Trade Week Analysis 14/04/14

Last week:  There were only 2 TS signals for most of last week: E/U = 150 and Kiwi = 100. One valid new signal came in on Friday though: AUD/NZD = closed for -40. There was a Gold signal too that gave some dollars before closing off.

It was a rather odd trading week and you could be forgiven for thinking that equities and currencies were trading on different planets! Forex pairs generally traded ‘risk on’ for the most but stocks went for ‘risk off’. This divergence is worth noting but what it means, exactly, must surely be open to conjecture. I've been particularly surprised to see the A/U, usually quite a risk sensitive pair, rally for much of the week whilst the S&P500 pulled back. The question now is: will one set join the other? That is, will equities bounce back from this position or will the 'risk off' momentum, currently gripping stocks, be the catalyst to trigger reversal moves for many currency pairs, especially given that a number of these pairs are sitting at pivotal levels? I do not claim to know the answer to this question but continue to watch for signals pointing to the next momentum move.

This week:

ECB President Draghi speaks over the w/e and there are also weekend G20 and IMF meetings so watch at market open for any reaction to commentary emerging from these events. Sun pm Update: so far I've seen this report.

This coming week is a shorter trading week with Friday being the start of the Easter long weekend.

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

The E/U, E/J, Kiwi and Cable, and the S&P500 too, are all still trading at pivotal levels. I have been noting this over recent weeks but it seems that it might be getting close to 'make or break' time and I'm on the lookout for new momentum moves here.

I have to travel on Monday and Tuesday again so will update where and when I can.

Stocks and broader market sentiment:

It was a roller coaster ride for the S&P500 last week. There was some positive US data released and this seemed to worry traders that there might be some fast tracking of QE tapering. This, along with some mixed earnings reports, seemed enough to tip the momentum and a sell off ensued. It is worth noting that, at this stage, the S&P500 daily support trend line has not been broken. Price is trading much lower though and only just above this trend line, as well as trading just above the bottom edge of the daily Ichimoku Cloud. There may be some support offered here into the start of next week but a break of both of these levels would suggest a deeper pull back might be in store.

The daily support trend line of the Russell 2000 small cap index was broken on Friday but this is not unusual as pullbacks with small cap stocks generally evolve before a pullback with the larger cap stocks. 

Russell 2000 daily

The weekly chart of the Russell 2000 shows how upward momentum had got a bit carried away with these stocks though and that a pullback seems quite in order, even if just part of an overall continued uptrend.

Russell 2000 weekly

Much has also been made of the decline with the NASDAQ too and how it closed below the psychological support of the 4,000 level. Yet, like with the S&P500, this index is still holding above the support of the daily trend line for the time being:

NASDAQ daily

The weekly chart here also shows how there is still plenty of room to pullback further even if the overall uptrend remains intact:

NASDAQ weekly

I am being cautious here now even though the daily support of the S&P500 has not been broken. I've rolled some Put options down and out and I've also sold some Stock and Call options that were in significant profit. This hurt a bit but I’d rather lock in profit now in case a deeper sell off does continue as having profits eroded away is not fun to watch either. 

I have been noting here over recent weeks 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, then 1,600, 1,700 and 1,800 levels and the major break of the 1,577 level was only tested once. I do want to see the daily support trend line on the S&P500 and NASDAQ broken before being confident that this is a serious pull back BUT look at the monthly chart of the S&P500. I won't be overly confident in any continued uptrend with this index until the 1,577 level is tested! This would represent a Fibonacci pullback of only about 23.6% BUT it would be quite painful :

S&P500 monthly

Thus, with all of this, I continue to watch out for further clues as to any new momentum move, long or short though! In summary, 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.

Ichimoku S&P500 chart: a clear cross of the blue Tenkan-sen line below the pink Kijun-sen line. The previous bullish cross did not fully evolve and the Tenkan/Kijun lines are currently fused. Price is trading in the Cloud and currently just above the bottom edge of the Cloud. This may offer some support here and needs monitoring.

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.

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 seeing divergence on the monthly chart though. 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 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.

Items to watch out for:

• Sat 12^th April: G20 meetings. IMF meetings.
• Sun 13^th April: ECB President Draghi speaks. IMF meetings.
• Mon 14^th April: IMF meetings. USD Retail sales.
• Tue 15^th April: AUD Monetary policy minutes. GBP CPI. EUR German ZEW Economic outlook. USD CPI & Fed Chair Yellen speaks. 
• Wed 16^th April: NZD CPI. CNY GDP & Industrial Production. BoJ Gov Kuroda speaks. GBP unemployment data. USD Building permits & Fed Chair Yellen speaks.
• Thurs 17^th April: BoJ Gov Kuroda speaks. USD Unemployment claims & Fed Philly manufacturing index.
• Fri 18^th April: Good Friday Holiday

E/U: Price chopped higher from the very start of last week. It bounced up off the 1.37 level, triggered a new TS signal and broke up and out of the trading channel. It then continued with this bullish momentum and broke up through 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 above this 61.8% fib level and just below the major resistance of the monthly triangle bear trend line. Whether this level marks a major break out 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 above the Ichimoku Cloud on the 4hr, daily and weekly charts and is now very close to pushing up through the Cloud on the monthly chart.

The weekly candle closed as a bullish engulfing candle.

• There is an open TS signal on this pair.  

 

E/J: Price chopped around for most of the week just above the bottom trend line of the symmetrical triangle and just above the major level of the 61.8% fib level from the 2008-2012 bear move.  Price closed slightly lower for the week but still trading above the key 61.8% fib level.

Like the E/U, this pair is still 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 there are no clear signs as yet.

Price is now trading below the Cloud on the 4hr but above the Cloud on the daily, 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 ‘spinning top’ candle suggesting some indecision here. 

I am still seeing the weekly chart as looking like a possible 'Bull Flag' and the hold above the 61.8% fib level as bullish as well. This could all change though if the 'risk off' sentiment from stocks spills over to currencies so I'll be watching for clues by way of 'flag' line breaks here.

• I’m watching for any new TS signal on this pair, the 143 level and the 61.8% fib level.

A/U:  The A/U chopped higher all week and closed just below the psychological whole number level of 0.94. This bullish momentum completed the bullish ‘inverse H&S’ pattern.

Daily chart inverse H&S: This technical pattern has now completed and delivered 400 pips of a ‘suggested’ target of 380 ~ 400 pips. 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 was about 380 ~ 400 pips or so. This suggested a target for any bullish follow through to be up near the 0.945 region and the Aussie peaked last Thursday at 0.946! This projected target came with added confluence from the weekly Ichimoku Cloud. The Aussie had been trading below the Ichimoku Cloud on the weekly time frame and the bottom edge of the weekly Cloud came in at around the 0.94 region as well. This wasn't too far from the inverse H&S target so it gave confidence for the 'take profit' region with this bullish pattern. Price did touch up at the bottom of the weekly Ichimoku Cloud and has subsequently pulled back whilst it contemplates this new S/R region:

Price is trading above the Cloud on the 4hr, well 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 bullish candle.

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

A/J: The A/J seemed to spend this week consolidating and has formed up into another bullish descending broadening wedge pattern.

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

The weekly candle closed as a bearish coloured ‘inside’ candle reflecting this indecision.

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

G/U: The Cable had a very strong week and rallied to break back up through the resistance of the monthly 200 EMA. This bullish moved triggered a new TS signal but this signal was not valid as the trigger candle fell outside the Bollinger band. This was a pity as the TS signal moved on to deliver 110 pips.

This bullish action on the Cable also developed the bullish ‘inverse H&S’ pattern that had been noted on the 4 hr chart. The ‘neck line’ of this pattern is the monthly 200 EMA and price, whilst having pulled back a bit now, is still trading above this level. This technical pattern break out move also gave up to 100 pips at its peak.

The bullish momentum on the Cable stalled a bit once price reached up to the 1.68 region. This is a major resistance level for the Cable as it has not had a weekly close above 1.68 since mid-2008! The respect of the 1.68 level is giving the charts a bit of a bearish reversal 'triple top' look though and needs monitoring. 

The Cable continues to hold up fairly well still though and closed the week back above the major resistance of the monthly 200 EMA. 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. 

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. This represents a bullish shift here.

The weekly candle closed as a large bullish, almost engulfing style, candle.

A breach back below the monthly 200 EMA might suggest a bearish reversal is on the way but a break back above the 1.68 might suggest bullish continuation, thus, I believe that these are the two key levels to watch on the Cable this coming week.

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

 

Kiwi: NZD/USD:  The Kiwi chopped higher last week and moved back above the major monthly chart triangle trend line. This bullish move triggered a new TS ‘long’ signal that gave up to 100 pips before closing off.

The previous high from 2011, up at near the 0.88 region, turned out to be a strong resistance zone as expected due to its ‘double top’ appearance and the potential bearish sentiment that this can bring. The pullback from this high triggered a new TS signal to short but this was not valid as price was above the Ichimoku Cloud. Price ticked higher on Friday after some better than expected housing and food price data.

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

The weekly candle closed as a bullish engulfing candle.

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

    

EUR/AUD:  Price chopped sideways this week given strength with both the EUR and AUD.

Triangle breakdown: The daily chart shows how the triangle breakdown looks to still be in play. This triangle break down has yielded approximately 500 pips so far. The theory with these patterns is that the breakdown value is equivalent to the ‘height’ of the triangle. The ‘height’ of this triangle is about 700 pips and, hence, the expected breakdown move is also 700 pips.

The E/A is still trading below the Cloud on the 4hr and the daily charts which is bearish.

The weekly candle closed as a bullish coloured ‘spinning top’ candle and as an ‘inside’ candle. Both of these patterns point towards indecision here.

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

The Yen: U/J: The U/J traded lower all week but the bearish momentum stalled a bit once price reached the bottom (bull) trend line of the daily chart’s symmetrical triangle pattern.

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 now trading below the Cloud on the 4hr and daily charts 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 large bearish candle, almost an ‘engulfing’ candle and back below the monthly 200 EMA.

Weekly Chart Bullish Cup’ n’ Handle pattern: Even with the recent bearish moves on the U/J, I am still seeing this pattern evolving on the longer time frame charts. 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 an awful week and closed below the 14,000 level and also below the previously broken trend line. There is general equity fatigue across stock markets and clearly some reaction here to the new Japanese sales tax. A look at the monthly chart shows how the Nikkei had rallied significantly for most of 2013 and so it isn't too surprising to see this index pull back at least a bit. The Elliott wave indicator on my chart suggests that a pull back is in store here BUT as part of a broader, bullish shift.

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 a rather bullish signal but this may be undermined now.

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 back in sync.

Nikkei and U/J: (U/J: black. Nikkei: green). These two are still pretty highly correlated and the Nikkei is also still displaying slightly bigger swings.

Nikkei and S&P500: (S&P500: green. Nikkei: black).  There has been some divergence recently but both aligned quite positively for last week's decline.

AUD/NZD: The A/N chopped higher again last week and this bullish momentum continues to support the evolving bullish ‘double bottom’ pattern. The daily chart shows how this developing bullish reversal pattern is forming up just above the 100% fib pull back level of the 2005 low. Price held above the 1.075 level for most of the week and this continues to be a key S/R level for this pair. A new TS signal was triggered on Friday but this was short lived and closed off for -40. 

For those who missed the opportunity to long here again at 1.075 last week there is still another entry region higher up the chart if, indeed, bullish momentum does continue. This is best seen on the daily chart. The ‘double bottom’ is quite clear on the daily chart and the ‘neck line’ for this bullish pattern is at the 1.09 level. Thus, this 1.09 level might offer an entry opportunity if price continues on its bullish path.

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

The weekly candle closed as bearish coloured Doji candle.

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

GBP/AUD: This pair chopped sideways all week given that both the GBP and AUD have displayed recent strength.

The daily chart’s H&S pattern still looks like it is open and evolving here though and this has given up to 550 pips of a possible 1000 pip move.

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

The weekly candle closed as a small bearish coloured ‘spinning top’ candle reflecting some indecision. 

• I’m watching for any new TS signal.

Silver: Silver continued chopping sideways under the $20.50 support level and in a ‘Flag’ like pattern for all of last week.

Silver is now trading at the top edge of the Ichimoku Cloud on the 4hr chart but below the Cloud on the daily, weekly and monthly charts.

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

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 and the ‘flag’ trend lines.

Gold: Gold chopped higher within a rising trading channel all week and triggered a new TS signal on Thursday. This signal delivered about $8 before it closed off as price stalled under the daily 200 EMA and, subsequently, crept back below the monthly pivot where it closed for the week.

Gold is now trading above the Ichimoku Cloud on the 4hr chart, just above on the daily chart, below on the weekly and in the bottom edge of the Cloud on the monthly chart. 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 new April candle is trading in the bottom edge of the monthly Cloud.

The weekly candle closed as a bullish candle.

I am seeing a possible bullish 'inverse H&S' pattern setting up here now on the weekly chart. The neck line of this possible pattern is a fair way off and up around the $1,400 region, which is also up near the weekly 200 EMA level, so I will be watching to see if there is any bullish continuation here. The USD might determine this outcome though. The USD is currently down at a major support level and any bounce from there would most likely undermine moves with both Gold and Silver. Further USD weakness though would most likely help both of these metals.

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