Volatility – Let the charts do the talking.
Major Indices are moving lower as Relative strength continues to decline.
Last week many of the indices found daily support within current consolidation patterns, this may set a Bullish tone for this week.
Commodities metals and softs have set strong ranges in the past week as the $USD Index strengthens as the risks around supply disruptions grip the market.
These markets are set for profit taking and traders should be aware of the current underlying volatility can move both ways.
Last week the WTI Oil contract set one of the largest price ranges in recent times with the contract moving to backwardation where the current Futures deliverable price is higher than the forward months of May and June.
An inside week between 6900 and 7200, highly tradeable ranges. The Index continues to build a consolidation zone between these two levels. The failure to trade below the previous weeks low is significantly bullish and sets up a further bullish watch for a close above 7200.
Relative Strength has turned higher, as the reading has moved away from the 50 level, indicating a loss of positive momentum, the next move in the RSI will be telling should it move higher above the 50 level. Further price weakness will see the RSI turn lower. The Relative Strength Indicator reflects price momentum the current weekly closing price still reflects overall slowing momentum.
Comments from last week: A bearish pivot reversal saw the week finish at the lows in the attempted retest of 6900. For many months last year, I argued the Index mat be putting in a broad top, however this current breakdown may show further consolidation between 6900 support and 7200 resistance. The important observation is no new money is entering into the market with the ultimate risk of money leaving the market leading to a further breakdown in price.
The past week has seen hesitant gains, the important observation is last Friday’s retest of the last Monday’s range and late recovery to close high in the range on high volume. This week a close over the Thursday high would set a very bullish tone for further gains with a further close over 7216 setting up a retest of 7370.
The Relative Strength Indicator (14) reflecting the underlying price momentum has moved lower from above the 50-level indicating a shift to slowing momentum. A cross below the key 50 level would indicates a loss of positive momentum.
Trading volumes have been relatively high during the past week leading to Friday’s high volume on the afternoon recovery retracement higher, volume will be monitored for any further increase as a signal of buyers entering the market.
Comments from last week: With the impulsive price movement followed by the “inside day” (Friday) the move lower may have paused but may not be over. A further breakdown lower from the “Inside day” low point will give some direction for a retest of the 6758 level. Resistance levels are now 7216 and will be the level to monitor in the coming days, a further close over this level would be Bullish.
Two weeks ago, the Index was marked with a high close hammer bar that tested (faked out) the lows at “a”, last week the S&P traded “over” but failed to close over the high of the Hammer bar. The bullish retracement in the form of an a, b, c movement is still intact. The “low” will be in place with a close over the hammer bar setting up a retest of 4545. Failure to close over the 4320 level will signal the buyers DO NOT have control with a further test lower is possible.
Price movements are considered positive with a reading above the 50 level, with this continued reading below the 50 level the Index has accrued more loss points on average than gained in the look back period of 14 (weeks). The potential for an accelerated move lower remains as momentum remains to the downside.
Comments from Last week: The S&P 500 displays an important reversal pattern with the price range of last week setting a new low from 5 weeks ago. A completion of an a,b,c movement will be confirmed with a higher low bar in the coming week.
The high close of the low to high part of the range is bullish for further immediate gains, however by Weeks end, a close over last weeks high would is needed to set a further bullish outlook.
Last Thursday’s close below the key 4372 level resulted in a Friday “Gap open Buy” signal and a “hammer” bar, both bullish. This week’s price movements may be the defining opportunity for the S&P to recover back to the daily highs of 4600. Traders would monitor this Index for a close over last Thursday’s high at 4416 to remain bullish. (See RSI notes)
Relative Strength Indicator (14) has turned lower and remains below the key 50 level. A continued lower close below the 50 level would alert traders to further decreasing price momentum. The overall decline in the Relative strength from November 2021 is notable as the failure to achieve a reading above the 70 level during this period only reflects the underlying market sentiment.
Comments from last week: The daily chart of the S&P 500 shows the significant “Gap open buy” signal as the market gaps lower but finds immediate buyers following the recent decline, this traps the short sellers into covering their positions (buying) adding to early buying momentum. The follow through on Friday remains a positive with 73% of equities showing a gain for the day. The pivot point reversal is a significant reversal as price closed over the 4372 level.
The Daily Nasdaq has also displayed a “Gap open Buy” with the resistance level of 14076 close by. The 5 wave down pattern and the significant Gap open Buy signal of two weeks ago remain intact, and offer a bullish view, should selling become exhausted at these levels. A close below last Friday’s low of 13,738 would send a very strong signal the selling will continue.
Relative Strength has turned lower and remains below the key 50 level, continuing the negative price momentum on the 14 day look back period. The overall decline in the Relative strength from the November highs can play out to further declines. This should now be monitored for a move over the 50 level.
Comments from last week: As discussed last week the 13243 level is an important target this was reached during the past week. The “Gap open buy” signal has also followed through to set a pivot point reversal last Friday, also with an important closing level over the 14076 resistance level. Not often found, the Recent price structure has completed a 5 wave down. The third wave the longest, the fourth wave the most convoluted and the fifth wave the sharpest move.
Last week comments suggested a move lower following the OPd rejection of high prices. The current closing price has moved above several key levels to retest the OPd high. Friday’s impulsive movement higher may see profit taking enter the market early this week. A successful retest of the $1916.40 level would be very bullish in the longer term. The key this week for the bullish is to hold the current resistance level of $1966.80 as a new support level.
A bearish divergence signal has failed with the indicator turning higher from below the 70 level a third time. Price momentum has rolled higher, the indicator remaining above the 70 level will be the critical observation this week as a signal of continuing strong price momentum.
Comments from last week: With the strong spike higher an indication of late retail buying followed by profit taking from the earlier long positions. High price rejection is complete with the price moving over the earlier resistance level of $1916.40 and closing back inside this level rejection of higher prices is complete. Last week’s closing level towards the $1876.90 level indicates further selling following the rejection. This is not bull market activity. A closing price below the $1876.90 level would simply target the long term Weekly trendline below $1834.0
The high close follow through from last Tuesday’s impulsive movement is a very bullish signal for further gains. But here is the price sitting at a 7-month high with more resistance ahead at $27.0. Buyers are in control and subject to profit taking along the way, expect a retest of $25.40 this will gauge the bullishness of the move if this level is holds. The Primary trend is now UP. Price failure could be seen on a close below $23.73.
Current Relative Strength is moving above the 70 level and now turning sideways shows price momentum is slowing. A continuing move above the 70 level and higher would be very bullish in the short term.
Comments from last week: The Daily price action displays a strong rejection of prices above the $25.40 level with the final close for the week below the $23.73 level. The Outside period down close (OPd) is a bearish signal and has a very high incidence of marking major turning points in price direction. With the price is currently back testing the down trend line breakout, a further close below this level will be the retest of $23.50. Silver remains within a Primary down trend.
With strength in the $AUD in the past week the $AUD Gold price is now consolidating below $2712.0 resistance. The Primary trend is UP. For this to continue the underlying $USD Gold price would be required to advance and the $AUD remain at these level ($0.73) or lower.
Relative Strength has turned lower from below the 70 level and remains above the key 50 level. With the loss of positive momentum, Relative strength may continue to track sideways during this potential consolidation period.
Comments from last week: Along with the underlying $USD Gold significant rejection of higher prices has taken place. The closing price below the $2712.0 level has set a Bearish pivot point following last Thursday’s shooting star rejection of high prices. The rejection and loss of momentum in the XAUAUD price will play through into the local equities. NCM, SBM, RRL, NXT.
Dr Copper, the barometer of Global manufacturing strength. Copper has set a new all time high in a stealth move above the previous 14 weeks of resistance and the 2012 high. Here lies the rub, the price of copper has remained within a large trading since 2006 between $1.50 and $4.50. Profit taking should be expected in the very short term to retest the $4.50 breakout. Based on the current range the ultimate multiyear target is $11.00.
Current reading has swung sharply higher above the 50-level reflecting the current momentum move underway. The key for now is the RSI remains above the 50 level as a reflection of ongoing and any positive underlying positive price momentum.
Comments from last week: Given the turmoil is commodities during the past week, HG Copper has remained relatively stable, this is a good sign the current market turmoil may not flow onto a solid downturn in economic activity. The $4.50 level now remains the go to level in this weekly price action with the $4.33 level remaining as current support level.
Forward pricing of PUT options remains on a high skew to current pricing.
The market is paying the highest prices since Q4 2020 prices for forward protection.
The outcome is Bearish pressure on local equities.
The XVI is the difference between 3-month forward pricing of ETO Options against current month.
As markets anticipate events, the forward priced option volatility changes, hence as forward price changes, this “skew” in pricing is measured in this XVI.
The XVI value works as an inverse observation to the underlying market.
Comments from last week: Daily volatility remains news driven. The Weekly chart displayed shows the forward price for buying risk cover remains high as the market contemplate the Ukraine situation. Volatility remains elevated placing pressure on equity prices.
The DXY has staged a strong breakout above the significant resistance level of 90.45, however with the closing price lower than the high a retracement could be expected to retest this important level. The underlying Primary trend is UP with a further primary move underway. The DXY currently targets the even 100 level.
The Relative Strength has turned higher in line with price movements and should now be monitored for further strength as the current reading at the key 50 level should move higher, a reading towards the 70 level would indicate very strong positive price momentum.
Comments from last week: Solid rejection of the 95.75 level resulting in Friday’s Inside period down close (IPd) below the lower resistance level of 96.93. The USD Index remain within a well-defined price channel with the current price direction moving towards the lower level of 95.70. The underlying price trend remains UP.
During every major conflict from the Falkland’s war to the current Ukraine crisis Oil has spiked higher on supply risks. However, in all cases when some resolution is on the horizon the price declines rapidly. The WTI shows an impulsive move last week the largest range in recent times. A price move below the $107.73 high could signal a high is in and profit taking is underway.
The current price strength has produced a new high in the RSI, this will again be monitored for a developing divergence signal, although it may take many weeks to develop. The Relative Strength crossing and remaining above the 70 level is not a signal of over brought as the reading can remain strong for many weeks.
Comments from last week: In this report I mentioned many times WTI looking to target US$100bl. The WTI price contract has set a “shooting star” rejection bar following a test of the $100 level. This type of rejection often follows through into lower prices as profits are protected. Further price weakness may see the $84.25 level tested in the coming week. The underlying PRIMARY TREND is UP.
Source - database | Page ID - 21370 - en