The Nasdaq pullback that we forecasted in January has commenced as the Federal Reserve further tapers its asset-purchase program.» Read More
Stocks on Wall Street had an impressive run in 2013 amid a backdrop of ample central bank liquidity, with the NASDAQ rising 38.3 percent for its best year since 2009. However, with the Federal Reserve set to reduce its asset purchases this month investors can't help but question the likelihood of a repeat performance in 2014. Down 1.5 percent in the first few days of the New Year, charts suggest that the NASDAQ may face a pullback, but ultimately the environment remains bullish.
(Read more: Nasdaq pays up for botching Facebook's IPO)
Charts show that the NASDAQ index has a steady and strong uptrend with an up-sloping trading channel. Best seen on a monthly chart, there are three features: the trading channel, potential upside targets and the position of long-term uptrend line A.
The trading channel: Trend lines A and B are the lower and upper edges of the trading channel, respectively. The NASDAQ has moved above the upper edge of the trading channel, thus there is an increased probability of a retreat.
The euro rose to a six-week high against the U.S. dollar on Monday as expectations that the European Central Bank will undertake further stimulus measures continued to fade. Now within sight of a two-year high set in October, charts indicate that a sustainable uptrend is at hand.
The euro/dollar's strong breakout above the middle point of a broad range-trading band in September has continued. Best viewed on a weekly chart display, we can see that the pair's rebound rally since retreating to $1.34 support on November 9 is strong and sustainable, with an upside target near $1.40.
(Read more: Resilient euro just won't be held back)
The trading band's lower support is located near $1.28. While this is not an exact level it has served as a support region and was tested in November 2012, as well as March, May and July of 2013.
Tapering remains a key topic of debate among investors as year-end approaches and Janet Yellen prepares to take over as Federal Reserve chairman when Ben Bernanke's term expires at the end of January.
While opinions over when the Fed will taper differ, charts suggest that any near-term taper or no-taper decision will do little to fundamentally change the trend in the U.S. dollar index.
(Read more: The dollar bulls are back with a bang)
The U.S. dollar Index chart is defined by two features. The first is a combination of three support and resistance levels, which first act as support before reversing their polarity to act as resistance.
The second is the long-term uptrend line; this was broken on the downside in October but the recent rally has given new life to this trend line acting as a support feature.
The dollar-yen breached the 100 level last week for the first time in two months but the pair has since struggled to hold onto its gains.
After languishing below the 100 level in the wake of the Fed's surprise decision not to taper its $85-billion-a-month asset-purchase program in September, the dollar-yen has finally broken above that key level.
(Read more: Are the stars re-aligning for dollar-yen?)
However, concerns about whether or not Abenomics will be effective enough to breathe life into the Japanese economy coupled with uncertainty over when the Fed will taper its asset-purchase program with Janet Yellen set to take over as Chair early next year have seen the pair stall above the 100 level.
Looking at the dollar-yen chart, the pair is dominated by a long-term and slow-moving head and shoulder pattern.
The Indian rupee was among emerging Asia's hardest-hit currencies amid the rout that hit markets earlier this year as investors braced for a tapering of the Federal Reserve's $85-billion-a-month asset-purchase program. The rupee has regained ground since touching an all-time low against the U.S. dollar in August, and despite a brief break, charts indicate that it's likely to continue down this path.
(Read more: Best performing currency in September? India's rupee)
In August, we looked at the dollar-rupee's rapid rise. The broad behavior of the chart patterns provided guidelines for the market's development, which were validated by subsequent developments. A new chart pattern has since developed, which provides guidance to the developments in the rupee.
Prior to the new parabolic trend pattern there were two dominant chart patterns on the weekly chart, not shown here.
The euro's decline against the U.S. dollar late last week may have given some investors a scare, but charts indicate that pair is exhibiting characteristics of a sustainable uptrend.
The euro posted its biggest one-day decline against the U.S. dollar in 16 months last Thursday on the back of three factors: weaker-than-expected economic data from the euro zone; slightly less-dovish-than-expected post-policy-meeting comments from the Federal Reserve; and comments from European Central Bank governor Nowotny that the central bank would provide more liquidity to avoid a "cliff" effect once the bank's cheap loans to euro zone banks come to an end.
However, despite the pair's sharp single-day decline technical analysis shows signs of a sustainable uptrend.
India's benchmark Sensex stock index may have broken out to new highs, but for a sense of what's next for the share market, investors might want to take cue from the broader Nifty index.
While the Nifty Index is lagging, it tends to be more reliable for tracking the behavior of the Indian market. The weekly Nifty chart gives an overview of market behavior and provides a method for setting the breakout target.
The first feature of the weekly Nifty chart is the long-term trading band consolidation. The upper level of the band is near 6250, while the lower level is near 4610. The index has oscillated around the central trading band between 5200 and 5680 for almost three years. This is an important behavior because it provides a method for calculating breakout targets.
(Read more: Will it be two rate hikes in a row for India?)
The second feature of the Nifty chart is the width of the trading bands, which are around 507 index points wide. The width is projected above the upper edge of the trading band to give an upside target near 6780. If the breakout above 6250 continues then 6780 is the next potential resistance level, but that's a big if.
What a rise the NASDAQ has had and what great potential it has to fall. Best seen on the monthly chart, there are three chart analysis features.
The first feature is the index's spectacular rise. The monthly NASDAQ seems immune to the troubles that afflict the Dow Jones Industrial Average and the S&P 500. This is a solid uptrend that has accelerated since March 2013, with the index moving confidently towards the 4100 target level.
The weekly chart of the NASDAQ with a Guppy Multiple Moving Average indicator shows the long-term group of moving averages is widely separated. The separation between the long-term group of averages and the short-term group of averages remains steady and consistent; these are the features of a strong sustainable trend.
The Shanghai Composite index has developed a strong rebound from the upper edge of the long-term Guppy Multiple Moving Average, or GMMA, (in red on the chart).
The rebound rally shows that investors are confident about the strength of the index's trend. The market has broken resistance near 2210 – a significant historical resistance level. A sustained breakout above 2210 is very bullish and sets the next upside target near 2330.
This is a classic GMMA trend test-and-continuation pattern. This develops when the index falls towards the upper edge of long-term GMMA, the long-term GMMA acts as a support level and the index then rebounds, continuing the uptrend.
(Read more: UK's Osborne woos China with shared investment)
The position of uptrend line B is adjusted to include this retreat-and-rally rebound pattern. The new uptrend line has three anchor points, and is now near the upper edge of the long-term GMMA.
If the United States defaults on its debt in the middle of October, just how far will the Dow Jones Industrial Average fall and would this provide a buying opportunity for October?
October has an undeservedly bad reputation in the market. While it's true that October has seen more than its fair share of market crashes and these overshadow the month's more positive side, markets usually close out the month higher. An October dip would be a buying opportunity; the debt ceiling brinkmanship may be the catalyst for such a buying opportunity.
(Read more: Could a shaky market get the debt ceiling raised?)
There are two key questions here: What degree of fall constitutes a buying opportunity, and what degree represents a major market reversal where it makes sense to go short and stay short? Chart analysis of the DJIA puts some figures on these critical levels.