The Dow Jones industrial average offers rally-and-retreat trading opportunities between 16,000 points and 18,290, chart analysis shows. » Read More
The health of the price of copper, shown here in cents per pound on the weekly chart, is a guide to the health of the world economy. The weekly copper chart suggests world economic health is beginning to improve but it's too early for a celebration.
The price of copper has a long history of testing, and then retreating away from the upper edge of the long-term group of moving averages in the Guppy Multiple Moving Average (GMMA) indicator.
So what is different this time with the price testing the upper edge of the long-term GMMA?
The first difference is that the long-term downside target price for copper has been achieved. The dominant feature on the chart was the equilateral triangle pattern. The downtrend trend line in the pattern started in September 2011. The uptrend line started October 2011. The height of the pattern is measured at the base. This value is then projected downwards from where price moved below the uptrend line in March 2013.
This gives a downside target of 250 cents and this target was achieved and exceeded. The 250 cents level is now a significant resistance level. A close above this level is very bullish.
The second and most important difference is the behavior of the long-term group of averages on the weekly chart. The long term GMMA became widely separated in December 2015. The recent price rally from 195 cents to 230 cents has caused a significant compression in the long-term GMMA.
The degree of separation remains wide, but the compression behavior is quite strong. This suggests a significant change in the way investors are thinking about future economic growth and the future price of copper
Japanese Prime Minister Shinzo Abe infamously talked of three arrows: fiscal stimulus, structural reforms and monetary easing. They were launched but now gravity has taken over and the arrows have fallen to earth.
Long-term analysis of the dollar/yen chart shows that dollar/yen moves within well-defined trading bands. The lower edge of the upper trading band is near 117. The fall below this level in February set an immediate downside target near 113. This was rapidly reached in a single down move and has been followed by weak consolidation. It's weak consolidation because the dollar/yen has consistently dipped below this level before clawing its way back to close above the level. This shows continued strong bearish pressure on the dollar/yen.
If this arrow had been fired from cliff top, then the arrow is bouncing on a small ledge on the edge of a precipice.
There was a simple and profitable trade from early 2013 until recently; Traders watched the behavior of silver and then executed the trade in gold because silver price behavior led gold's by about 5 to 10 days.
But those times are over. The price relationships on the gold price chart look similar to the price relationships on the silver chart.
Traders are asking if the smart trade is to now look at gold, and then execute in the silver market. If this reasoning is correct then the silver price should be poised to replicate the strong breakout we have seen with the gold price.
Has the era of cheap oil come to an end? The price has achieved the target of $28 we set in 2015 December. The weekly chart of NYMEX oil suggests it's too soon to celebrate. The strong rally is a boost to traders buts it's not enough to revitalize the industry. The rally in oil faces significant resistance barriers.
There are three barrier features on the chart that act to limit the current rally and prevent the rally from developing into a trend change. The first barrier is the historical support and resistance level near $38. This barrier is strengthened with the close proximity of the lower edge of the long-term group of averages in the Guppy Multiple Moving Average (GMMA) indicator. This value is near $39. The long term averages in the GMMA indicator are an indication of the thinking of long-term investors. The long term GMMA is widely separated and this suggests investors are strong sellers. They sell into any rally.
The second resistance feature is the historical resistance level near $48. Again this resistance feature is strengthened by the proximity to the upper edge of the long-term GMMA which is also near $48. This creates two resistance points that any rally will need to overcome before the rally can develop into a true trend change.
The separation in the long-term GMMA is also very wide and consistent. The long-term GMMA shows no indication of compression. A change in trend direction is confirmed when the long-term GMMA group of averages first develop compression and then later turn upwards. The wide separation in the long-term GMMA confirms that investors are not confident the oil price can recover quickly.
The width of the long-term GMMA confirms that investors will sell into the rally and drive oil prices down towards the recent temporary support level near $30.
The monthly NASDAQ chart is relatively complex with two different levels of technical analysis. Combined, these two approaches provide a better understanding of the context of NASDAQ activity with downside and upside targets.
The first analysis method uses the long-term pattern of an up-sloping trading channel. The main channel is defined by trend lines A and B. The channel start in April, 2009. The NASDAQ traded inside this channel until the breakout above trend line B in October, 2013.
Between October 2013 and February 2016 the NASDAQ traded in the channel between trend line B and the projected value of trend line C. Trend line B acted as a support level. The width of this channel was the same as the width of the long-term trading channel.
Is this current rally the rebound? We don't think so.
This burst of bullish activity is a relief rally rather than a change in trend direction. Note that the market can rally to 5050 to the value of the downtrend line and still remain in a long term downtrend.
The XJO Australian Index is using the upper edge of the down sloping trading channel as a support level. Market volatility rules.
Note that the market can rally to 5050 to the value of the downtrend line on the weekly chart and still remain in a long term downtrend.
A move below 4950 gives a technical target near 4560. This is below the head and shoulder pattern target projection.
Here's the bearish factors for the XJO.
•The XJO is using the top of the downtrend channel as a support level – but its still sliding down this down sloping line
•Support near 4950 has been tested and retested. A sustained fall below 4950 confirms the continuation of the downtrend.
•The long term GMMA has not turned upwards and nor has it developed any bullish separation. Investors are not supporting the rallies, but they are happy to join the selling
•A fall below the support near 4950 has a downside target near 4700 based on the lower edge of the trend channel.
•This downside target is near to the head and shoulder reversal pattern target seen on the weekly chart below.
The Nikkei 225 may have had a thousand-point run on Monday, ending at 16,022.58, but its collapse still has a way to go, with a downside target near 13,900.
The weekly Nikkei chart shows a well developed head-and-shoulder pattern, which is a very reliable, long-term trend reversal pattern.
The pattern consists of four elements. The first is the left shoulder, which is created by a clearly defined retreat and rebound. This developed in November 2014.
The market then continues to rally and develops a peak, or head pattern. This is the second element, which formed in July 2015.
The subsequent retreat and rally developed the right shoulder of the pattern in December 2015, which is the third element.
The gold price has been wallowing around $1,050 to $1,180 since June 2013, sending plenty of confusing signals as it built a very broad consolidation base.
Now, the rally in gold has the potential to develop into a breakout from the consolidation base and become a new uptrend. But the strength and sustainability of the gold rally is still not unclear.
The first step in analysis is to put the rally activity into context by using a weekly chart. The downtrend is well defined by the Guppy Multiple Moving Average (GMMA) indicator. The long-term group of averages are well separated and have not developed any compression in response to the recent rally.
Gold has a very strong resistance band between $1,150 and $1,180 so any new trend breakout requires a sustained move above $1180 and a compression in the long term GMMA averages, to show that investors have become buyers. These are the two conditions investors watch for; until they are established the price movement remains a rally and traders are ready to go short.
Will dollar strength continue? It's a question most effectively answered with chart analysis of the dollar Index.
Chart patterns take time to develop. A pattern that spans a significant amount of time may develop sub-patterns which can provide an early guide to calculated price move targets. The dollar index is a case in point.
Starting January 2015 the dollar index developed an equilateral or symmetrical triangle. The breakout above the upper edge of the triangle gave an upside target near $1.035. This breakout failed and the dollar retreated. It's the nature of the retreat that develops a longer term chart pattern.
This is the cup and handle pattern and its best seen on a weekly chart . This pattern consists of two components. The first component is the cup. The pattern starts from the high in January 2015 and is completed with a matching high in November 2015. This forms the lip of the cup.
The euro/dollar chart has two significant features. When combined, these two features confirm the long-term downside target of $1.00 to $1.01 for the euro.
The first feature is the upsloping triangle pattern. This is usually a bullish pattern but with the euro/dollar the pattern collapsed. A breakout of the upside of this bullish pattern did not develop. The breakout was to the downside.
The chart pattern is used to calculate the downside target. This is a measured move target. The target is calculated by measuring the height of the base of the triangle – 0.10 – and projecting this downwards from the point of the breakout below the trend line near $1.11. This gives a downside target near $1.01. Historical support is near $1.00.
The recent rally from near $1.05 remains part of the strong downtrend move towards the $1.00 support target.
Daryl Guppy is an independent technical analyst who appears frequently on CNBC Asia.