The weekly dollar index chart shows several interesting patterns. On balance, the bias is towards renewed dollar strength. » Read More
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.
The Shanghai Index has developed a strong breakout above the resistance level near 3000 with a upside target near 3400. The short-term group of averages in the Guppy Multiple Moving Average (GMMA) indicator has moved above the upper edge of the long-term GMMA.
This is bullish. A strong uptrend breakout is signaled when the lower edge of the short-term GMMA moves above the upper edge of the long-term GMMA.
The long-term GMMA degree of compression has shrunk to 39 index points compared with 69 index points last week. This shows investors are increasingly more confident about the sustainability of the new uptrend. This increasing rate of compression in the long-term GMMA means a strong rally has more chance to develop because investors are more confident and they will also participate in the rally. This combination of factors helps to accelerate the trend change.
The classic GMMA pattern of bullish test and re-test behavior is often associated with the change from a downtrend to a new uptrend. There are four parts in this Shanghai Index pattern .
The euro-yen pair looks set to continue its steady downtrend, with only a small likelihood of a rally and a longer-term target near 120.
The pair is using the long-term downtrend line as a support level. Rally rebounds face 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 key support level and is now acting as a resistance level, which the pair is currently testing.
A breakout above the 127 level is a low probability, but if it does develop, then the upside target is near 132.
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.
Daryl Guppy is an independent technical analyst who appears frequently on CNBC Asia.