A drop in commodity prices and waning demand from China pushed the Australian dollar to fresh lows, and now the currency faces a test of key support.» Read More
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.
The BOJ surprised markets with second round of monetary easing on October 31, pledging to step up purchases of exchange-traded funds and real estate investment trusts, extend the duration of its portfolio of Japanese government bonds, and increase the pace at which it expands its monetary base.
The BOJ's move accelerated the dollar-yen's breakout above the peak resistance level near 106. The behavior of this fast rally is constrained by the pattern of trading band activity that has dominated the market since June 2013.
A stronger U.S. dollar pushed gold within range of a fresh four-year low last week after the U.S. Federal Reserve brought its asset-purchase program to an end last week, and charts suggest further downside is likely.
There were two significant changes on the Gold chart in the past several weeks: the position of the downtrend line was adjusted to take into account the failed rally breakout in July; a move below the historical support level near $1,180.
The key trend feature of the weekly Comex gold chart is the downtrend line starting from the high near $1,799 in October 2012. Most 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 $1,259. The trend line defines the downtrend but does not assist in setting downside targets.
Expectations that the Federal Reserve will hike interest rates in the first half of 2015 coupled with concerns about the health of the euro zone economy are weighing on the euro/dollar, but as key technical levels are achieved charts raise an important question: Are we looking at a breakout or a continuation of the downtrend?
When the euro/dollar fell below $1.34 at the beginning of September we set a down side target at $1.28. This was achieved and exceeded; the pair is currently testing $1.28 as a resistance level.
The euro/dollar has traded between two broad trading bands since September, 2012; the $1.34 level is in the middle of this trading band.
Japan's Nikkei had a huge day on Monday, surging 4 percent to stage its biggest rally in 16 months, as investors scooped up bargains after a rout last week caused a 5 percent slump in the index.
The market also rallied on news that Japan's Government Pension Investment Fund, the world's largest public pension fund with some $1.21 trillion in assets, is working on raising its portfolio allocation devoted to domestic stocks to around 25 percent.
But is the positive momentum for the market, which has lost some 10 percent since its year-to-date highs in September, here to stay?
Read MoreAre Japan stocks a bargain yet?
If the charts would have their way, the answer would be no.
The Nikkei is dominated by a series of historical support and resistance lines. The placement of these areas is calculated by projecting the width of the historical trading band. This method of trading band projection has been very useful in defining targets during the uptrend. It will also help define the support targets for any market retreat.
The critical lower level is 14000. This area was tested as support several times between February and May this year. The rebound comes off a fall towards this historical support level.
Daryl Guppy is an independent technical analyst who appears frequently on CNBC Asia.