Technical Analysis

The last time we looked at the FTSE 100, on Wednesday, it was bouncing fairly aggressively in the morning, but by day’s end that had pretty much failed entirely. Yesterday was a nothing day, and so far in early trade today price action isn’t very inspiring, either. The fact that the FTSE sold off aggressively to just above important support by way of the old record highs (intra-day, October – 7130, closing, 4/’15 – 7104), and is showing virtually no bounce isn’t a good sign (at least not for the longs).

We’re still sitting close to a big level of support, so any drop from here could find it challenging to gain momentum, but if the FTSE takes out 7100, a clear breach of the old highs, watch for increased selling pressure. Levels to watch on the down-side are 7067, then right around 7000, where the June trend-line lies and the high of a key reversal event on 11/10 (6997 to be precise).

To turn this ship around we will need to see some ‘oomph’ develop, buyer willingness to sustain more than an intra-day bounce. Until then, we’re in the neutral to bear camp.


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It’s been a sharp turnaround – easy come, easy go – with yesterday accounting for a large share of the recent losses. This puts the DAX in an interesting spot. The breakout from the high-level base failed, and if it doesn’t turn the downward momentum around quickly, more is likely to come. A break below 11500 would put 11408/25 into play, and below there the top-side trend-line running back to April, currently clocking in just above 11300.

The decline could turn out to be a short-lived pullback, but the market needs to turn, and do-so quickly. Today's gap higher may be a start, but too soon to tell. The decline from near 11900 was fairly violent, and suggests more downward momentum could be on its way. If 11500 can hold up, then the DAX could find itself setting up for higher prices; a scenario in which we’ll need to see constructive price action before becoming confident about.

DAX: Daily

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The market has been very choppy since the middle of December; this makes for tough trading and calls on us to be disciplined in picking entries isolated to pullbacks. So, while the market looks poised to pick up some more points for the longs, buying the breakout isn’t the most appealing approach. This is especially true given that there lies resistance not far beyond the prior highs. The Feb and Nov trend-lines converged to form resistance during late January. While the confluence by convergence is past, we will still give respect to these top-side lines on approach. The first is the Feb trend-line, lying ahead around the 2310 mark. It’ll take an aggressive move higher to catch the more sharply angled Nov trend-line.

The market may chop around or decline towards support again, but barring a sharp sell-off below these levels an opportunity may exist for buyers to step in at attractive levels. The area including the old highs around 2277, the 12/30 trend-line, and swing low at 2267 offers a zone of solid support. There are other levels below this zone which come into play that the market would also need to clear for the currently bullish tilt to turn bearish. The numerous levels on the down-side in close proximity to one another will continue to keep the market well-supported for now.

S&P 500: Daily

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The relentless rise in the U.S. continued on Friday with new record closes in the major indices; the S&P 500 has tacked on about 13% since it bottomed ahead of the U.S. presidential election in November. As we said last week, the market appears to be in a ‘blow-off’ stage. When and where it stops is difficult to predict, but risk is clearly rising for fresh long positions, however; shorting isn’t an appealing proposition in the least bit.

The S&P is currently between two trend-lines rising up from the low in November and one extending back to the Feb low last year. The latter is viewed as support on any minor dip from here, while the steeply rising November trend-line is viewed as potential resistance with further strength. We will continue to run with the trend, but are on alert for a sign of exhaustion and potential reversal.

Tomorrow, at 19:00 GMT the FOMC minutes from the Jan 31/Feb 1 will be released – a potential source of volatility, but not expected to rock the boat too much. Outside of the minutes the calendar is lacking in terms of scheduled high impact events this week. See the economic calendar for events on the docket.

S&P 500: Daily

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Gold prices have gotten crushed; moving from a swing-high above $1,250 just a week ago to below $1,210 as of this writing to tally a total move of -3.3% in a single week. To be sure, there is prime motivation for such a theme which is likely why we’ve seen such little respect of support as Gold prices have been on the way down. With a key Fed meeting next week in which the world may get just the 3rd rate hike from the bank in the past 10 years, the table is set for a continuation of USD-strength and few traders have wanted to stand in the way of the move-lower in Gold prices.

So there is legitimate continuation potential here for further bearish momentum. For traders looking to gain such exposure, resistance at the $1,215.17 area could be extremely attractive for such a scenario. This is the 38.2% Fibonacci retracement of the 2013-2015 major move in Gold prices, but perhaps more importantly this level has come as pertinent to price action over the past few months.

Support could be a challenge here given that prices have been dropping like they’re attached to an anvil. $1,200.51 is a big level as the 38.2% retracement of the ‘big picture’ move in Gold prices, taking the Bretton Woods fix of $35/oz up to the 2011 high at $1,920. This had also offered some support to price action’s bullish move last year; but given that this is just $10 away from current price, it could be difficult to imagine all of this bearish momentum coming to a standstill as soon as $1,200 comes into-play. But below $1,200 are a series of interesting levels that traders can investigate for those next potential iterations of support. Please note that these levels have been ‘widened-out’ to account for next week’s abundance of drivers, which can keep price action in Gold volatile in the near-term.

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What we will be watching – support, of course. As long as the intersection between the November & ‘cross-through’ trend-line from the February 2016 low keep a bid in the market, then it will be tough to be anything but neutral to bullish. But a slice through those lines and a drop below Thursday’s low and horizontal support at ~2353 will warrant a switch in bias as another leg lower off the early-month high kicks off.

Heads up: FOMC tomorrow may provide a jolt of volatility. The market is expecting a 25-bps rate increase, so ruling out a 0 or 50-bps move volatility will likely stem from the Fed’s language (as is typically the case). No predictions on this end, we’ll simply react to the reaction and go from there…

S&P 500: Daily

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EUR/USD

“Recall that a key reversal occurred in January. There is divergence with RSI (monthly and weekly) and the decline from 2008 channels. The described conditions suggest a major bottoming scenario but if a new low is made then pay attention to 1.0200 (channel line).” Not much of anything has changed for EUR/USD on the long term charts. The downward sloping parallel near 1.1150 remains resistance as well as the trigger line for a major advance. A bearish outside week formed this week but a quarterly key reversal also formed in Q1 (new low and close above prior close).

GBP/USD

Previously; ‘the bullish outside week (2 weeks ago) argues for the bullish outcome. The bottoming pattern would trigger above 1.2700.” With Q1 in the books, we’re looking at a GBP/USD quarterly chart today. For the 3rd time in history, a string of 6 consecutive down quarters has ended. The prior to instances were major lows but also resolved with clean quarterly reversal candles. Q1 just carved an inside bar. Regardless, add this to the list of reasons to think that the table is set for Cable.

AUD/USD

AUD/USD has got to do something soon, right? Trending moves have developed from this region over the last few decades. The 1997 breakdown and 2006 breakout took place after consolidations that resolved near the current market price. The trending moves also commenced following reactions at the 12 month average, which was just support in March. Previously; “AUD/USD is back above .7700, which has been the ceiling for close to a year (since the April high…the 52 week closing high is .7719). I was looking for the dip to extend to the October and December 2015 highs at .7385 but FOMC lifted Aussie back to range highs. A deeper setback is still possible but don’t be stubborn on a breakout because upside potential is significant as per the weekly shift in momentum (RSI) (described in previous articles).”

NZD/USD

I’m still not sure what to think with NZD/USD. Is the rally from August 2015 countertrend or a new trend? The 2016 and YTD highs are at major resistance from the 2011 low and a double top target is still unmet at .5899. A break under the 2015-2016 trendline would suggest a good deal more downside. Until then, keep an open mind. The quarterly chart highlights the importance of the long term median line as a point of reference. Basically, above is bullish and below is bearish. Kiwi has traded around the line for the last 4 quarters which has engendered a great deal of indecision with respect to direction. There are times to make a market call. This isn’t one of them.

USD/JPY

A major USD/JPY level could be met in April. The 52 week average (support and resistance for years) is near 108.30 and the 50% retracement of the decline is at 108.81 (the 1991 high was a 50% retracement of the 1990 decline by the way). The decline from the January high would consist of 2 equal legs at 108.49. This zone (108.30/81) intersects with the developing channel from the January high in mid-April. The channel is important because if the decline from January is corrective then price shouldn’t trade below the lower channel boundary for any extended length of time.

USD/CAD

The USD/CAD rally from May 2016 is corrective so the bias is for impulsive weakness but the proximity of a long term parallel to the December high increases risk of a bull trap on a push through the horizontal level (failed breakout). However, the March high is a few ticks below the 52 week closing high so it’s possible that USD/CAD is ready for its next leg lower. Weekly RSI has been failing near 40 since late 2016 which is bearish behavior.

USD/CHF

An important behavior change took place in Q4 as USD/CHF broke through a parallel that had been resistance for over a decade. However, the lack of follow through in Q1 is reason enough to question whether the breakout will end up as a trap. Viewed in this context, continue to pay attention to the trendline that originates at the September 2011 low. The line has been support on every touch since 2015 (including the US election). A break below would be significant. The line is just below .9800.

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U.S. Non-Farm Payrolls report on Friday showed a gain of only 98K but the underlying metrics were strong with the headline unemployment rate falling to 4.5%, its lowest reading since mid-2007. The under-employment rate (U6) also saw an outsized downtick to the tune of 8.9% from 9.2%. Gold spiked on the release only to reverse sharply early in the US session.

Heading into next week, the trade remains vulnerable sub-1258 with interim support eyed at 1241- Note that a longer-term median-line rests just lower and a break below this level would suggest a more meaningful correction is underway with such a scenario targeting February 27th weekly reversal close at 1234 & the Janay highs at 1220. Critical resistance remains up at 1278/79, where the 100% etc. & the 61.8% retracement converges on long-term slope resistance.

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The CAC 40 is now retracing its early morning gains after initially trading to a fresh 2017 high to start today’s session. As the market stands now, the CAC 40 is trading down -0.44% for Monday’s trading. Top Winners for the CAC 40 include Nokia (+0.85%) and Solvay (+0.57%). Top Losers for the Index includes Airbus (-1.59%) and Societe Generale (-1.58%).

Technically the CAC 40 has just put in a new high at 5,152.00 in an ongoing uptrend. As prices back down from this point, the Index remains supported above its 10 day EMA (exponential moving average) found at 5,104.19. If prices remain supported near present levels, traders may look for the CAC 40 to rebound later in the week towards new yearly highs. However if the CAC 40 continues to turn lower, a bearish breakout may next expose the standing April monthly low at 5,054.80.

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Can the DAX trade to new record highs in Q2? Check out the equity markets forecast for details.
Welcome back Europe. After an extended four-day weekend, the DAX opened in positive territory this morning but quickly sold off over 100 points in the first hour of trading.

In the weekly equity index forecast we discussed the December trend-line and lower parallel running up from February as potentially important inflection points. The DAX could close today below both lines of support as well has below the 4/11 low at 12050, which came on a day when gyrations at support suggested perhaps the decline from near record highs was over. In our book, the volatile exchange of buying and selling that day makes it a more important swing-low than usual. On a breakdown below all levels of nearby support we look for a fill of the 3/28 gap down at 11996, then the March low at 11850, with 11722 to come into play on an extended short-term move.

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