwards.

Caveat: As mentioned above, the situation evolving in the Ukraine has the potential to undermine this bullish sentiment though and needs watching.

Stocks: general: I will update stock charts during the week.

Items to watch out for:

• Sat 1st: CNY manufacturing PMI.
• Mon 3^rd: CNY: HSBC final manufacturing PMI. GBP manufacturing PMI. USD ISM manufacturing PMI. ECB President Draghi speaks
• Tue 4^th: AUD: building approvals and RBA Cash Rate. GBP Construction PMI.
• Wed 5^th: AUD GDP. GBP Services PMI.  USD ADP NFP & ISM non-manufacturing PMI.
• Thurs 6^th: AUD Retails Sales & Trade Balance. GBP Cash Rate. EUR Cash Rate& ECP Press Conference. USD unemployment claims.
• Fri 7^th: RBA Gov Stevens speaks. USD NFP, Unemployment Rate & Trade Balance.
• Sat 8^th: CNY Trade Balance.

E/U: Price chopped a bit lower with some renewed USD strength during the week and fell below the major 1.37. The E/U found support at the 1.365 level on Thursday and bounced back from there. Some positive EUR data on Friday, suggesting that deflationary pressure in Europe may be easing, then sent the E/U on a big rally and up to the 1.38 region. One 5 min candle spiked up over 60 pips.

The pair closed for the week just under the 1.38 level and also just under the key 61.8% fib from the 2011-2012 bear move. This is a major resistance zone and is also the area of previous highs from back in October and December of 2013. The E/U, seemingly not wanting to be out done by the S&P500, is setting up with its own ‘triple top’ region.

To add to this 61.8% fib level pressure, price is now only about 100 pips below the bear trend line of the major monthly chart triangle pattern. Thus, although looking bullish, there is a lot of resistance above current price for the E/U.

Price is trading above the Ichimoku Cloud on the 4hr, daily and weekly chart and is pushing up through the Cloud on the monthly chart.

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

This pair is sitting at a critical level and under major resistance. I do wonder if the E/U is looking over at the S&P500 and Cable though and singing this for some inspiration!

• I’m watching for any new TS signal on this pair, the 1.37/1.38 level, the 61.8% fib and the monthly triangle trend line. 

E/J: Price chopped up and down all week but never too far from the major level of the 61.8% fib level from the 2008-2012 bear move. Price action formed up into a symmetrical triangle. Price drifted lower towards the end of the week, in part due to Ukraine concern, and tested the bottom of this triangle. It rallied on Friday though with the release of EUR inflation data. This positive news sent the pair higher resulting in a triangle break out and also in a break up through the 61.8% fib level. Price pulled back in late trade on Friday though, as part of a broader ‘risk off' move due to Ukraine concern, and closed right back near the all-important 61.8% fib level.

This 61.8% fib level remains a significant demarcation price for the E/J. A clear 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. The monthly candle closed right on top of this level and, thus, has little bullish or bearish guidance to offer traders here at the moment.

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 has already pulled back to test the top of the monthly Cloud. Price is trading in the top edge of the Cloud on the 4hr, in the Cloud on the daily but above the Cloud on the weekly and monthly charts. 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 bearish coloured Doji but the weekly chart does look bullish as it sets up with a ‘Bull Flag’ look to it. The monthly candle closed as a small bullish candle and almost as an ‘inside’ candle. Both of these candle reflect the indecision that exist with the E/J.

• I’m watching for any new TS signal on this pair and the 61.8% fib level.

A/U: The Aussie continued to chop around between the boundaries of the 0.905 and 0.89 levels all week. The AUD did not get any joy from Friday’s weakening of the USD though. I read that this is most likely due to issues surrounding the Chinese Yuan as the weakening Yuan reduces Chinese purchasing power thereby impacting on AUD outlook.  Saturday’s Chinese manufacturing PMI was in line with expectation and, thus, shouldn't harm the Aussie. 

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

Price is still trading below the Cloud on the 4hr and weekly charts and in the bottom region of the Cloud on the daily and monthly charts.

The weekly candle closed as a bearish candle. The monthly candle is the more interesting candle though. It closed as a bullish candle AND in a bullish-reversal ‘railway track’ pattern. This candle pattern is highlighted below:

A/U monthly bullish 'railway track' at support:

We saw a similar 'railway track' pattern recently with Gold and it quite accurately predicted the bullish movement there so I’ll be watching the Aussie to see how it navigates from the support of the 0.89 level.

There is a lot of AUD data scheduled for release next week so this pair might be quite busy for a few days. Any increased Ukraine worry might spook this pair more than others though, given its recent vulnerability. These types of fundamental news and data events always have the potential to undermine developing technical patterns and, so, caution is needed.

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

A/J: The A/J chopped lower this week and under a daily bear trend line that continues to be resistance for this pair. This pair struggled on all fronts this week; the AUD fell with Chinese Yuan weakness, and possibly some Ukraine concern, and the JPY lifted following a batch of positive Japanese data. I’m having a bit of trouble seeing any clear technical pattern here though.

Price is now trading below the Cloud on the 4hr and the daily charts which is bearish.

The weekly candle closed as a bearish candle. The monthly candle closed as a bullish coloured ‘inside’ candle.

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

Cable: What a subtle and elegant old lady the Cable is. Much of the planet had been watching to see if she would manage to make a February candle close above the monthly 200 EMA. She played this move gracefully and almost magically, making some sideways steps around this key level for a few weeks before simply drifting up over this level, with little fan fare, in the final few hours of the trading month. The Cable had chopped sideways for most of the week and just below this key level of the monthly 200 EMA. I had mentioned last week that I would not be surprised to see choppiness continue on the Cable until the end of the month and that is what we saw. 

This is the first close above the monthly 200 EMA since September 2008 and, thus, is a major achievement. This is also the highest monthly close since the bear move of 2007-2009 and that is a major achievement too. The close above these significant resistance levels suggests bullish continuation but I would be cautious. I would be wary given the recent Ukraine concern and I would also still expect the monthly 200 EMA region to be tested a few times before any potential bullish follow through.

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 still only about 1,500 pips away and might seem an impossible task but I’d advise you to look at the monthly chart of the E/J and U/J before you reject this idea.  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 4hr, daily and weekly charts and in the Cloud on the monthly chart which is looking quite bullish.

The weekly candle closed as a bullish coloured ‘inside’ candle but the monthly candle closed more decisively as a bullish engulfing candle.

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

Kiwi: NZD/USD:  The Kiwi chopped higher last week and some positive NZD data helped it to break up and out from the trading channel that had contained price since last October. This bullish move also triggered a new TS signal.

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

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

• There is an open TS signal on this pair BUT it looks close to closing off.      

EUR/AUD:  Price chopped sideways for most of the week and under the resistance of the monthly 200 EMA. Bullish moves on the EUR, following positive data on Friday, sent this pair higher though and it broke up through the monthly 200 EMA and triggered a new TS signal on my second last candle for the week.

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 has now managed to close above the monthly 200 EMA for February which suggests bullish follow through.

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 at the top edge of the daily chart which is still bullish.

The weekly candle closed as a bullish candle. The monthly candle closed as a bullish candle BUT with a bearish ‘hanging man’ look to it.

• There is an open TS signal on this pair.

The Yen: U/J: The U/J chopped sideways and just under the key resistance of the monthly 200 EMA again this week. This makes three weeks of choppy action under this key resistance level. Price fell a bit further on Friday following stronger JPY data and possibly as thoughts of further JPY monetary easing seemed less likely.

The 61.8% fib of the 2007-2012 bear move still looms just above current price. This is a major demarcation point here. A continued hold below this level would be bearish but any new close and hold above would most likely signal bullish continuation. Price has basically chopped sideways though for the last three weeks.

Price is now trading below the Cloud on the 4hr and daily chart which is bearish. 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. Perhaps we are yet to get a further test of this support.

The weekly candle closed as bearish coloured ‘inside’ candle. The monthly candle closed as a bearish coloured ‘spinning top’. Both of these candle patterns reflect indecision.

Weekly Chart Bullish Cup’ n’ Handle pattern: The theory behind these patterns is that the height of the ‘Cup’ pattern is equivalent to the expected bullish move from the ‘handle’ breakout. The height of the Cup for the U/J weekly chart is around 2,400 pips. The interesting point here is that a 2,400 pip bullish move up from the ‘Handle’ would put price up near the 124 level. This level is the last major swing high for the U/J from back in 2007 and represents the 100% fib pullback for the move down in 2007 to the lows of 2012. Possible targets along the way include the 61.8% fib retrace level at the 105.5 region and the 78.6% fib up near the 112 region.

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

UJ and S&P500: Although the U/J and S&P500 traded with positive correlation for much of 2013 but they have diverged over recent weeks.

Nikkei: Price closed below the 15,000 level again this week but still managed to hold above the previously broken trend line.  This is some small achievement.

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). Both are still trading with positive correlation.

Nikkei and S&P500: (S&P500: green. Nikkei: black).  Some divergence continues after being fairly positively aligned for the last 12 months.

AUD/NZD: The A/N chopped sideways to start the week but then fell through the key 1.075 support. The ‘inverse H&S’ pattern on the daily chart looks to have been avoided and it may end up making way for a new ‘double bottom’!

Price is now trading below the Cloud on the 4hr and the daily charts which is bearish.

The weekly candle closed as bearish engulfing candle. The monthly candle closed as a large bearish candle.

• I’m watching for any new TS signal and for any ‘double bottom’.

GBP/AUD: This pair chopped a bit higher this week but was contained by the resistance of the monthly pivot until Friday.  The possible bearish H&S pattern setting up on the daily chart looks to have been foiled though as price on the the right hand shoulder has passed up through the monthly pivot.

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

The weekly candle closed as a bullish candle.  The monthly candle closed as bullish coloured but as a Doji candle, reflecting some indecision.

The continued hold above the 1.75 level remains as 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.   

Silver: Silver chopped sideways along the daily 200 EMA to start the week but some increased USD strength put pressure on the metal and it fell back below the support of the $21.50. Fib levels on Silver suggest that a pull back to test the $20.50 S/R level would be reasonable. This is the region of the 50% fib as well as the 4 hr 200 EMA.

The major bear trend line of the monthly chart triangle pattern is still 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 in the Ichimoku Cloud on the 4hr, above on the daily chart but below the Cloud on the weekly and monthly charts. 

The weekly candle closed as a bearish engulfing candle but the monthly candle closed as a bullish engulfing candle!

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

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

Gold: Gold chopped higher last week and held above the resistance of the daily 200 EMA until Friday. Price closed for the week just below this recent S/R level.

Fib levels here suggest that a pull back to test the psychological and whole number level of $1,300 would be reasonable. This is just above the 50% fib of the recent bull move, near the 4 hr 200 EMA and right on top of the 50% fib of the 2008-2011 bull move.

Gold is still trading above the Ichimoku Cloud on the 4 hr (although only just) and daily chart but below the Cloud on the weekly chart. The February candle closed up into the bottom edge of the Cloud. 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 had been wondering whether Gold is simply rising to test the bottom of the monthly Ichimoku Cloud, following the earlier bearish break down here but price might be starting its fight now to claw its way back up through the monthly Cloud.

The weekly candle closed as a bullish coloured ‘spinning top’ candle. The monthly candle closed as a large bullish candle.

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