A period of consolidation has investors worried that the Dow's long-term uptrend has run its course, but charts suggest otherwise.» Read More
Worries about slowing economic growth have undercut the momentum that saw China stocks rise over 50 percent last year, but charts suggest that a new long-term uptrend may be at hand.
China's Shanghai stock index posted stellar gains in 2014, outperforming its regional peers amid strong fundamentals and solid valuations. Many investors expected the positive momentum to carry over into the new year, but concerns about the economy undercut that momentum after China posted its lowest annual growth figure in 24 years.
The Shanghai composite is up just over 3 percent year to date after posting a 10 percent technical correction between late January and early February. But charts suggest upward momentum may return amid signs of a rebound.
The 10 percent trend correction created a broad consolidation band between 3060 and 3400, with key resistance levels near 3300 and 3400. The correction behavior has developed inside a seven-week sideways consolidation band that includes frequent strong rally and retreat behavior.
Weaker-than-expected U.S. housing data lifted gold prices from a seven-week low on Monday, but charts suggest that investors shouldn't get too excited.
Gold got some reprieve on Monday, rebounding from a seven-week low intraday after data showed U.S. home resales for January declined to a nine-month low. The data are unlikely to dent the overall trend, however; gold posted its fourth consecutive weekly decline last week amid a stronger U.S. dollar and expectations that the Federal Reserve will raise interest rates later this year.
Meanwhile, the outlook on charts is bearish.
The weekly gold chart has developed a complex technical pattern with three features: a downtrend line; strong historical support; certain pattern behavior in the Guppy Multiple Moving Average (GMMA) indicator.
Is the worst over for oil markets? The commodity has managed a 20 percent rebound in the past three weeks, prompting speculation that a rebound is nigh. Technical analysis suggests a consolidation is under way, but a firm uptrend isn't in place yet.
A few weeks ago, the NYMEX oil chart suggested a downside target near $38, and if that support level failed to hold, a second and lower technical target near $26. Neither of these targets was achieved as oil developed a rebound from the low of $44.45 after falling below support near $48.
The dollar-yen briefly rose above 121 in December after the BOJ expanded its stimulus program at the end of October. Coupled with forecasts for a Federal Reserve rate hike mid-year, many investors expected the dollar-yen would continue to rise. But uncertainty about the BOJ's ability to achieve its growth and inflation targets has undercut that momentum. Now, the dollar-yen is testing support.
Seen on a weekly chart, the dollar-yen uptrend moves between well-defined trading bands. The breakout above 109 in November 2014 had a trading band target near 113. This was achieved and the width of the trading band was projected above 113 to set the new target near 117. Using the same calculation method the next upside target near 121, which was achieved in December 2014.
The Shanghai composite is among Asia's worst-performing stock indexes in the new year, making 2014's stellar performance seem like the stuff of distant memory, but charts suggest strong support for a continuation of the uptrend.
Chinese stocks were among last year's best performers, with the Shanghai composite rising over 50 percent. But the tide has turned amid slowing growth in the world's largest economy and regulatory concerns. The index is down around 3 percent year-to-date and charts suggest a significant trend consolidation is developing.
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.
Daryl Guppy is an independent technical analyst who appears frequently on CNBC Asia.