Charting Asia with Daryl Guppy

The market contradiction with the Australian dollar persists. The Australian market is making new 10-year highs, although the ASX 200 index has stalled near resistance at 6,300. New and persistent market highs are a sign of economic strength, although the Reserve Bank of Australia continues with low interest rates while it waits for growth to pick up.

When the Australian dollar last fell dramatically from $0.94 to $0.69 in 2014 to 2016, it matched a fall in the Australian Index from 5,976 to 4,746. We are not currently seeing the same dramatic fall in the Australian dollar, but we are seeing a contradiction in market behavior.

Here's the contradiction: The Australian dollar is falling and the Australian market is making new 10-year highs.

The Australian dollar broke the long-term uptrend in April and quickly developed a substantial downtrend. It reached 12-month lows at $0.74 and now looks to be heading toward two-year lows near $0.715. Australia's central bank is celebrating because it has been aiming for a lower dollar as a matter of principle.

The last time the Australian market was trading near the current highs, the Aussie was trading at $0.81 rather than heading for a low of $0.715. The last time the AUD traded around $0.715 the Australian index was at a low near 4,750 rather than a 10-year high near 6,300.

When the AUD uptrend line was broken near $0.765 it took less than three weeks to touch $0.74. This support level has been tough and the AUD hovered around it for the past eight weeks. A fall below $0.74 has a downside target near $0.715. That target is established using the support area tested in 2016 and 2017.

The trajectory of the Aussie dollar suggests the contradiction may be resolved with the Aussie market moving back into trend sync with the Aussie dollar. The prolonged, and to date, unsuccessful, testing of resistance near 6,300 suggests some trend weakness. However, this is not supported by other trend indicators, which show a sustainable uptrend.

The weakness in the Australian dollar started in January this year. The rebound strength in the U.S. dollar didn't start until April following a consolidation near $0.89. That four month period suggests there is a weak relationship between Australian dollar weakness and U.S. dollar strength.

The contradiction between Australian dollar weakness and Australian market strength is not easily resolved. Traders are alert for evidence of a pullback in the Australian market if the Aussie dollar fails to hold support near $0.74.

Daryl Guppy is a trader and author of Trend Trading, The 36 Strategies of the Chinese for Financial Traders, which can be found at www.guppytraders.com. He is a regular guest on CNBC Asia Squawk Box. He is a speaker at trading conferences in China, Asia, Australia and Europe. He is a special consultant to AxiCorp.

For more insight from CNBC contributors, follow @CNBCopinion on Twitter.

Traders who went short gold in May are beginning to consider covering their short positions.

The collapse of the gold price was a classic trend change. It started with a retreat from a strongly defined resistance level near $1,365. It continued with a move below the long-term uptrend line that had been in place since December, 2016. It was confirmed with compression and crossover in the Guppy Multiple Moving Average indicator. Both traders and investors agreed it was time to sell, and the downtrend accelerated.

The strongest historical support level is near $1,210 and traders will prepare for a potential rebound from that level. A support level is when price has fallen to that level and then rebounded and developed a new uptrend.

Traders looking for similar multiple confirmation signals of a classic up trend change will be disappointed. When the gold price rebounds, it tends to do so rapidly without any consolidation activity. The gold price is characterized by trend rebounds from pivot point lows. Those are steep and rapid rebounds that have the characteristics of a short-term rally but also have a habit of developing into longer-term sustainable trends.

The rally starting December, 2016 is the best example of that behavior. Gold fell 15 percent quickly to $1,135 in seven weeks. The 13 percent rebound rally moved just as quickly to $1,292 in 16 weeks. The pivot point trend reversal rally in January 2016 moved 18 percent to $1,263 is just six weeks.

Traders need to move quickly when these trend reversals develop but there is one problem. These downtrend pivot point reversals often start in mid-air. That is, they do not start from historical support levels and this makes it difficult for traders to anticipate where they might occur.

In November 2016 the gold price plummeted past the $1,210 support level on its way to the $1,135 low.

Evidence of a potential pivot point rally rebound includes two features. The first is a slowing of downward momentum. The range from low to high for the week is significantly smaller than the previous weekly ranges.

The second feature is a fast rebound with a significantly larger weekly low-to-high range. That is a large green candle that follows a much smaller red candle.

Traders watch for those potential developments as the gold price approaches the historical support level near $1,210. If the pivot rebound rally does not develop from there, then the task of identifying the trend change becomes much more difficult. It means the next pivot point rebound could develop in mid-air and that requires faster trade management of short positions.

Traders continue to trade the retreat behavior. We use the ANTSSYS trading method for this.

Daryl Guppy is a trader and author of Trend Trading, The 36 Strategies of the Chinese for Financial Traders, which can be found at www.guppytraders.com. He is a regular guest on CNBC Asia Squawk Box. He is a speaker at trading conferences in China, Asia, Australia and Europe. He is a special consultant to AxiCorp.

For more insight from CNBC contributors, follow @CNBCopinion on Twitter.

The Shanghai index retreated and then broke out this month, and that’s a bullish signal for the market.

The pattern confirms that the rally from the low of 2,691 is part of an emerging consolidation and breakout.

Given that, the immediate upside target is the value of the lower edge of the long-term group of averages in the Guppy Multiple Moving Average indicator. The second resistance level is the value of the upper edge of the long-term GMMA.

It’s too early to call for a trend reversal, but the pattern of development suggests such a move is underway.

Investors watch for the development of a series of rebound rallies to confirm that the momentum of the downtrend has slowed. The recent rally and retreat has some of the characteristics of a consolidation pattern, and that’s tested by the behavior of the index as it moves around resistance near 2,820. Breaking out above that level is bullish.

Investors continue to watch for two features to confirm a trend change.

The first is the appearance of more days when the index rises. If the structure of the market changes and the up-days move more easily and have larger daily ranges, then that confirms confidence is slowly returning to the market.

The second featured that investors are watching is the behavior of the index’s GMMA. The indicator captures the inferred behavior of investors and traders. Compression shows agreement about price and value, but agreement does not last for long in the market, so that also signals a potential for a trend change.

The short-term group of averages has compressed and turned up, which confirms a return of confidence for traders. The long-term group of averages is well separated, showing that investors are still sellers. The downtrend has not ended, but the process of a trend reversal is developing.

The degree of separation between the two groups of averages is slowly narrowing, which is a precondition for a change in the trend direction. It’s not a signal of a strong or sudden trend reversal, but it shows downtrend pressure is reducing.

Aggressive traders are starting to enter the Shanghai market in anticipation of a trend change. Conservative traders will wait for a move in the longer-term GMMA.

Daryl Guppy is a trader and author of Trend Trading, The 36 Strategies of the Chinese for Financial Traders, which can be found at www.guppytraders.com. He is a regular guest on CNBC Asia Squawk Box. He is a speaker at trading conferences in China, Asia, Australia and Europe. He is a special consultant to AxiCorp.

For more insight from CNBC contributors, follow @CNBCopinion on Twitter.

The NYMEX oil price pulled back to the long-term uptrend line and then developed a strong rebound rally.

That behavior is consistent with a continuation of the long-term trend. It suggests that the recent pullback in the oil price is not an opportunity to go short in anticipation of a trend change.

The price has pulled back from $74 to around $70. This pullback takes place within the environment of a well-established uptrend. Investors watch for the opportunity to add to long positions as the price rebounds from any of the three support features on the oil price chart. The upside target for the trend continuation is $76.

The first support feature is the long-term support level near $65. That level was the support base for the most recent strong rebound rally.

Oil has a well-established pattern of moving in trading bands. The first trading band starts with the strong support level near $43 and resistance near $54. This makes the trading band around $11 wide. Applying the same trade band projection methods gives a long-term target near $76.

The second feature is the location of the uptrend line. It was tested successfully in June 2018 and acted as a base for the recent rally rebound. The current trend line value is around $68.

The third feature is shown with the Guppy Multiple Moving Average indicator.

The long-term group of averages is well separated and this shows strong and consistent investor support for a rising trend. When price retreats, then investors come into the market as buyers. That is the most consistent trend support behavior shown in the GMMA indicator on the oil chart in nearly a decade.

The degree of separation between the long-term and short-term GMMA indicators is also steady. Such a consistent degree of separation is a characteristic seen with stable trends. That again suggests that the current retreat is temporary rather than the beginning of a trend change.

The short-term group of averages, which reflects the way traders are thinking, shows a low level of volatility. The group is not characterized by rapid compression and expansion. That shows traders are buyers whenever the price falls, which tells us that traders are also confident that the uptrend will continue.

Those support features and the trend strength features all suggest that the oil price is experiencing a temporary retreat. The longer-term trading band target is near $76 and potentially higher. It is higher because the $76 level has no history of providing strong support or resistance.

We use the ANTSYSS trade method to extract good returns from the trend behavior.

Daryl Guppy is a trader and author of Trend Trading, The 36 Strategies of the Chinese for Financial Traders, which can be found at www.guppytraders.com. He is a regular guest on CNBC Asia Squawk Box. He is a speaker at trading conferences in China, Asia, Australia and Europe. He is a special consultant to AxiCorp.

For more insight from CNBC contributors, follow @CNBCopinion on Twitter.

If anyone can win a trade war, then somebody forget to tell the Dow. The opening shots of multiple trade and tariff wars have been fired at friend and enemy alike and the Dow does not like what it sees. The threat of those trade wars was enough to bring to a crashing bend the multi-year uptrend in the Dow in 2018 February. The Dow has never fully recovered, although it has not yet started a new downtrend.

The 2018 fall in the Dow set the downside edge of a trading band. That is near 23,300. In a strong bull market this fall would be followed by a strong rebound and a continuation of the long-term uptrend. That did not develop.

Instead, the Dow developed a weak rebound that encountered strong resistance near 25,400. That has formed the top of a new trading band. The strength of the trading band was confirmed in June with the Dow retreat from 25,400.

The Dow had a strong and consistent uptrend that started in November 2016 and ended in January 2018. Since that month, the Dow has moved in an unremarkable and lethargic sideways trading band. There have been strong rallies from the bottom of the band to the top of the band. They have been followed by equally strong retreats and retests of the trade band. In an important sense this activity shows indecision. The market does not welcome Trump's trade wars, but it doesn't firmly oppose them either.

If the trade wars were welcomed, then the Dow would resume its uptrend with a strong and steady breakout above the upper edge of the trading band. That breakout would have an initial target near 27,500. The target is calculated by taking the width of the trading band and projecting it upwards.

If trade wars were unwelcome, then the reverse applies. The Dow would move decisively and quickly below 23,300. The downside target for that retreat would be 21,200 and is calculated using the width of the trading band.

Those chart pattern targets are important, as are the upper and lower levels of the trade band. They are significant because a breakout above or below the trading band often signals a very rapid move toward the target levels. Traders who go long in anticipation of a rebound from 23,300 would need to rapidly cover their long positions if the market moved below 23,300.

The potential for a rapid breakout above or below the trading band levels means that investors need to exercise caution as the Dow approaches those levels. It’s better to wait for confirmation of a continuation of the trading band pattern or of the breakout, before taking a position.

Traders continue to trade the retreat towards support near 23,300. We use the ANTSSYS trading method for this.

Daryl Guppy is a trader and author of Trend Trading, The 36 Strategies of the Chinese for Financial Traders, which can be found at www.guppytraders.com. He is a regular guest on CNBC Asia Squawk Box. He is a speaker at trading conferences in China, Asia, Australia and Europe. He is a special consultant to AxiCorp.

For more insight from CNBC contributors, follow @CNBCopinion on Twitter.