Asia-Pacific Markets Charting Asia with Daryl Guppy

The Australian dollar has developed a strong breakout above the upper edge of a long term trading band.

This breakout comes at a time when the Australian market is one of the weakest performing globally. It lags the U.S., U.K., German, Singaporean, Taiwanese, Malaysian and Korean markets by substantial amounts.

It's not economic strength that is driving this breakout.

The Aussie strength is a direct consequence of weakness in the U.S. dollar, which in itself reflects the deep disillusionment with President Donald Trump's policies and endless tweets that defy reality.

The trading band is the most significant feature on the AUD chart. The upper edge of the trading band near $0.775 was established in April 2016. The lower edge of the trading band near $0.715 was first tested in June 2016. The trend behavior since then has been weak with the Australian Dollar essentially moving sideways.

In November 2016 the Australian dollar retreated strongly from resistance near $0.775 and by December that year was testing the support level near $0.715. The rebound rally from this level confirmed the strength of the trading band.

The Nasdaq is due for a correction.

It has soared above the primary uptrend line and achieved the trade band target of 6,310. A correction is a high probability and trade band analysis is used to set the downside targets.

A correction, however, is not an end of the trend. Following the correction, there is a high probability the uptrend will resume a move towards a longer-term target of 6,820.

The monthly Nasdaq chart is used for strategic analysis and asset allocation.

The double bottom, or W breakout pattern, in the Shanghai index has developed successfully and the rally has paused just below the target level of 3,200. The upside target for the W pattern is near 3,200 and the index is consolidating near this level.

Over time our charts become cluttered with trend lines and other technical indicators. The problem is that these old lines tend to guide our thinking and analysis of the chart.

It is very useful every now and then to clear these lines from the chart and start with a naked chart, showing just the candlesticks and no other information.

We do this with the weekly NYMEX oil chart and several features become more apparent. Some are negative, and call for new thinking. Others are new relationships that also call for fresh views.

Between August of 2015 and November of last year, the oil chart developed an inverted head-and-shoulder pattern.

The double bottom breakout pattern in the Shanghai Index is developing strongly.

The breakout closed above the value of the resistance level near 3,130. This is bullish. The breakout rally has also tested the upper edge of the long term group of moving averages in the Guppy Multiple Moving average Indicator. This rally is the beginning of a change in the direction of the trend from a downtrend to a new uptrend.

The pattern is also sometimes called a W pattern. The key indication of pattern success is when the second rally – the right side of the W – moved above the middle high of the W. This has developed with a move above 3,110 to a high of 3,143 on May 31.

The retreat from 3,143 was temporary and the rally has tested the 3,143 level again with a strong rally on June 7.

The upside target for the W pattern is near 3,200.

Other than a fear of public speaking the next most common fear is fear of heights. This fear of heights is on full display when people think about the Dow Jones, the S&P 500 and the Nasdaq composite.

In January commentators were already telling us the Dow rise was unsustainable and that a significant crash was inevitable. This mantra has continued for the past five months. In January we set an upside target for the Dow at 21,000 using chart projection methods. The target was achieved in March and has been retested several times.

The 21,000 level is a significant resistance level, but its not the end of the Dow uptrend. In the short term the upside target is 21,600. In the longer term, the Dow has target near 23,700. These targets are calculated using chart pattern analysis.

The DOW and other major stock indexes like the S&P 500 have one feature that ensures that they will continually rise and break new records: They are built on survivor bias.