Markets still poised after FOMC: strong medicine needed?

Last week: Last week was dominated by the wait for FOMC but the eventual lack of a rate hike and dovish Fed commentary rattled markets somewhat. It may take a few more trading sessions before any new market trend becomes obvious but I am looking for any signs that this might be defined by a weaker US$. For now though the FX indices, as well as many other trading instruments, remain poised and consolidating within defined technical patterns but at least this means we have trend line breakouts to watch for to help with identifying any new trade breakout. The S&P500 is a major global index and, as such, many traders look here for clues to try and gauge the state of broader market health. This index is teetering just under major resistance but I’m looking for a dose of some strong medicine before any decent recovery here.

There was one TC signal on the Cable last week that gave 160 pips before closing off but it has been Fibonacci that been the standout trading tool of late! We had that huge move on the EUR/JPY over recent weeks where price turned on the 61.8% fib level and the E/U did so too on Friday. Gold also paused on Friday at the 61.8% fib of a recent swing low move. I would urge all traders to aquatint themselves with this indicator/tool as it is quite widely used and, thus, often becomes a self fulfilling prophecy!

Next week:

The US$ recovered some lost ground on Friday to close the week with a bullish coloured candle, albeit as an indecision-style ‘Spinning Top’ candle. The US$ index and EURX both continue consolidating within weekly chart triangle patterns however and it may take a little longer, following this FOMC news, for any breakouts to trigger. A recent update on the FX Indices can be found through this link.

JPY: Japan has a three day holiday to start the week so Asian markets might be more quiet than usual.

EUR: Watch out for any impact at market open from the w/e Greek elections.

Gold & Silver: both metals are trading within bullish-reversal descending wedge patterns on their weekly charts. Watch for any developing US$ weakness post FOMC to help develop these technical patterns.

AUD: the AUD has traded more strongly in recent sessions and traders need to watch for any continued support that might come from improving business and consumer confidence following the change with Prime Minister and, also, from any continued increase with Gold and Silver prices. Whilst it is Fall in the northern hemisphere it is Spring down here and all the associated metaphors, such as hope, new life and optimism, are as relevant for our economy as they are for the weather. To this end I think it appropriate you all chill for a bit on this whilst reading my post. Even though I’m looking for some deep stock pullbacks I believe that this will only end up bringing some great buying opportunity in much the same way that the pain of birth precedes new life.

USD/CAD: I have been stressing the importance of the 1.30 level and there was a major push and bounce off this level on Friday.

Stocks and broader market sentiment:

Many stock indices closed lower for the week, albeit some only ever so slightly; the S&P500, DJIA, NASDAQ, FTSE, and DAX BUT the TSX (Canada), Russell 2000 and XJO (Aussie) closed with bullish candles. The failure of the US Federal reserve to increase interest rates and the accompanying dovish tone rattled European and US markets on Friday more so than Asian markets but the latter will most likely follow suit on Monday.

The S&P500 broke up through major 1,600 resistance back in May 2013 following 13 years of consolidation and I have been looking for another test of this major breakout region ever since then. I have long stated that I won’t be confident of any potential bullish continuation until there is a test of this major region, as per the test back after the previous period of consolidation. The top of the most recent 13 year range, shaded in blue, is this 1,600 level:

I mused with a trading buddy last week that my preferred scenario would be for markets to react to whatever the FOMC news was with a purge on the S&P500 to test 1,600, for this level to hold and, then, for bullish continuation from there. I am wondering if this latest pullback might just offer up an opportunity to execute such a purge and test. A test of S&P500 1,600 would be very painful but, IMHO, it is the necessary medicine to both underpin and sustain any viable bullish continuation. If this level is not tested in this current market fluctuation then I will be forever watching over my shoulder and waiting for it to hit. This would not be at all pleasant and, so, I want it over and done with now.

Thus, 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: The index remains below the psychological 2,000 level and below daily trend line support but is still holding above monthly support for now. However, I am looking for a deeper pullback to possibly test 1,600 BUT any move and hold back above 2,000 may suggest otherwise:

Ichimoku S&P500 daily chart: a clear cross of the blue Tenkan-sen line below the pink Kijun-sen line. The bearish Tenkan/Kijun cross remains open but as this evolved IN the Cloud it is deemed a ‘NEUTRAL’ signal. Price is still below the Cloud and consolidating within a triangle below the key 2,000 level:

Ichimoku S&P500 weekly chart: the weekly candle closed as a bearish candle BUT back within the weekly Cloud. I would want to see a renewed bearish move below the Cloud to support continuing bearish sentiment. Note how the weekly Cloud is aligned along the key 2,000 level and so this is a major S/R zone to keep watch of:

S&P500 monthly chart: a break of the monthly support trend line. The monthly trend line remains intact for now but a break of this support level would suggest to me of a more severe pull back. Bearish divergence on the monthly chart had warned of this recent weakness and I, like the Elliott Wave indicator, am looking for a test of the 1,600 region.

Russell 2000 Index: this small caps index is considered a US market ‘bellwether’ and has again closed the week below the key 1,220 level but with a bullish coloured weekly ‘Spinning Top’ candle. Any break of this trend line support would suggest a deeper market pull back might be on the way:

VIX Index: The ‘Fear’ index is below the 30 leve and, despite Friday’s sell off, has printed a bearish coloured candle.

Oil: A potential ‘Triple Bottom’ is still open. The weekly candle was a bullish coloured ‘Doji’.

Trading Calendar Items to watch out for:

Sun 20^th: EUR Greek Parliamentary Election
Mon 21^st: JPY Bank Holiday. BoC Gov Poloz speaks.
Tue 22^nd: JPY Bank Holiday.
Wed 23^rd: JPY Bank Holiday. CNY Caixin Flash Manufacturing PMI. EUR French & German Flash Manufacturing PMI. CAD Core Retail Sales. EUR ECB Draghi speaks.
Thurs 24^th: NZD Trade Balance. EUR German Ifo Business Climate & Targeted LTRO. USD Core Durable Goods, Unemployment Claims & Fed Chair Yellen speaks.
Fri 25^th: USD Final GDP.

Forex:

E/U: The E/U had been chopping sideways for the best part of three weeks in the lead up to FOMC and continues to do so. The lack of any US rate hike helped to keep this pair supported but price action turned at the 61.8% fib on Friday with some renewed US$ strength on the day (see the 4hr chart).

The weekly chart provides the bigger picture story here though and, like with the EUR index, the E/U is trading in what looks like a Bear Flag but FOMC news may ultimately prove to undermine this sentiment. The top region of this Bear Flag is the 1.18 level and that is in greater focus now. The 1.18 level is also the baseline of the previously broken monthly-chart based triangle pattern and a key S/R region so any move and hold back above this trend line may prove significant and indicate a polarity shift here.

As I have been noting over recent weeks, traders need to keep an eye on the weekly chart’s Flag trend lines for any breakout, bullish or bearish:

Any new trend line breakdown and continuation could signal the start of a weekly-chart Bear Flag breakdown worth up to 3,500 pips. Keep an eye on the lower flag trend line, and also the recent low down near 1.045, in case they offer up any support.
Any break and hold back above the 1.18 region could signal reversal here.

Descending triangle on the monthly chart: As mentioned above, there is still an overall bearish pattern in play on the E/U monthly chart: a 4,000 pip bearish descending triangle breakdown on the monthly chart. The descending triangle pattern is a bearish continuation pattern and has a base at around the 1.18 level. The height of this triangle is about 4,000 pips. Technical theory would suggest that the bearish breakdown of this triangle below 1.18 might see a similar move. It is worth noting that this would bring the E/U down near 0.80 and to levels not seen since 2000/2001!

Price is trading above the Cloud on the 4hr and daily charts but below the Cloud on the weekly (just) and monthly charts.

The weekly candle closed as a bearish coloured ‘Spinning Top’ candle.

I’m watching for any new TC signal on this pair and the Bear Flag trend lines.

E/J: The E/J has been trading in text-book style technical behaviour of late. A recent swing-low move pulled back to the exact 61.8% fib region before weakening and both moves, the up and the down, offered plenty of pips. I wrote on Sept 8th suggesting the merits of watching for any move from 134 to target the 61.8% fib near 136 and this evolved in textbook fashion. The before and after 4hr chart images of that move are here:

Before the move:

After the move:

For now, though, the E/J remains consolidating within a triangle pattern on the daily chart and may prove to be the best post FOMC set up worth stalking for any trend line breakout. I do note also that a 61.8% fib pull back of the latest upswing would bring price back down to the major 134 level and so that may be a target in the coming week, even before any triangle breakout, and this would be a 150 pip move!:

FWIW: I’m still seeing a potential bullish ‘inverse H&S’ pattern building on the monthly chart. However, I am also aware of the bearish Tenkan/Kijun cross on the monthly Cloud chart:

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

The weekly candle closed as a bearish coloured, almost ‘Inside’ candle reflecting some indecision here just now.

I’m watching for any new TC signal on this pair and the daily chart’s triangle trend lines.

A/U: The A/U has been under a lot of pressure of late but the sands might be shifting here a bit. We’ve had a change in Prime Minister and the optimistic mood about this transition may soon filter through to business and consumer optimism which, in turn, could help to keep the AUD and Aussie stock market supported.

Aussie stocks: The XJO is the index of the top 200 Aussie stocks. The monthly chart below shows a support trend line in place and this is currently trading near the 5,000 level. Any break of the monthly support trend line however would have me looking for a test of the 50% fib near 4,500 and, then, the 61.8% fib near 4,250. Note how the 61.8% fib ties in with monthly 200 EMA though! I’d be looking for a test of XJO 4,250 IF the S&P500 tests 1,600:

The AUD traded higher last week against the US$ and other currencies. The A/U is currently negotiating a significant region being the top of a recent descending trading channel and the longer-term monthly support trend line, the latter which was recently broken. There is also a monthly pivot and 4hr 200 EMA there for good measure too and this is also the region of two major Fibonacci levels:

The 61.8% fib of the major swing high move from 2001 to 2011 near 0.72.
The 78.6% fib of the 2008-2011 swing high move near 0.71.

Thus, any new close and hold back above this congested monthly TL and Fib region would have to be viewed as bullish. Conversely, continued respect of this region would be bearish. Any sustained moved higher with Gold and Silver would also help to keep the AUD supported.

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

The weekly candle closed as a bullish candle.

I’m watching for any new TC signal on this pair and the congested support region near the monthly chart’s support TL.

G/U: The Cable gave a TC signal last week that delivered 160 pips before closing off on Friday. Price pulled back with Friday’s US$ strength and closed just above the key 1.55 S/R level. Any hold above this S/R region might bring the 1.60 back into focus. However, a close and hold below 1.55 might target the 1.50 region.

Weekly chart H&S: There is still a possible bearish H&S pattern forming on the weekly chart but the failure to break below the ‘neck line’ is holding this pattern off the time being. The height of the pattern is about 2,400 pips and suggests a similar move lower with any break and hold below the ‘neck line’. I would consider that any close and hold back above 1.60 would void this pattern.

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

The weekly candle closed as a bullish candle.

I’m watching for any new TC signal on this pair and the 1.55 level.

GBP/JPY: The GBP/JPY looks to have a bullish ‘inverse H&S’ pattern brewing on the 4hr chart with price trading near the neck line. This follows from yet another bounce up from the key 184 level. I wrote a separate article about this 184 level recently and this can be found through the following link.

I’ll be watching for any close and hold below 184 for bearish continuation and for any close and hold above the neck line for bullish continuation.

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

The weekly candle closed as a bullish coloured ‘Spinning Top’ candle reflecting some indecision.

I’m watching for any new TC signal on this pair, the 184 level and the inverse H&S ‘neck line’.

The Yen: U/J: The U/J has chopped sideways for the last four weeks and hasn’t reacted to FOMC news too much just yet.

Monthly Chart Bullish Cup’ n’ Handle pattern: There looks to be a new bullish Cup ‘n’ Handle forming up on the monthly chart. 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 4,800 ~ 4,900 pips. This may seem like a massive move but the longer term chart below shows this move to be reasonable as it would take the U/J up near the 50% fib of the 1985-2012 swing low move:

Note the 101.5 level on the MT4 monthly chart though. Any pullback down to this level, apart from helping to form up a huge Handle for the Cup ‘n’ Handle, would also help to develop a bullish ‘inverse H&S’ pattern.

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

The weekly candle closed as a bearish coloured ‘Spinning Top’ and ‘Inside’ candle with both patterns reflecting indecision here!

I’m watching for any new TC signal and trend lines on the 4hr and daily charts.

USD/CAD: USD/CAD price action continues to be rather choppy above the key 1.30 level although there was a bearish triangle breakdown last week. If anyone wanted confirmation of the significance of this 1.30 level they would only have to look at Friday’s price action on the 4hr time frame. Price pulled back following the triangle breakdown and plunged over 130 pips to within a few pips of this 1.30 level and, then, rallied almost 200 pips!

I’m still seeing a ‘Cup’ pattern on the monthly chart and this brings the potential of extended choppiness around this 1.30 region so as to create the ‘Handle’.

Triangle breakout target: The Loonie had previously broken up and out from a major monthly chart triangle pattern that was identified to deliver up to 2,500 pips and this move is almost complete! This 2,500 pip figure is evaluated from the height of the triangle. I have used the triangle height from the beginning of the bull trend line, as shown in the monthly chart below. The height of the triangle is around 2,500 pips and, thus, this would be the expected move from any breakout action. Extrapolating a bullish move from this triangle places price up at the 61.8% fib level. These fibs levels are popular targets in retracement moves and so this adds some confluence to this as a possible target. The bullish move has given over 2,300 pips so far.

Monthly Chart Cup ‘n’ Handle? The monthly chart now also shows a possible bullish Cup ‘n’ Handle pattern forming up under the 1.30 level. This is worth keeping an eye on as the pattern would be worth up to 3,500 pips if it was to evolve as this is the height of the ‘Cup’. The interesting point is that the target for this pattern would put price up at the highs reached back in 2002 and this is equal to a 100% Fib retracement of the 2002-2007 bear move.

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

The weekly candle closed as a bearish coloured ‘Spinning Top’ style candle.

I’m watching for any new TC signal on this pair and the 1.30 level.

GBP/AUD: Not much has changed here over recent weeks and this pair remains choppy above the 2.07 level. The 4 hr chart shows price action chopping sideways for the last four weeks and this has helped to from up a new triangle pattern. I’m still watching for any test of this key 2.07 S/R region however but would need to see a break and hold below the recent daily support trend line first to suggest this may be tested.

Any break and hold below the daily support trend line will bring two levels back into focus: Firstly, the 2.07 level which is major S/R and near the 50% fib of the recent swing high move. Secondly, there is the 61.8% fib of this move which is down near the 2.03 level but is also near the daily 200 EMA and so this congested region could attract price as well.

There is the look of a ‘Cup’ pattern on the monthly chart which could support continued choppiness around this 2.07 region as a potential ‘Handle’ forms up however, despite this, there could still be some decent moves though within any swings.

Any continued bullish momentum may bring an alternative monthly chart pattern into focus though. A continued push up to the 2.40 region near the 61.8% fib would help to form up a possible bullish ‘Inverse H&S’ pattern. I would then be looking for any pullback back down to the ‘Shoulder’ region of 2.07.

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

The weekly candle closed as a bearish coloured candle.

I’m watching for any new TC signal on this pair, the daily support trend line & triangle pattern and the 2.07 level.

GBP/NZD: The GBP/NZD remains choppy under the monthly chart’s bear trend line and is becoming increasingly squeezed into the apex of a triangle formed from a support trend meeting this upper resistance trend line.

It is worth noting the daily chart and that the region between the 50% and 61.8% fib of the recent swing high move holds the daily 200 EMA. Thus, any triangle breakdown here might target this congested region which also happens to be just above the previous breakout and S/R region of 2.10.

The GBP/NZD is trading in the Cloud on the 4hr chart but above the Cloud on the daily, weekly and monthly charts.

The weekly candle closed as a bearish coloured ‘Inside’ candle reflecting some indecision here.

I’m watching for any new TC signal, the monthly chart’s bear trend line and the daily support trend line.

Silver: Silver chopped higher last week and broke back above the $15 with some help from FOMC.

I have revised the monthly chart’s bear trend line here and the daily and 4hr chart look to have printed a bullish breakout above this TL. However, I will wait to see if the monthly candle confirms this bullish breakout at all.

Of more importance to me at the moment though is the look of a bullish-reversal descending wedge on the weekly chart and, given the recent FOMC outcome, I’ll be watching to see if there is any developing US$ weakness which might help to develop this pattern.

Silver is trading above the Cloud on the 4hr chart but in the bottom of the daily Cloud and below the weekly and monthly Clouds.

The weekly candle closed as a bullish, almost ‘engulfing’ candle.

Any new and sustained hold back below $15 would be bearish though and would bring the $11 and $9 levels into focus. $11 is previous S/R and the $9 area is the 100% fib level.

The Silver ETF, SLV, is worth keeping an eye on as well. Note the squeeze into the apex of a major triangle pattern and it would be worth watching for any breakout:

I’m watching for any new TC signal, the $15 level and the descending wedge trend lines.

Gold: Gold also chopped higher last week with FOMC help but hasn’t reached the heights of the key $1,145 level or the monthly chart’s 61.8% fib just yet. Note the 4hr chart though and how price retraced last week up to the 61.8% fib of the recent swing low move and how this fib level is also just below the key $1,145 level.

As with Silver though, there is the look of a bullish reversal descending wedge on the weekly chart which has more of my interest now given the recent FOMC outcome.

Any new close and hold back above $1,145 would be bullish but the weekly hold below this level remains bearish for the time being though. Bearish targets below $1,145 include the $1,100 and $1,000 psychological levels and, then, the 78.6% fib near $950.

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

The weekly candle closed as a bullish, essentially ‘engulfing’ candle though.