Trade Week Analysis for 28/04/14

Last week:  There were no valid TS signals in the shortened Easter week. I can’t actually remember any previous period where I did not receive a signal. There have been very few TS signals over the last few weeks which is rather strange indeed.

A number of Forex pairs printed either 'Spinning Tops', 'Inside' or Doji candles to close out the week (E/U, E/J, Cable, Kiwi, U/J and G/J). These types of candles reflect the huge amount of uncertainty surrounding the current levels on these trading instruments. Add to this that the E/U, E/J, U/J and G/J are coiling within triangle patterns and what you have is a whole lot of consolidation happening before the next big move, whichever way this move will be.

This week:

The official Chinese Manufacturing PMI is released on Thursday and this will be keenly watched.

The E/U, E/J, Kiwi, Cable and the S&P500 have been trading at pivotal levels for some weeks now and continue to do so. This observation, along with the lack of TS signals of late, has me suspecting that something big may be brewing and I wrote about this on Friday.

The month closes off during the week so be on the lookout for monthly candles after Wednesday’s market close.

Gold and Silver both started to look a bit bullish again as the USD faded off towards the end of the week. Gold might also be getting a boost due to the ongoing Ukraine situation.

I'm still seeing the 'Holy Trinity' alignment between the U/J, Nikkei and S&P500. This is just something that registers with me and it may have absolutely no significance BUT I do prefer the alignment.

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

Stocks and broader market sentiment:

There are conflicting market signal appearing across some stock indices. Some are bullish, others are bearish and, just to make matters more confusing, some chart patterns can be viewed as either bullish or bearish! The discussion below addresses these findings.

The S&P500 had a bearish week. Monday and Tuesday saw gains but this was all given back, and then some, by the end of the week. There was obvious concern about the situation in the Ukraine but technically based, ‘Triple Top’, jitters would have played into this sell off as well.

The daily and monthly support trend lines on the S&P500 are still intact but two candle patterns on this index have caught my attention. The first candle pattern of note was the weekly S&P500 candle which closed as a small bearish candle with a long upper shadow. This gave the chart a bit of a bearish-reversal ‘Shooting Star’ look. This is certainly not a text book example here, by any means, as the candle did not form at the extreme top of the move BUT, it still looks a bit threatening:

S&P500 weekly candle

The second candle of note is the monthly S&P500 candle which, although it has a few more days before it closes, is currently printing a classic, text-book style example of a bearish-reversal ‘Hanging Man’ candle. These types of candles need to be bearish coloured, to form at the top of an uptrend and to form at a resistance level. Give a ‘tick’ for all three of these boxes! I will be watching this monthly candle after next Wednesday’s close to see what type of candle it eventually does print:

S&P500 current monthly candle print

Both of these candle patterns on the S&P500 spell 'caution' if nothing else. So, are there any other warning signals around?  The weekly chart of the VIX, or 'fear index', suggests that we might be edging closer towards a breakout in volatility but the direction of the breakout is not guaranteed:

VIX: weekly chart

The NASDAQ is still holding above a daily support trend line for the time being but the chart could be read one of two ways. There is a bit of a bearish 'H&S' pattern evident but this could also be viewed as a bullish 'Bull Flag'! Trend line breaks will possibly help here to provide clues as to which move will evolve. One level looks clearly important though and that is the 4,000 level:

NADSAQ daily:

The small-cap Russell 2000 index is presenting with a similar tension on its chart: A bearish 'H&S' or a bullish 'Bull Flag'? Again, trend line breaks may help here but the 1,100 level looks important to hold:

Russell 2000

There was no such ambiguity with the Aussie stock market last week though. It is worth noting here that the Aussie stock market, which has lagged the USA in its recovery since the GFC, saw two of its stock indices buck this bearish trend and print very bullish candles above a key resistance level to close out the week. The XAO ( All Ordinaries) and XJO (ASX 200) have both enjoyed 6 consecutive bullish trading days. The 5,480 had been giving them a lot of grief recently but this level was captured for the latest weekly close. The Australian markets were closed on Friday for a public holiday though and this may have protected Aussie stocks from a bit of the bearish sentiment that crept in across other markets.

XJO weekly: ASX top 200

XAO weekly: All Ordinaries

I have also been noting here recently how I’m seeing divergence on the monthly S&P500 chart and how this might be just warning of a pause, as the index navigates new highs, but that the chance of a pullback cannot be ruled out either. There has not been any real 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.  So I am still being cautious here now even though the daily support of the S&P500 has not been broken.

Thus, with these two new candle concerns on the S&P500, the VIX index, conflicting patterns on the NASDAQ and Russell 2000 and the bullish Aussie market indices, I continue to watch out for further clues so as to identify any new major momentum move, long or short, as I continue to suspect that a big move is coming. 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 holding above this for the time being. The 'Triple Top' is quite clear here and may continue to give this index some grief. What is not clear just yet, though, is whether this is a bearish 'Triple Top' or a bullish 'Bull Flag' setting up. Traders will need to watch trend line breaks for clues as to which scenario might evolve:

Ichimoku S&P500 chart: a clear cross of the blue Tenkan-sen line below the pink Kijun-sen line. The Tenkan/Kijun lines recently triggered a bearish cross. This was deemed a ‘weak’ bearish signal though as the cross evolved above the Cloud. Price is still above the Cloud and traders need to be on the lookout for any new bullish Tenkan/Kijun cross OR for a bearish move below the Cloud.

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 and March though and this is rather bullish. Price has held above this level again this week, although only just!

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 divergence on the monthly chart. This may just be as the index pauses and ponders this new high or it could be warning of a 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 nine, soon to be ten, 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. I actually won’t be comfortable with any bullish continuation move on the S&P500 until this 1,577 or 1600 level is tested again. The situation in the Ukraine, if it worsens, could be the catalyst to trigger such a deep bearish move but I would expect to see the 1577/ 1,600 act as strong support here.

Items to watch out for:

• Mon 28^th: USD Pending home sales.
• Tue 29^th: NZD Trade Balance. JPY Bank Holiday. GBP Prelim GDP. CB Consumer Confidence.
• Wed 30^th: ANZ Business Confidence. JPY Monetary policy statement & BoJ Press conference. EUR CPI Flash estimate. USD ADP non-farm employment change & Advance GDP & FOMC statement.
• Thurs 1^st: CNY & EUR Bank Holiday. CNY Manufacturing PMI. GBP manufacturing PMI. USD Unemployment claims, Fed Chair Yellen speaks & ISM manufacturing PMI.
• Fri 2^nd: CNY Bank Holiday. AUD PPI. GBP Construction PMI. USD NFP & Unemployment rate.

E/U: Price chopped along sideways all week and this action was constrained within a wedge pattern. Price attempted to break up and out of this wedge on Friday but the move faded and the wedge remains intact.  Price closed the week back just below the major resistance of the 61.8% fib from the 2011-2012 bear move.  

The E/U is still at a pivotal level though as it trades just under this 61.8% fib level and also just below the monthly triangle trend line. Whether this level marks a major ‘break out’ zone for this currency pair or proves to be a turning point for a move back lower still remains to be seen.

Monthly chart triangle breakout looming? The E/U is still 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; that being 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.

Price is trading within the Ichimoku Cloud on the 4hr, just above on the daily, above on the weekly chart and in the middle of a narrow and horizontal Cloud band on the monthly chart.

The weekly candle closed again as an ‘inside’ candle, this time bullish coloured, and as a ‘spinning top. These candles reflecting ‘indecision’ and /or ‘consolidation’.

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

E/J: Price chopped sideways all week above the bottom trend line of the daily chart’s symmetrical triangle and above the major level of the 61.8% fib level from the 2008-2012 bear move.  

Like the E/U, this pair continues trading at a pivotal level as it navigates near this 61.8% fib of the 2008-2012 bear move.  This level will ultimately 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, still, there are no clear signs as yet.

Price is trading in the Cloud on the 4hr and the daily charts but above the Cloud 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! 

The weekly candle closed as a bearish coloured ‘inside’ candle and also as a ‘spinning top’. These candles reflecting ‘indecision’ and /or ‘consolidation’.

I am still seeing the weekly chart as looking like a possible 'Bull Flag' though and the continued hold above the 61.8% fib level as bullish as well. 

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

A/U:  The A/U continued chopping downwards all week within the descending trading channel. The daily chart has a bit of a 'Bull Flag' look to it though.

Price is trading below the Cloud on the 4hr, above on the daily chart but below the Cloud on the weekly chart and in the middle of the Cloud on the monthly chart.

The weekly candle closed as a bearish candle.

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

A/J: The A/J spent yet another week chopping up and then down within a descending trading channel.

Price is trading below thin and flat Cloud on the 4hr chart but above the Cloud on the daily, weekly and monthly time frames.

The weekly candle closed as a bearish engulfing candle.

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

G/U: The Cable chopped sideways all week along the 1.68 previous ‘triple top’ level but closed the week out just below this key S/R level.

The Cable continues to hold up strongly above the major resistance of the monthly 200 EMA and the monthly chart shows this quite clearly. It is important to remember that February was the first monthly close above this S/R level since September 2008 and, also, the highest monthly close since the bear move of 2007-2009. These were major achievements. 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.  An April candle close above the monthly 200 EMA, and the 1.68 level, would be very bullish indeed. I had stated that I would expect price action to be choppy until the end of month as it possibly tries to carve out this milestone and that is exactly what we've seen!

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 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. 

Price is trading above the Cloud on the 4hr, daily and weekly charts and in the top section of the Cloud on the monthly chart.

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

I had previously noted seeing a bullish 'inverse H&S' on the 4 hr chart with a 'neck line' at the monthly 200 EMA. This pattern evolved and delivered over 100 pips. The daily chart now has a bit of a similar bullish 'inverse H&S' look to it as well BUT the 'neck line' here is at the 1.68 level! 

• I’m watching for any new valid TS signal on this pair, the monthly 200 EMA and the 1.68 'neck line' level.    

Kiwi: NZD/USD:  The Kiwi chopped up and down last week and, in the end, closed almost exactly where it opened. The monthly chart pattern is still forming up as an ascending triangle but the more recent daily support trend line remains broken.

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

The weekly candle closed as a bullish coloured Doji candle. This follows on from the bearish-reversal ‘Railway Track’ pattern that I had noted forming up at the end of the previous week.

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

EUR/AUD:  This pair got a lift earlier in the week when the AUD fell following some weaker than expected CPI data. Price essentially chopped sideways after that bust though and under the resistance of the 4hr 200 EMA.  

Stepping out to the weekly chart shows this pair to be consolidating in another trading channel, as it did so a few weeks prior. The previous channel resulted in a 'Bull Flag' style of breakout so I'll be watching for any similar breakout from this current channel.

The E/A is trading above the Cloud on the 4hr but below the Cloud on the daily chart which suggests more choppiness.

The weekly candle closed as a bullish candle.

• I’m watching for any new valid TS signal on this pair and the developing weekly chart 'Bull Flag'.

GBP/JPY: I had been seeing the daily chart setting up with a bullish 'inverse H&S' pattern but I have modified this now to a more conventional triangle pattern.

Price is still trading above the Cloud on the 4 hr (only just), daily and weekly charts which is bullish.

The weekly candle closed as a bearish coloured 'spinning top' candle.

I'm watching for any new TS signal and the triangle pattern.

The Yen: U/J: The U/J chopped sideways to start last week but struggled, again, once it reached up to the monthly 200 EMA. This is a resistance region that it has struggled with on many previous occasions and price drifted back down from this zone once again.

The 61.8% fib of the 2007-2012 bear move is still 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. It is still too soon to say whether this level has been categorically rejected. A break down from the current triangle pattern would lend support to a bearish rejection though.

Price is still trading in the Cloud on the 4hr, below on the daily chart but above the Cloud on the weekly and monthly charts. November was the first monthly candle close above the Ichimoku Cloud since mid-2007 and the bullish hold above the Cloud continues to be noteworthy.

The weekly candle closed as a bearish coloured ‘spinning top’ candle again reflecting either ‘indecision’ or ‘consolidation’ or maybe both!

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.

Nikkei: The Nikkei had a bearish week but closed above the 14,000 level. My software is not update with Nikkei data so I'm not able to assess this in relation to the monthly 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 was a significant development for this index and was a rather bullish signal. I'm on the lookout for any bullish follow through with this move.

UJ and S&P500: The U/J and S&P500 traded with positive correlation for much of 2013 and, after some recent divergence, I am seeing them trading back in sync. I read commentary this w/e about divergence here between these two but I'm not seeing it at the moment.

Nikkei and U/J: (U/J: black. Nikkei: green). These two are still pretty positively correlated:

Nikkei and S&P500: (S&P500: green. Nikkei: black).  These are still fairly positively correlated:

AUD/NZD: The A/N bounced down from the 1.09 level at the start of the trading week given the AUD weakness following the weaker than expected CPI data. Price broke down through a 4hr chart support trend line but didn’t pull back as far as the previous S/R level of 1.075.

The ‘double bottom’ is still forming up but this is a daily chart pattern and, thus, I would want to see a daily candle close above the 1.09 before considering taking any new long trade here. The ‘neck line’ of this bullish pattern is at the 1.09 level and a daily candle close above the 1.09 might offer an entry opportunity if price resumes its bullish path.

Price is now trading below the Cloud on the 4hr but above on the daily charts suggesting some further choppiness.

The weekly candle closed as a large bearish candle.

• I’m watching for any new TS signal BUT prefer to trade this from the technical levels of either 1.075 or 1.09.

GBP/AUD: This pair chopped higher again last week, also helped by the weaker AUD data and some stronger GBP data.

The daily chart shows price trading within a descending trading channel and the weekly chart shows how this seems to be a repeat of a similar pattern from some weeks ago. Thus, maybe this is just another consolidation phase here for the GBP/AUD before another move higher. This is similar to the set up on the EUR/AUD.

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

The weekly candle closed as a bullish candle. This follows on from the bullish engulfing candle of the week before!

• I’m watching for any new TS signal.

Silver: Silver traded along the support of the monthly chart triangle bull trend line for most of last week but edged a little higher towards the end of the week as the USD weakened a bit. It again closed the week trading below the psychological $20 level though.

Silver is now trading in the Ichimoku Cloud on the 4hr, but below on the daily, weekly and monthly charts which is bearish but with a bit of a bullish bias.

The weekly candle closed as a bullish reversal style ‘Hammer’ candle. This is a true ‘Hammer’ candle in every sense of the term as it formed after a decline and at a major support level.

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, the $20 level and for any continued bullish momentum.

Gold: Gold chopped mostly sideways last week and below the psychological whole number level of $1,300. Some USD weakness on Friday saw Gold move a bit higher though and it closed the week back above the key $1,300 S/R level. Ukraine tension may be assisting this bullish shift as well.

I am still seeing a possible bullish 'inverse H&S' pattern setting up on the weekly chart. The ‘neck line’ of this inverse H&S is a fair way off and up around the $1,400 region, which is also up near the weekly 200 EMA level.

Gold is now trading in the Ichimoku Cloud on the 4hr chart and just below the Cloud on the daily, 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!  Price had pulled back up to test the Cloud but the March candle closed below the monthly Cloud. The April candle is now trading just below the monthly Cloud.

The weekly candle here closed with a bullish-reversal style ‘Hammer’ look to it as well.

• I’m watching for any new TS signal on this pair and for any continued bullish momentum.