Oil's rebound from near-$38 was fast and strong, which suggests the downward pressure on the commodity is weakening.» Read More
It's been relentlessly talked down by Reserve Bank of Australia Governor Glenn Stevens. It's been smashed by a sustained run of low commodity prices. And, with perverse glee, it's fall has been hailed as a sign of success even it's a prime marker of a collapsing economy.
The Aussie did its best to cling onto the narrow shelf of support near $0.78 but once that failed it has been a rapid plunge into the valley of death. This is great news for those who have traded short but it begs the question: How much longer they should stay short? The weekly chart provides some (un)pleasant answers.
The chart has two dominant features. The first is the prolonged, steady downtrend that is well defined using a Guppy Multiple Moving Average (GMMA) indicator. The fall below $0.93 in September 2014 was an accelerated continuation of the downtrend. The long-term GMMA group of averages rapidly expanded showing sustained, consistent selling pressure.
You want evidence of the deleterious impact of high frequency trading and ETFs? Then look no further than the 1,000-point move on the Dow on Monday; that's 1,000 points down, followed by a rapid 1,000-point rise.
For several years I've noted the way this trading has fundamentally changed the operation of markets. Markets do not collapse without warning.
True, weaning the U.S. market off a diet of cheap money is proving more difficult than expected; this agonizing hike-no hike seesaw makes the earlier taper tantrum look like a storm in a tea cup. And the implied slowing in Chinese growth has highlighted the weakness in U.S. growth and its dependence in China for American prosperity.
But there are usually warning signals of a severe market downturn. In 2007 the Dow, the S&P 500 and the NASDAQ all developed end-of-uptrend patterns of behavior that technicians could read. That meant that the subsequent market fall was not a real surprise, although the degree of the fall was less expected.
Hans Christian Andersen wrote cautionary fairy tales, some of which, like "Little Red Riding Hood", are used to frighten small children.
Some commentators latch onto market fairy tales and use them to frighten ill-informed investors. The Death Cross is part of this evil fairy tale vocabulary.
The Death Cross sounds suitably terrifying and ominous, but its signals are not reliable and the market is riddled with false Death Cross signals where the index has rebounded and continued the uptrend. The Hang Seng showed false Death Cross signals in 2014, 2013, 2012 and 2010. In the Dow, the signals are false in around 60 percent of recent occurrences.
Anybody who actually uses the Death Cross and its benign cousin, the Golden Cross, to make investment decisions can lose substantial money. Of course for the ill-informed those losses just prove that technical analysis doesn't work so they deride more sophisticated applications of technical analysis as akin to reading the tea leaves.
The NYMEX oil price breakout above the resistance level near $58 failed to develop into a sustained uptrend.
Instead, the consolidation period saw oil move between $58 and $62. The fall below the new support level near $58 was rapid. The fall also moved quickly below the support level near $48, a rapid collapse of support that is a very bearish sign.
The downside target now is near $38, which will be along-term and sustained support level. This area, a major technical feature in the NYMEX oil chart, acted as support in 2004 and 2008 and as a resistance level in 2000 and 2003.
When oil collapsed from $110 it formed a double-bottom pattern near $45, a pattern that is often associated with a trend reversal.
Gold has dropped below its key support level near $1150, taking it to a new five-and-a-half-year low and setting the next support target near $980.
The historical support level for gold is near $1180 so when the price dropped below this level last November many traders expected the price to continue falling towards the next support level near $980. This did not develop and gold rallied and moved sideways.
Historical support near $1180 failed and a new support level developed near $1115, which created a strong support band between $1180 and $1115.
The euro-dollar has developed a broad consolidation between 1.05 and 1.14, a trend that is largely detached from the Greek crisis.
The consolidation within the trading band is defined by clear trend behavior. The reaction away from 1.14 has moved towards temporary support near 1.08. The downside target for this trend is a retest of longer-term support near 1.05.
Despite doomsayers' predictions that the S&P 500 index will collapse, the charts still don't support those warnings.
After the S&P index rallied 14.5 percent in 2014, many analysts worried about a drop, but the chart pattern didn't support that conclusion then and now, six months later, chart patterns aren't supporting new disaster warnings of an imminent collapse of the S&P, the Dow and the Nasdaq.
Eventually these markets will retreat, but any retreat will be foreshadowed by the development of end-of-trend chart pattern behavior. Rather than mindless quivering over a fear of heights, it makes more sense to understand the current patterns of behavior and understand how to recognize the potential end-of-trend patterns as they develop.
The euro zone is under pressure of disintegration, the Shanghai Index is falling and it is inevitable that US interest rates will rise and put pressure on the uptrend in the Dow.
It's a gloomy outlook and this is usually good for the gold price. But despite these factors, gold continues to move sideways and tests the new support level near $1150.
the move started in June 2013, and between then and January 2015 the sideways movement was below the long-term trend line. Then in January 2015 the price rally above $1220 moved above the long-term downtrend line. The breakout rally reached $1300, then the gold price fell and used the long term downtrend line as a support level.
The Shanghai Index has retreated dramatically and is moving toward the longer-term consolidation area between 3000 and 3400. The sell-off has been faster and more severe than expected.
These falls are exacerbated by four features of the Shanghai market that increase the volatility, severity and momentum of trends – both uptrend and downtrend.
1) The first feature is the application of limit-up and limit-down conditions. In big market moves stocks can be locked into limit-down just a few minutes after the opening of trade. The result is pent-up demand to sell. When the market opens the next day frustrated sellers flood it with lower prices in desperation to get out. The inability to exit the market feeds panic.
Technical analysis has signaled there is about to be a big change in the direction of China's key Shanghai Composite Index, with a high probability the market will next find support at 3400 points.
The Shanghai index has developed a significant change in the trend, with key support levels at 4600 and 4200 and 3800 failing.
Daryl Guppy is an independent technical analyst who appears frequently on CNBC Asia.