Weaker-than-expected U.S. housing data lifted gold prices from a seven-week low, but charts suggest that investors shouldn't get too excited.» Read More
A decline in global commodity prices and waning demand from China, Australia's largest trading partner, pushed the Australian dollar to fresh five-and-a-half year lows this week, and now the currency faces a test of key support.
The Australian dollar fell to $0.7870 on Monday, its weakest level since July 2009. It's now testing the technical support level near $0.79; minor falls below this level are consistent with consolidation behavior.
The Aussie became less attractive as a weakening economy and expectations for an eventual Federal Reserve rate hike pushed it below parity with the U.S. dollar in mid-2013. Expectations that the Fed will hike rates in 2015 have since destroyed the carry trade, with the Aussie reverting back to a commodity currency.
The rapid collapse in Nymex oil prices caught many investors offguard, and the worst may not be over, with charts suggesting further declines ahead.
Crude oil prices have tumbled over the past six months amid a supply glut and waning demand, sending prices to their lowest levels in six years. The relentless decline led many banks to reduce their price forecasts including Goldman Sachs, which last week cut its three-month price outlook for WTI crude to $41 per barrel from $70. If charts are anything to go by, the reduced price forecasts are warranted.
Best seen on a monthly chart, let's examine the price behavior from a technical perspective. Nymex oil trades in broad trading bands that define its trending behavior. The trend in the oil price decline from near $100 to below $48 per barrel in January has been interrupted by consolidation pauses near each of these trading band levels. This is a strong downtrend, so the consolidation pauses have been brief.
Analysts are worried that the S&P 500 will collapse following the index's 14.5 percent rise in 2014, but chart patterns suggest otherwise.
Despite last year's double-digit percentage rise, analysts are cautious on their outlook for the S&P 500 in 2015. Most analysts predict slim, single-digit percentage gains, with a handful questioning whether the index can sustain its upward momentum. However, chart patterns indicate that the uptrend remains solid.
The S&P has established a step and stairway pattern, which is defined by trading bands. The market breaks above the resistance level and moves steadily towards the second resistance level calculated by the height of the trading band. The market consolidates near the second resistance level and then retreats. The retreat may use the lower level in the trading band as a support level. The rebound from this lower support level moves above the top of the trading band resistance level. The process of breakout, consolidation, retreat and rebound breakout is repeated, creating a step and stairway trend pattern. This pattern has been in place with the S&P index since October, 2011.
Some believe technical analysis works, while others feel it's akin to reading tea leaves.
Judging by the feedback comments on this column, reader opinions are sharply divided too. The fundamental analysts who didn't see the fall in the oil price, or who told us that gold was going back to $1,500, or that the DOW would collapse didn't seem to attract as much trenchant criticism as those of us involved in technical analysis.
In 2014 we produced weekly CNBC blogs providing trading outlooks based on technical and chart analysis. We use chart analysis to establish the probability of trend change and to set price targets and objectives.
In 88 percent of analysis notes in 2014 the price targets were achieved or exceeded. That's around the same percentage of correct calls in 2013 and 2012. The analysis methods we use are not complex; they can be applied by anyone without the need for a Master's degree in finance. These methods are covered in my books, including Guppy Trading.
Charting analysis provides both the calculated price targets and the price levels that indicate the trade has failed. In 12 percent of cases, the analysis is not correct, but chart analysis provides exact price levels that signal this decision in real time.
As gold finishes out a rocky year, its chart is heading toward critical development point, and the yellow metal may fall below $1,000 an ounce.
The yellow metal started 2014 at around $1,200 an ounce, not too far off its current level of around $1,196, but in between it has hit peaks of nearly $1,400 and a trough around $1,140, after 2013's long downtrend from opening that year around $1,664.
The downtrend line is the most important trend feature of the weekly Comex gold chart. This starts from the high near $1,799 in October 2012. Recently, the line uses the high of $1,347 in July 2014 as a confirming anchor point for the downtrend line. Any change in the downtrend will require a price breakout above the value of the downtrend line, currently near $1,239. The trend line defines the downtrend.
The second important feature of the gold chart is the historical support level near $1,180. The gold price did move below this level, but the price developed a consolidation pattern near the $1,180 level.
The dreaded Hindenburg Omen, which proponents claim foretells a major market collapse, is back according to some market watchers, but fear not as history shows this indicator is full of hot air.
After a number of unsuccessful attempts to call the collapse of U.S. markets, the proponents of this obscure technical indicator are back pedaling analysis methods that give genuine technical analysis a bad name. At its core, this so-called indicator confuses coincidence with correlation.
The Hindenburg Omen is a technical indicator that supposedly foretells the collapse of the American market, but it reveals a more about the behavior of market participants than it does about the market. The indicator is named after the Hindenburg airship which burst into flames in America on May 6, 1937.
As the Aussie dollar hovers near four-year lows against the U.S. dollar amid calls for the Australian central bank to pursue easing measures as economic growth slows, charts suggest further downside.
The Australian economy grow 2.7 percent on year in the July-September period, data showed last week, below expectations for a 3.1 percent rise as the country's commodity boom winds down.
Below-view growth figures prompted calls for the Reserve Bank of Australia (RBA) to cut interest rates. Last week, Deutsche Bank forecast two 25 basis-point rate cuts in 2015.
Despite the prolonged downtrend in the Australian dollar, the currency has moved between two broad trading bands defined by support and resistance levels. These bands provide a method to set the potential downside targets for the move below $0.865.
The weekly AUD/USD chart shows a strong support level near $1.015 that was broken in May 2013. The Australian dollar then moved to test lower support near $0.94. This did not act as a strong support level, but it did develop into a strong resistance level that capped the Australian dollar's rise from April to September 2014.
U.S. crude oil fell to a fresh five-year low on Monday, starting December on a downbeat after November marked the fifth consecutive month of decline – oil's longest losing streak since 2008 – and charts suggest further downside ahead.
A strong U.S. dollar, increased U.S. production and weak demand have driven global oil prices to multi-year lows over the past few months. Last week, the Organization of Petroleum Exporting Countries decided not to cut oil output, fueling further price declines.
Developments in the Ukraine still have the potential to affect oil and energy supplies in Europe, but the market has essentially discounted this unless there is a dramatic escalation of the conflict.
Read MoreCan oil fall all the way to $40?
When we last covered oil on October 6, we set a downside target near $78. This target has been exceeded. Speaking on CNBC Street Signs in November, we set a new downside target for oil at $68, which has also been exceeded. The new downside target is near $58.
An interest rate cut from the People's Bank of China on Friday spurred a global stock rally and charts suggest the move will further boost an already-strong uptrend in the Shanghai Composite index.
The People's Bank of China cut the one-year benchmark lending rate by 40 basis points to 5.6 percent on Friday and lowered the one-year benchmark deposit rate by 25 basis points to 2.75 percent in an effort to support the slowing economy.
On the weekly chart, the Shanghai Composite recently pulled back to trade between trend lines C and D and then rallied above trend line D. The strong rally above trend line D shows exceptional trend strength.
The uptrend breakout started as a typhoon flag pattern and then developed into a pattern of trading channels defined by up-sloping trend lines. The width of the lower trading channel between trend lines A and B was measured and projected upwards to set the location of trend line C. This same method was applied to set the location of trend line D. The distance between trend lines A and C was measured and projected above the value of trend line C, creating a third and higher trading channel, trend line D.
Surprise easing from the Bank of Japan (BOJ) at the end of October fueled gains in the Nikkei, but data Monday showing Japan unexpectedly entered a technical recession interrupted the uptrend and charts indicate further upside may be limited.
The BOJ surprised markets at the end of October by expanding its stimulus program, while the Government Pension Investment Fund readjusted its target allocations, increasing the amount of domestic stocks that it buys. Together, the initiatives pushed Japan's Nikkei to fresh seven-year highs above 17,000.
Growth data released on Monday damped optimism about further stock gains, however. The economy contracted an annualized 1.6 percent in the third quarter following a 7.3 percent contraction in the second, putting Japan in a technical recession and calling the effectiveness of Abenomics – Prime Minister Shinzo Abe's over one-year-old plan to kickstart the Japanese economy – into question.
A month ago we noted the limits for the Nikkei rise; these targets have been achieved. These same methods are used to define the downside limits for the Nikkei's retreat and the future upside limits for any recovery rebound rally.
Daryl Guppy is an independent technical analyst who appears frequently on CNBC Asia.