Trade Week Analysis for 24/03/14

Last week:  There were only two TS signals last week: on the A/U and EUR/AUD. The A/U hung at 40 pips for an age before reversing and the EUR/AUD is still open and has currently yielded up to 40 pips. The few TS signals reflects the lack of trading momentum at the moment and patience is required until the markets eventually start trending again.

The S&P500 was choppy last week as ‘market top’ jitters, QE taper news and ongoing Ukraine concern was moderated against some continuing upbeat US data. The index formed up to trade within a symmetrical triangle that reflects this indecision and it has yet to break free from this pattern. A number of FX pairs are also trading within similar, indecision-style triangle patterns.

The USD got a boost out of FOMC and reversed a 6 week trend decline but I have been a bit surprised by the lack of much follow through momentum here. I'll be watching the USDX this coming week to see whether it can continue with any bullish momentum and break up through a key resistance level that is lying just above current price. I reviewed the EURX and USDX indices yesterday.

This week:

I mentioned in my previous write up how the E/U, Cable and Kiwi were trading at pivotal levels and this is still the case. A number of other currency pairs and instruments, whilst maybe not at pivotal levels, are trading within triangle and other technical patterns reflecting the indecision and clear lack of market direction that exists at the moment.  It is often the case that great trending opportunities evolve out of pent-up sideways markets so be on the lookout for trend line breaks with these instruments.  

BoJ Gov Kuroda will speak over the w/e so be wary of any possible market gaps that this may trigger on Yen pairs.

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

Stocks and broader market sentiment:

As stated above, S&P500 stocks were choppy throughout last week and the index is still trading within a symmetrical triangle so I’ll be watching these trend lines next week for guidance.

I am still seeing some divergence on the monthly chart and this might be warning of a pause, as the index navigates new highs, but the chance of a pullback cannot be ruled out either. There has not been any real or deep pull back since the break up through the 1,577, 1,600, 1,700 and 1,800 levels and the major break of the 1,577 level was only tested once. I am open to such a bearish move even within the context of an overall continuing bull market.

I continue to watch out for further clues as to any new momentum move, long or short though! In particular I’m looking out for:

S&P500 daily chart: I’m watching for any break of the daily support trend line but price is holding above this for the time being. Price is trading within a triangle pattern and I’m watching for any triangle breakout here, up or down!

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 on Wed 19^th Feb. This cross was deemed ‘weak’ as it evolved below the Cloud but price is still trading above the Cloud which is bullish. The Tenkan and Kijun lines are now very close to either fusing or crossing though and this outcome needs to be monitored to determine if a new trading signal is registered. 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. 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. 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 still seeing a bit of divergence on the monthly chart. This may just be as the index pauses and ponders these recent new highs or it could be warning of a more serious pull back. 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.

Stocks: I have updated my Stocks: March page.

Items to watch out for:

• Sun 23^rd: JPY: BoJ Kuroda speaks.
• Mon 24^th: CNY: HSBC manufact PMI. EUR French manufact PMI & German manufact PMI.
• Tue 25^th: EUR German Ifo Business Climate. GBP CPI. USD CB Consumer confidence & New Home Sales.
• Wed 26^th: G7 meetings. AUD RBA Stevens speaks. USD Core durable goods.
• Thurs 27^th: NZD Trade Balance. GBP Retail Sales. USD unemployment claims and pending home sales.
• Fri 28^th: GBP Current account.

E/U: Price chopped around under the major resistance of the monthly chart triangle trend line and the top edge of the monthly Ichimoku Cloud until Wednesday's FOMC. The USD got a boost from FOMC and this sent the E/U lower, down from the triangle trend line, through a support trend line and back below the other key S/R level of the 61.8% fib from the 2011-2012 bear move. Price then stalled for the week just under the 1.38 level but just above the 4hr 200 EMA.

The E/U is still at a pivotal level as it trades just below the 61.8% fib level and the monthly triangle trend line. Whether this level marks a major break out point for this currency pair or proves to be a turning point for a move back lower still remains to be seen. I had stated that this period would be marked by choppiness and that is what we have seen this last week. I have drawn in a revised daily chart support trend line and price is trading towards the apex of the resultant triangle. 

Monthly chart triangle breakout looming? The E/U is poised just below the bear trend line of a major triangle pattern that has been setting up on the monthly chart since back in 2007; the start of the major bear move. Traders need to be on the lookout for any triangle break here as the suggested move from any such breakout could be of the order of upwards of 3,000 pips! The theory behind these breakouts is that the ‘height’ of the triangle represents the possible pip quota for any breakout move. I consider that I have been reasonably conservative with my target as I have only measured the height of the triangle from the 2011 region. The height measured from the 2007 region would suggest a much larger target.

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

The weekly candle closed as large and bearish and almost as a bearish engulfing candle.

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

E/U revised trend line on daily chart:

E/U revised trend line on 4 hr chart:

E/J: Price chopped sideways within the symmetrical triangle for most of the week and never too far from the major level of the 61.8% fib level of the 2008-2012 bear move. 

Like the E/U, this pair is trading at a pivotal level as it navigates this 61.8% fib of this 2008-2012 bear move.  This level will most likely also prove to be a demarcation point for price action here and I’m watching for clues as to which direction this will be, either bullish continuation or bearish reversal, but there are no clear signs as yet.

Price is trading below the Cloud on the 4hr, at the top edge of the Cloud on the daily and above on the weekly and monthly charts. 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.

The weekly candle closed as an indecision style ‘spinning top / Doji candle.

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

A/U:  A bit of relative AUD strength crept in at the end of last week but the 0.89 and 0.905 remain as key levels for the Aussie for the time being. Price broke up through the resistance of the 0.905 level earlier in the week but USD strength following FOMC undermined this momentum.  The bullish ‘inverse H&S’ pattern on the daily chart still looks valid for the time being though as price rallied late in the week to close back above the 0.905 ‘neck line’ level.

Daily chart inverse H&S: I noticed that a few other trading commentators were discussing a possible ‘inverse H&S’ on the A/U last week. The theory with these patterns is that the suggested bullish continuation is equivalent to the height of the H&S, that is, the height of the ‘Head’ from the ‘neck line’. The height of this H&S is about 380 ~ 400 pips or so. This would suggest a target for any bullish follow through to be up near the 0.945 region. The Aussie is trading below the Ichimoku Cloud on the weekly time frame but the bottom edge of the weekly Cloud comes in at around the 0.94 region. This isn’t too far from the inverse H&S target so it would seem like a good 'take profit' region.

Price is now trading above the Cloud on the 4hr and daily chart but below the Cloud on the weekly chart and in the bottom region of the Cloud on the monthly chart.

The weekly candle closed as a reasonably decisive bullish candle following the previous week’s Doji.

• I’m watching for any new TS signal on this pair and the 0.905 ‘neck line’ level.     

A/J: The A/J chopped higher last week in what looked to me like a bullish broadening descending wedge. Price seemed to break up and out from this wedge on Friday though but I don't have any new TS signal here just yet.

Price is trading above the Cloud on the 4hr, daily, and monthly time frames.

The weekly candle closed as a large bullish candle.

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

G/U: The Cable chopped lower this week and fell below a daily support trend line but this move did not trigger any new momentum 'sell' signal.  The Cable is still not too far below the resistance of the monthly 200 EMA but a continued hold below this level would be bearish. Price also seems to be trading within a descending channel and this is giving the weekly chart a bit of a ‘Bull Flag’ look so there are certainly some mixed signals here.

Although looking a bit weak last week it is important to remember that February was the first monthly close above the monthly 200 EMA since September 2008 and also the highest monthly close since the bear move of 2007-2009. These were major achievements and it isn't too surprising that price action might be taking a bit of a break whilst it consolidates around this recent new high. Whether this zone marks a demarcation before the next major move higher or marks a turning point before moving to trade lower still remains to be seen here though.

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 1,700 pips 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.  

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

The weekly candle closed as a large bearish candle following on from the previous weekly bearish engulfing candle.

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

GBP/JPY: This is a new chart for this analysis but it has caught my attention in much the same way that the Cable has. Price has struggled to clear the monthly 200 EMA and is trading back below this resistance level. I am seeing a possible bullish 'inverse H&S' on the daily chart so I will keep an eye on this.

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

The weekly candle closed as bullish coloured but as an indecision style 'spinning top' candle.

Kiwi: NZD/USD:  Price chopped higher last week and traded right up to the triangle trend line on the monthly chart. This pair, like the E/U and E/J, was poised at a pivotal level and for a possible triangle breakout but USD strength following FOMC undermined this bullish momentum. Price then fell below a daily support trend line but stalled shortly thereafter. I had thought that price might pull back a bit further, possibly down to the 4hr 200 EMA, but this has not evolved as yet.

Price is still trading above the Ichimoku Cloud on the daily, weekly and monthly charts but is now in the top edge of the Cloud on the 4hr chart.

The weekly candle closed as a bullish coloured Doji candle. This type of candle though, coming up at a major resistance level and after a long bull run, has a bit of a bearish-reversal 'shooting star' look to it.  

• I’m watching for any new TS signal and the monthly triangle trend line. 

The Yen: U/J: The U/J is still trading within a triangle on the daily chart and bounced up from the bottom trend line of this pattern to start the week. USD strength with FOMC gave this pair a further boost but it couldn't manage to close back above the monthly 200 EMA, an S/R level that has given this pair a lot of grief lately.

The 61.8% fib of the 2007-2012 bear move is still well above current price now. 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 is now trading in the Cloud on the 4hr chart and below on the daily chart which suggests further choppiness. November was the first monthly candle close above the Ichimoku Cloud since mid-2007 though and 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. Price has struggled since it emerged from the Cloud and we may still get a further test of this support but any continued hold out from this region would suggest bullish continuation.

The weekly candle closed as a small bullish candle.

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, the monthly 200 EMA and the 61.8% fib level.    

Nikkei:  Price closed below the 15,000 level this week and also below the previously broken trend line.  The monthly candle here has just over a week until it closes and I’ll be keen to see if it can manage to close back above the trend line.

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 traded with positive correlation for much of 2013 and, after some recent divergence, they are now back in sync.

Nikkei and U/J: (U/J: black. Nikkei: green). These two are still pretty highly correlated but the Nikkei is experiencing some slightly larger swings.

Nikkei and S&P500: (S&P500: green. Nikkei: black).  A bit of divergence has crept back in here again.

AUD/NZD: The A/N chopped sideways this week and the ‘double bottom’ pattern on the daily chart looks to be forming up here! The daily chart shows how this possible bullish-reversal pattern is forming up just above the 100% fib pull back level; equivalent to the 2005 low.

Price is now trading in the top edge of the Cloud on the 4hr and below on the daily charts which suggests further choppiness but with an increasing bullish bias. There has been a recent bullish Tenkan/Kijun cross on the 4hr chart but this signal is deemed ‘weak’ as it evolved below the Ichimoku Cloud. A TS signal was trying to build here at the end of last week as well but took too long to form up and would have been voided by the 4 hr Ichimoku chart anyway.

The weekly candle closed as bullish candle.

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

GBP/AUD: This pair was choppy last week as both the AUD and GBP experienced some weakness. The bearish H&S pattern setting up on the daily chart looked to come back to life last week. There was a break of the neck line, which was subsequently tested, and it remains to be seen if there will be bearish follow through now. I received a TS ‘short’ signal off my Friday night candle.

Daily chart H&S pattern? The theory with these patterns is that the suggested bearish move would be equivalent to the height of the H&S, that is, the height of the ‘Head’ from the ‘neck line’. The height of this H&S is about 1000 pips or so. This would suggest a target for any bearish follow through to be down near the 1.70 region which isn't too far from the weekly 200 EMA.

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

The weekly candle closed as a large bearish candle.  

The continued hold above the 1.75 level for now 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.

• There is a new TS short signal here.

Silver and Gold: both of these metals suffered declines last week following a stronger USD after FOMC. Silver is back below the Daily 200 EMA, the $21.50 and even the $20.50 level. Gold fared slightly better and, whilst it fell through the $1,350 S/R level, it did manage to hold just above a daily support trend line and its daily 200 EMA. I suspect Gold has held some traction due to the the Ukraine situation. Traders need to keep an eye on the USD and to watch how it trends as this will probably influence these two metals.

Silver: Silver couldn't hold above the $21.50 level and USD strength following FOMC saw the metal fall though the $20.50 support as well.

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

The weekly candle closed as a bearish engulfing candle!

Traders need to keep an eye on the USD as any renewed dollar weakness could see this metal, and Gold, rally higher again.

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

• I’m watching for any new TS signal.

Gold: The resistance of the weekly 200 EMA proved too much for Gold and this, along with the relative easing of Ukraine tensions followed by USD strength from FOMC, added up to put pressure on Gold. Gold fell below a daily support trend line momentarily but managed to scrape back above this by the end of the week and, also, back above the key daily 200 EMA S/R level.

Gold is now trading below the Ichimoku Cloud on the 4hr and weekly charts and above on the daily chart. The February monthly 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!  The current March candle is printing a ‘spinning top/Doji and trading in the bottom of the monthly Cloud.

The weekly candle closed as a large bearish, almost engulfing, candle.

• I’m watching for any new TS signal.