The market will again pause and consolidate around this level for several weeks before continuing the uptrend breakout, says Daryl Guppy. » Read More
The market has fully digested two events and learned to live with them.
The first event is Janet Yellen's history of indecision. It is inevitable that US interest rates will rise but the timing remains a subject of speculation. The only sure thing is that Yellen will continue to be indecisive and the muted market reaction on the dollar Index chart reflects this. Apart from some short-term and small gyrations there is no substantial impact from Yellen's statements. The real surprise will be when decisiveness overrides indecision but the dollar index chart suggests this is not a high probability in the near future.
The second event is Brexit. The damage has already been done no matter what the outcome. Markets have already factored in an exit so when the final result is announced there is unlikely to be a large and lasting impact. Again, the dollar index reflects this and has already baked the exit into the cake.
If Britain decides to stay with the EU it is most likely to be by a narrow margin. However, this in itself indicates a tenuous level of support and any recovery in the relationship will be slow and half-hearted. Britain as an unwilling partner is just as devastating as Britain leaving, so a stay result has a similar impact on the dollar index to an exit result.
Only a massive and overwhelming support for staying in the EU would be enough to shake currency markets in the long-term but this is a very low probability outcome.
The dollar index will continue to trade within a well-defined trading band. The first key feature on the chart are the support and resistance levels. The support level is near $0.93 and was tested multiple times in 2015 and most recently in May 2016. The dollar Index has dipped below this briefly, but usually rebounded quickly from this support level.
Janet Yellen used to be decisive but now she not so sure, and that's a gift to traders.
There are times when the market hands an opportunity to traders who use chart analysis. This is one of those times, when markets develop consistent patterns of behavior that can be used to set a profit target and a stop loss, creating a high-probability trading situation.
The common and dominant pattern in today's market is the trading band, created by a well-defined support level and a well-defined resistance level. Each of these levels requires at least three touch, or anchor points. Our preference is to use the close on a weekly chart for positioning these lines, which can often be verified by studying previous support and resistance activity at the level in previous years.
These support and resistance lines also allow for setting good stop loss points to protect trades.
The 2130 level is a tough resistance level for the S&P 500 index and this offers traders three types of opportunities.
The 2130 region has acted as a resistance barrier multiple times since March 2015. It's not an exact figure, but when the S&P gets between 2050 and 2130 the market loses momentum, stagnates and then suddenly retreats.
So that's the first trading opportunity. Traders stand ready to go short as the S&P moves away from the 2300 region. The downside target is near 1870 and that has also been hit on several occasions since March 2015.
In a technical sense, the S&P 500 is trading in a broad consolidation band between 1870 and 2300. The index is oscillating around a central band near 2000. Analysis with a Guppy Multiple Moving Average (GMMA) indicator doesn't help traders identify a trend break or continuation. The pattern of GMMA behavior confirms this sideways oscillation.
The trend breakout in NYMEX oil, first signaled by the Guppy Multiple Moving Average indicator (GMMA), has been confirmed. This is a significant trend change. Oil established a pattern of longer-term trend reversal with price oscillation around the $38 level, which formed a base for the rally to the next resistance level near $48. The next upside target is near $58.
Two barrier features on the chart acted to slow the rally from developing into a trend change.
The first resistance feature is the historical resistance level near $48. This resistance feature was strengthened by the proximity to the upper edge of the long-term GMMA which is also near $48 when the rebound rally commenced.
Both of these barriers have now been overcome. The upper edge of the long-term GMMA fell to near $46 and price has now moved above this level. Price has also moved above $48. Traders are now watching for a retest of these two resistance features to act as support features for any retreat.
The weekly dollar index chart shows several interesting patterns. These set up the trigger points for a breakout to new dollar strength, or a breakdown for new dollar weakness. On balance, the bias is towards renewed dollar strength.
The first key feature on the chart are the support and resistance levels. Combined, these provide a very broad trading band. The support level is near $0.93 that was tested multiple times in 2015. The dollar index has dipped below this briefly, but usually rebounded quickly from this support level.
The resistance level is near $100.005 This level was tested twice in 2015. It's not a well-tested level, so it leaves open the potential for the dollar to strengthen considerably.
The second key feature is the down-sloping trend channel. For most of 2016, the index has moved between these sloping support and resistance lines. It has been a pattern of rally and retreat. The current rally faces trend line resistance near $0.96.
Japanese Prime Minister Shinzo Abe needs more than three arrows to make progress with the dollar-yen.
This currency pair is doing a five step polka. Unfortunately, all the steps lead to a potential downside target of 100, which is great for short-side traders but not so encouraging for Abe.
The steps in the dance are created by well-defined trading bands. Every time the lower edge of the trading band is broken, the market moves quickly to the next, lower step. The dance is currently between 105 and 109 but a fall below 105 puts the next support level near 100.
Long-term analysis of the dollar-yen chart shows that the dollar-yen moves within well-defined trading bands. The lower edge of the upper trading band is near 117. A fall below this step 1 level in February set an immediate downside target near 113, which was rapidly reached in a single downwards move. Weak consolidation at this level was step 2 of the dance.
The base of step 3 had a downside target near 109 but historically this is a weak level so during the dollar-yen's rise this level offered little resistance. It's a minor point historically, so there was a high probability it wouldn't offer good support in the current fall, which proved to be the case.
The euro/yen pair continues relentlessly and inevitably towards 120.
The addition to the chart is the upper trend line which is now acting as a resistance level. When this is combined with the lower trend line, this creates a "falling wedge" pattern.
A "falling wedge" is an elongated triangle that slopes downwards with the price rebounding lower between two converging trend lines. It is usually found in uptrends as a continuation pattern that slopes against the prevailing trend.
Sometimes, the "falling wedge" may materialize near the end of a prolonged downtrend where it can act as a reversal pattern. This suggests a longer-term bullish breakout for euro/yen but in the immediate short-term, the support target is near 120.
If the "falling wedge" pattern is projected forward then the intersection point of the wedge is near 112. The strength of the 120 support level suggests traders will watch for a rebound around July 2016. A rebound above 124.5 is a strong bullish signal and confirms the falling wedge breakout. The initial breakout upside target is near 127.
The breakout faces well established resistance levels created by a legacy of trading bands. The euro/yen moves between these trading bands using them alternatively as support and resistance levels. The 127 level is a well-established level and is will act as a resistance level.
There are three key features to look out for in this breakout in the gold price, which also happens to confirm our analysis back in February.
The first and most important feature on this chart is the breakout from the fan trend line pattern.
The second feature is the breakout confirmation from the Guppy Multiple Moving Average (GMMA) relationships; the long-term group has compressed and turned decisively upwards.
The third feature is the way price has remained above the critical resistance level near $1,200, using it instead as support point.
Gold is a proxy for the entire commodity complex and we see this behavior reflected in oil and silver charts.
The upside target for gold is now the historical resistance level near $1,340. This is the short-term target and the fan trend line breakout behavior suggests it could be hit quickly.
The Dow Jones industrial average offers rally-and-retreat trading opportunities between 16,000 points and 18,290, chart analysis shows.
Between March and May 2015 the DOW hit resistance near 18,290, developing a shallow rounding top pattern before plummeting in August.
The retreat then reached the rounding top pattern target near 16,000 and stabilized in this area, before a rally in October reached 18,000. It then retreated again, retesting the support level near 16,000.
This rally-and-retreat behavior has created a broad trading band between 16,000 and 18,290, which in turn sets up three different development scenarios for the Dow.
The OPEC meeting confirmed that the era of cheap oil has not come to an end.
Chart analysis of the Nymex oil chart in March suggested the rise in the oil price from $28 was a rally and not a trend change. The strong rally gain was a gift to traders but it was not enough to revitalize the oil industry because the rally faced significant resistance barriers.
However, oil is establishing a pattern of longer-term trend reversal with price oscillation around the $38 level. Price activity at this level will be the most significant factor in oil behavior in the next few weeks. If the price remains near to the $38 level, the longer-term outlook for oil is bullish.
If price falls below $38, the next support level is near $28.
Daryl Guppy is an independent technical analyst who appears frequently on CNBC Asia.