A seasonal recovery in the Indices? Or a bear market rally? Either way, the current markets offer some very good technical setups for the active trader.
The S&P 500 and Nasdaq are both building a technical support base with increasing price momentum looking to fill the higher price gaps left open from the earlier declines.
Runaway momentum in the USD Index has been met with late selling on Friday, consolidation would favour equities in the short term.
Gold and Silver made new lows within the long-established down trends; however Silver is setting a reversal pattern, gold will be the trade this week as the potential for a catch-up move.
The WTI Oil contract remains above the key USD $94bl support level with higher prices and a high potential outcome, see chart below.
The underlying primary trend remains down. The current price structure continues as a Bearish secondary consolidation. A further close above the 6640 would set the stage for an important retest of 6930. As the Index is heavily weighted with the Financial sector and large commodities stocks a rally in the XJO top twenty is required.
Relative Strength has closed above the 30 levels. Overall price momentum remains negative. Relative Strength should now be monitored for a Bullish divergence signal. A divergence signal is only possible should the Index make a new low below the 3 bar reversal level, while the RSI sets a higher low.
Comments from last week: The XJO continues to build some support above the 3 Bar reversal pattern with an important close above the 6640 level. The expectation is for the 6640 level to provide support in the coming week. A close below this level would place the sellers in control with the potential to again retest the “tentative trendline” around the 6500 level.
The Daily chart of the XJO displays a developing “pennant” pattern. This is a continuation pattern against the prevailing downtrend. To negate this view, a close above the June high of 6765 is required to show buyers in control. The high in the range close on Friday may follow through to a higher open today (Monday) however the 6575 resistance level is required to be cleared before this can be called a bullish move.
The Relative Strength Indicator (14) reflecting the underlying price momentum has moved higher from below the 50-level indicating the current changing momentum to positive. A continuing move above the 50 levels would be a very positive indication for further gains in the Underlying Index.
Last Friday’s low volume bar is not an encouraging signal to indicate new buyers are entering the market. Rising trading volumes are required to confirm the upward bias of the Index. Again these are not present in the past 5 trading days. Only strong volumes over 1 bil on a Daily basis would indicate strong new money buying.
Comments from last week: The Daily chart better shows the potential for further upside as the new “higher low” is now in place. In the Daily time frame, the 6765 level is the first resistance level, a close over this level would be a bullish signal for further gains and change the “DAILY” trend to an Uptrend. Traders should consider the larger Weekly time frame for confirmation of new trends, but this shorter Daily time frame is an important bullish development.
The S&P 500 is building support above the 3715 level, the high close in the range last week is a bullish signal for further gains with the potential retest of 4050 an important development. The primary trend remains down. Price failure below the 3715 level would be very bearish in the coming weeks.
Relative Strength has shown a Bullish divergence signal 3 weeks ago, setting the 2nd Pivot point low. The “Buy Line” shown has not been crossed and this indicator of improving positive price momentum should show the reading close over this level to give a solid buy signal on momentum. Overall, this type of divergence signal is a good indicator for further price gains.
Comments from last week: The S&P has set an Inside period up close (IPu) this can be a very bullish signal for further gains. Weekly support remains at 3715 with resistance shown at 4050, a break higher over this 4050 level would set a very bullish tone for the month of July. Although the Primary trend remains down, these Bear Market rallies can offer some great trading opportunities in the short term. The higher expectation is for a close over the 4050 level as sellers seem exhausted at these levels
Last Thursday’s Fake Out (FO) low followed buy the Gap run on Friday sets up the Index for further short-term gains. The resistance level of 3940 remains the level to close over in the coming days. Further resistance at this level would set a very Bearish signal in the short term, at best a developing range below this important level and above 3700 would begin to show a base building.
The Daily Relative Strength bullish divergence signal followed by a sharp up turn shows improving price momentum to the upside. Although still remaining below the key 50 levels (just), a further cross-over of the 50 levels would be a strong momentum buying signal.
Comments from last week: The Daily chart shows price action remaining below the short downtrend line and well below the 200-day moving average. The current price pattern (Cup and Handle) is a good setup for further gains, should the Index move over the 3940 level. A breakout above the 3940 level would set a new Daily UP trend in place but should be regarded as short-term until the Weekly trend changes.
The higher low set Wednesday / Thursday last week is the 3rd low in this pattern and deems the pattern complete. The higher low compared with the S&P 500 Fake Out low confirms the short-term bullish view of this index. The ascending pattern is now complete a price break above the 12175 level would signal a strong bullish move underway. As the Nasdaq remains within a primary (Weekly) downtrend, the current daily pattern may show a base building for an extended rally.
The minor divergence signal discussed last week has played out with the indicator moving over the important 50 levels. With a continuing move over the 50 levels, the price movement will remain positive and have the potential to develop into a new UP trend.
Comments from last week: History shows the Nasdaq has never had a negative close in the month of July (except in 2007). The Nasdaq has set a similar bullish pattern with the recent HL and OPu backstopping the move higher to test the 12175 level. A close over this important level would give a very strong short-term bullish signal for a further retest of the 13542 resistance level in the coming weeks.
The downtrend continues with resistance now established at $1720 following the decisive price movement below this level last Thursday. Last Friday’s inside range (IPd) indicates a slowing of directional momentum setting up interim support at $1700. A further breakdown below the $1700 level would show the sellers in control.
Price momentum is working lower and below the 30 levels, the Relative strength indicator again turning lower is a reflection of the overall decline in price. The small UP turn shows the momentum decline losing strength. Price consolidation would naturally see the RSI drift back to around the 50 levels. A strong movement, either way, will show the next directional move.
Comments from last week: The move lower in Gold surprised many but remains within the confines of the current DOWN TREND. Last week’s comments were proven wrong with a further breakdown. The daily time frame shown offers NO bullish development, with the potential for the price to test lower to $1719.0 support.
The high close last Friday indicates a potential “short cover” underway, a close over the high of the day would indicate further buying and confirm $18.40 as key support. Silver remains in a Primary Downtrend without indication of a reversal base.
Current Relative Strength is moving lower and remains below the 30-level, RSI turning lower reflects the underlying momentum. A continuing move below the 30 levels and lower would be very bearish in the short term, and the potential for a further move higher remains only should price close above the $20.44 level.
Comments from last week: $18.40 is shown as the next support level in the current Primary decline in the price of Silver. Last week saw the “backtest” of the July 2020 breakpoint ($19.60), the current price structure remains Bearish with further declines expected to test the $18.40 level. A close over the resistance level of $19.60 would be an early bullish signal.
The current decline in $USD Gold has been reflected in the $AUD Gold price moving below key support of $2537. Within this large consolidation, the $AUD Gold price has entered into a Daily downtrend with the next support level shown at $2477. This will again place selling pressure on local Gold producers listed on the ASX.
Relative Strength has turned sideways below the 50 levels and moving towards the key 30 levels indicating a decrease in upward momentum. Relative Strength may continue to track lower as the price has the potential to retest the $2277.0 support level.
Comments from last week: Comments last week highlighted the consolidation phase underway, the breakdown this week to again test the 2537 level was done with a strong breakdown move, and the current short-range movement last Thursday and Friday suggests support is being found at this level. A move higher in the $AUD would be a bearish outcome with the potential for the price to move lower to the next support level of 2477.0. Overall this price structure has remained within $2712 resistance and 2477 support for over 12 months, placing pricing pressure on local GOLD producers.
This chart is the most concerning when it comes to how this bear market will play out. Copper is undergoing a concerted sell with no respect for support levels as the price moves lower. The high of last week retesting the $3.47 level as resistance. Last week set a “gap open buy” signal, a close over $3.47 is required to confirm this signal. The next key level of support is the $2.98 – $3.0 level, this would set a 2-year low and retest the initial breakout level.
The current reading has swung from below the 50-level to move lower to below the 30-level. The key now is for the RSI to swing back above the 30 levels as a reflection of ongoing and any positive underlying positive price momentum at this important support level.
Comments from last week: As discussed last week the current move in Copper below the $3.80 level is a significant development in the overall pricing structure and the retest of the lower $3.50 level took place. Last week’s close above the $3.47 – $3.50 level is a good signal of initial support, a close above the $3.80 level would give technical traders a base from which to be long Copper at these levels.
The small increase in volatility has been reflected in the late decline in Australian equities. For continued support of equities, the XVI should move below the “13” level.
Last week the 3 months forward PUT option insurance decreased, suggesting a more risky approach. While the reading remains above the key “13” level as a bearish indicator further declines in equities could be expected.
The cost of 3month forward PUT options is decreasing from recent elevated levels.
The XVI is the difference between the 3-month forward pricing of ETO Options against the current month.
As markets anticipate events, the forward-priced option volatility changes, hence as forwarding 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: The XVI value is expected to rise this week as forward protective risk is again priced in.
The DXY has set a key reversal pattern with the Pivot point now in place. This week a retest and hold of the 107.4 level would indicate the underlying strength of the $USD. The major support level of $105.80 remains to be tested should a close below the 107.40 level occur. The $USD Index remains within a major Primary UP trend.
The Relative Strength has turned lower in line with price movements and should now be monitored for further momentum weakness as the current reading above the key 70 levels will move lower to sideways as price declines, only a continued reading above the 70 levels would indicate continuing strong price momentum.
Comments from last week: Last week saw the Index trade strongly higher with a decisive breakout above the 105.80 level. With the “shooting star” in place as a reversal signal look for a retest of the 105.80 level to hold for the structure to remain Bullish.
The WTI contract continues to develop a trading range with $94.0 as support and $116.0 as resistance. Last week’s range shows a FO (fake out) has closed above the April 2022 lows and sets a bullish view in the week ahead. The longer-term price target of $130.0 remains in place. The underlying primary trend remains UP. A close below the important $94.0 level would negate this bullish view with the potential retest of $84.25.
Relative Strength has developed a divergence signal as price makes a new high without the Relative Strength making a new momentum high. The sell signal has developed now that the RSI line has crossed down below the internal low (red) line currently in play. During price consolidation periods the RSI naturally drifts towards the 50 levels as price finds balance.
Comments from last week: Last week the WTI tested towards the $94.0 level and found immediate buying to lift the final closing price above the important $100 level. The current price structure is consolidation above the $94.0 support level. The underlying primary trend remains UP with the expectation of higher prices. Earlier commentary suggested a blow-off high to $130.0bl, this remains the base case within this Primary UP trend.
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