The Dow Jones entered negative territory, while the S&P 500 and NASDAQ posted their worst weeks since 2012, leading traders to warn of a correction.» Read More
Gold fell to its lowest level in nearly three months last week on concerns that a strong U.S. dollar and improving U.S. economy could damp demand, and silver charts suggest that bullion may not regain upward momentum anytime soon.
The downtrend in COMEX silver – shown in cents on the weekly chart – is well-established and prolonged. Technically silver is pounding out a support base near $18.70 and although there has been a reduction in downward momentum there is no technical or chart evidence of a developing rebound and reversal.
Upside targets remain limited, while technical downside targets have yet to be tested by a fall below support near $18.70. Analysis of Silver is useful because the price behavior of silver has led gold prices since 2011. Understanding silver gives traders a leading advantage when it comes to anticipating the behavior of gold.
The significant feature in the silver chart is the retreat and retest of the support level near $18.70. A successful fourth retest of support near $18.70 would confirm a long-term sideways consolidation.
Silver has strong long-term resistance near $26.00. Resistance also developed near $24.00, which is the first target for any successful breakout above the upper edge of the long-term group of moving averages where the value is currently near $21.80.
Charts suggest that the downtrend in the euro/dollar is firm ahead of the European Central Bank's (ECB) policy meeting on Thursday.
A decline in euro zone inflation to a five-year low in August amplified dovish comments by ECB president Mario Draghi at the Jackson Hole central bankers' meeting. Draghi acknowledged that inflation expectations have been falling at the August meeting and said the ECB, "within its mandate, will use all of the available instruments needed to ensure price stability over the medium term."
The developments fueled speculation that the ECB will consider easing action as early as Thursday with some analysts arguing that a quantitative easing – or bond buying – is on the horizon.
The Dow Jones Industrial Average posted its largest annual gain since 1995 last year and while momentum has slowed the index touched an all-time high in July and is up 3 percent year-to-date. Investors are questioning whether the rise has run its course but charts suggest the uptrend is intact.
The Dow's recent decline from 17,151 to 16,333 was only a minor retreat and is part of the trend consolidation pattern along the upper edge of a long-term trading channel. The index fell 4.8 percent; a technical correction is a fall of over 10 percent.
Read MoreAre Aussie dollar bears right?
Upward momentum has slowed a bit and consolidation is developing around the value of the uptrend line. There are two significant trend features on the Dow chart.
As the war of words between Australian dollar bears and bulls continues charts indicate that the bears may have the right call in the short term.
Comments from Reserve Bank of Australia (RBA) Governor Glenn Stevens late last year that he would like to see the AUD trading at $0.85 against the U.S. dollar raised expectations that it would weaken significantly this year after. However, expectations for continued loose monetary policy by global central banks and continued Chinese reserve diversification limited downside momentum.
Yet, growing expectations that the RBA may cut interest rates before year end to tackle the stubbornly high currency could see near-term downside.
The AUD is developing a long-term uptrend breakout pattern, but the breakout is not developing at this time. The weekly chart shows the classic Guppy Multiple Moving Average (GMMA) trend change breakout pattern. This starts with a test of the lower edge of the long-term group of averages in the GMMA Indicator. The breakout pattern is flowed by a retest of the upper edge of the long-term GMMA and completed with a breakout above the upper edge of the long-term GMMA. This signals the start of a new uptrend.
Investors are beginning to question whether the S&P 500 can sustain its upward momentum amid worries that the rally in U.S. stocks may be testing its limits coupled with unease over geopolitical tension between Russia and the West, but chart analysis suggests that no trend change is imminent.
The S&P weekly chart shows a well-established habit of behavior. Starting with the uptrend development in September, 2010 the S&P 500 has consistently moved up in a series of trading bands.
This continues to be a strong uptrend with each upthrust target defined by the width of the trading bands. The market broke above the top of the consolidation band around 1850 and the trading band calculation set a target near 1990. This target level was achieved and is followed by the S&P 500's typical habitual behavior. Each time the upper edge of a trading band its reached the S&P 500 retreats to the upper edge of the long-term Guppy Multiple Moving Average (GMMA). And then the S&P 500 develops a strong rebound rally that moves above the upper edge of the trading band.
When the S&P 500 was near 1700 many analysts said the market would fall. Instead the index developed a rally breakout and moved to the next projected target near 1850. Again, at this level, many analysts said the market would fall but the index rallied above this level and went on to reach the next projected target. This is the habit with the S&P 500 index.
The key factor to look for is the consistent strength of the long-term GMMA. This is shown by the steady degree of separation. When the market does develop a dip it uses the long-term GMMA as a support level. The dips in June and October of 2013 and February 2014 all touched the top of the long-term GMMA before developing a new rally and breakout above resistance. The long-term GMMA did not show any signs of compression.
The U.S. dollar rose to a four-month high against the Japanese yen last week leading investors to question whether a sustainable uptrend is at hand or if this is another false dawn. Charts analysis suggests the latter.
The down-sloping triangle pattern in the dollar-yen suggests a high probability of a retreat to 97;down-sloping triangle patterns are usually bearish. However, the dollar-yen has broken above the down-sloping trend line, which sets a weak upside target near 105.5.
This complex pattern development is best seen on a weekly chart. The pattern starts with a clearly defined down-sloping triangle pattern. The pattern has a well-tested support level near 101.5. The support level started in February, 2014 and has been tested frequently since.
The downtrend line starts from the high of 105.4 in January, 2014. This is a well-defined trend line and the dollar-yen has consistently reacted away from the line over the past six months.
The Shanghai Composite Index has developed an astounding rally breakout in the past week, rallying more than 6 percent to hit levels not seen since December, and bringing gains to more than 10 percent from year-lows reached in March.
But, chart analysis shows this rally breakout may not be sustainable. Here's why.
The breakout rally developed within the context of an up sloping triangle pattern. The triangle pattern is a long term bullish pattern developing over three months. The triangle pattern is created by the combination of the support resistance level near 2,060 and the up sloping trend line. This up sloping trend line starts from the low of 1,991 made on May 21. The second anchor point for the uptrend line is the open at 2,013 on June 20. The third anchor point of the uptrend line is the low of 2,018 on June 25. The fourth important anchor point is the low of 2033 on July 11.
Gold prices have seen a rebound in recent weeks after hitting a four-month low in June and technical analysis suggests there is potential for this rally to develop into a genuine trend breakout.
The key feature of the weekly Comex gold chart is the downtrend line. This starts from the high near $1,799 notched in October 2012. Most recently the line uses the high of $1,392 in March 2014 as a confirming anchor point for the downtrend line. The current breakout above the trend line has the potential to develop into a genuine trend break, and here are three reasons why.
The DOW closed above 17,000 for the first time in early July on the back of a strong U.S. jobs report. Sturdy upward momentum has seen the index post a series of fresh all-time highs this year but charts suggest momentum may be set to slow.
A few months ago we suggested the DOW had an upside target of 17,000. This target has been achieved, marking a continuation of an exceptional uptrend but chart analysis suggests this upward momentum may slow and consolidation may develop around the value of the uptrend line.
The strategic trend and the significant feature of the DOW is the up-sloping trading channel defined by three trend lines. The upper trend line is trend-line C; this will provide support for the DOW as it retreats from 17,000.
Trend-line A forms the middle core of the pattern and is the most well-defined trend line. It starts in February 2011, acted as a resistance in July 2011, and again in April and September 2012 before the DOW broke above this level in February 2013. Starting from February 2013 trend-line A has acted as a support level. The general market environment has been bullish with the DOW staying above trend-line A. The breakout above trend-line C in January 2014 was an unsustainable rally.
Indonesia heads to the polls to elect a new president this week and while the outcome looks less certain that it did a few weeks ago charts suggest that stocks are poised to resume their uptrend.
Joko "Jokowi" Widodo, the popular governor of Jakarta, remains the frontrunner to win Wednesday's vote but his poll lead has narrowed sharply in recent weeks and the possibility of a win by rival ex-general Prabowo Subianto is not being ruled out.
The Jakarta Composite Index chart is defined by three levels of historical support and resistance. These levels help set the boundaries for any moves following the Indonesian election. As the election has become more closely contested there has been a reduction in trend strength.
The key resistance level is near 5150, which the most recent uptrend failed to reach. Any rebound following the election results will find resistance between 5100 and 5150.
Daryl Guppy is an independent technical analyst who appears frequently on CNBC Asia.