Trend analysis week beginning December 29th

Dec 30 • Is The Trend Still Your Friend • 3023 Views • Comments Off on Trend analysis week beginning December 29th

Europe begins our week of high impact news events on Monday with Markit Economics publishing its latest retail PMI for the 17 nation shared currency area. The prediction is for a print of circa 48, similar to the previous month. Attention then turns to the UK with the publication of the latest monthly housing equity withdrawal data. Although a lower impact news event equity withdrawal may indicate UK house owners’ appetite for more personal borrowing. In the previous month the withdrawal figure was -15.4bn, analysts are expecting a figure of circa -7bn, indicating an increased appetite for secured debt since the UK government began its Help 2 Buy scheme, enabling home buyers with small deposits to access govt. support to obtain a mortgage.

Pending home sales in the USA are expected to rise by 1.1% from the minus 0.6% the previous month. Japan enjoys a bank holiday on Monday therefore there’s little in the way of data concerning their economy published, whilst Australia publishes details on private sector credit, expected to come in up 0.4% month on month.

Tuesday witnesses a bank holiday in Germany, however, there’s a raft of data published in the USA that’s of interest. Firstly, the leading house price index is published courtesy of Case Shiller, the print is expected to show USA home prices rising by 13.4% year on year. The Chicago PMI is published, excepted in at 61.3, down from the previous month’s figure of 63. The Conference Board in the USA publishes its latest data and a reading of 76.5 is expected, significantly above the 70.4 previously. Later in the evening China’s manufacturing PMI is published courtesy of Markit Economics, the anticipation is for a published figure of 51.3, a slight fall from the 51.4 previously.

Wednesday late evening/Thursday early morning witnesses the final Chinese manufacturing print published courtesy of HSBC in conjunction with Markit Economics. The expectation is for a figure of 50.5, identical to the previous month.

Thursday sees the publication of Spain’s, Italy’s and Europe’s final manufacturing PMI courtesy of Markit. With Europe’s expected to come in at 52.7, identical to the previous month’s. Spain is expected in up at 49.9, with Italy’s up to 51.8. The UK’s is expected to come in at 58.3, just below the previous months.

Later on Thursday the weekly unemployment claims in the USA are published, the expectation is for a print of 334K, just short of the previous four weeks’ average of circa 350K. The final manufacturing PMI for the USA is expected in at 54.4. The ISM PMI is also published, expected in at 56.8. Construction spending in the USA is expected to rise by 0.7%, whilst the ISM manufacturing prices are expected to print at 53. Later that evening the Chinese publish their data for the non-manufacturing PMI, expected to be similar to the previous month of 56.

Friday sees the publication of Spanish unemployment data, the expectation is for a small fall similar the previous month when a small fall in the unemployment number was registered. Private loans data for Europe is published on Friday, a figure of -1.9% month on month is anticipated. The construction PMI for the UK is published; the anticipation is for a print of circa 62.3, a marginal fall from the 62.6 the previous month. Net lending to individuals in the UK should have risen by circa £2 bn according to the analysts questioned, whilst mortgage approvals are expected in at 70K for the month of December.

In the USA gas and oil storage data is published in the afternoon session, whilst new vehicles details are published with the expectation that 16 million new vehicles have been sold.

Technical analysis of certain major currency pairs, indices and commodities

Attention now turns to technical analysis on certain major pairs, indices and commodities. The most commonly used indicators are applied to a daily chart. Other than the stochastic lines (adjusted to 10,10,5) all indicators are left on their standard settings. PSAR, DMI, MACD, ADX, Bollinger bands, RSI and stochastics are used in this analysis. Reference is made to key levels, particularly looming round numbers and critical ‘psyche’ levels. Price action is observed using Heikin Ashi candles. Reference is also made to the most commonly used simple moving averages; 20,50,100,200.

EUR/USD experienced a tremendous spike to the upside on Friday as did several of the major pairs and commodity pairs. Having been developing what appeared to be a downtrend sentiment was dramatically reversed in EUR/USD with price crashing up through R3. Currently all the most commonly used indicators are bullish; PSAR is below price, the DMI is positive as is the MACD. RSI is at 59, ADX at 17, stochastic lines have yet to cross on their adjusted setting. Price is above all the major moving averages. Traders who were short and were caught out on the wrong side of the massive spike will have experienced the perfect example of why stops most always be used when swing/trend trading. Traders would be advised to treat all trading with extreme caution during the extended holiday period given that many institutions will be adjusting their trading ‘books’ during incredibly thin trading conditions. Traders who have taken long positions on the basis of this extreme movement must stay alert with the possibility of an extreme retrace being highly prevalent.

USD/JPY began its upward trend on December 9th, since which time the bullish movement has been considerable. Price is above all the key simple moving averages, PSAR is below price. Price has also breached the upper Bollinger band. The price action displayed by the HA candles are bullish with closed bodies and upward shadows. The DMI and the MACD are positive and making higher highs using the histogram visuals. The ADX is at 40, the RSI is at 72, stochastics have crossed and are in the overbought zone as is the RSI and ADX all three indicators could be suggesting that this security is overbought. Traders would be advised to stay long this security until evidence of a reversal in sentiment is observed. Traders would be advised to lock in profits by way of trailing stops given that several indicators are suggesting this security is overbought. Traders looking to anticipate a reversal in sentiment would be advised to look for the PSAR to appear above price as a minimum reason to stop their long trade and wait for several other indications of a bearish trend before committing to the short side.

AUD/USD began a further break to the downside on December 12th, currently PSAR is above price, price has breached the middle Bollinger band to the downside, the DMI is negative but making higher lows, whilst the MACD is positive and making higher highs using the histogram visual. The stochastic lines have crossed and have exited the oversold zone. RSI is at 32, ADX is at 37. Price is below all the critical simple moving averages. Heikin Ashi price action is suggesting indecisive sentiment which follows a similar correlation to other USD base currency pairs. Traders short this security would be advised to proceed with extreme caution given the violent reaction of EUR/USD on Friday. Traders considering a long swing trade would be best advised to look for several of the most commonly used indicators before making such a commitment.

The DJIA began its run up to record levels as the Fed announced a small taper of $10bn on the monetary easing programme on December 18th. Since which time the indices moved up to threaten taking out the critical 16500 level. The HA price action has been very bullish during the preceding week, all daily candles being bullish with closed bodies and upward shadows. Price is above all the key simple moving averages and breached the upper Bollinger band on Friday. The PSAR is below price. The DMI and MACD are positive and making higher highs when observed through the histogram visual. The stochastic lines crossed early in the preceding week but are still short of the overbought zone. The RSI is at 72 with the ADX at 26 suggesting that the trend is still strong. Traders long this security would be advised to stay so whilst ensuring that a substantial proportion of their gains are locked in by way of trailing stops. Traders looking for a reason to close the trade should as a minimum be looking for PSAR to go above price. Thereafter traders looking for reasons to go short would be best advised to wait for several of the afore-mentioned indicators to turn bearish.

WTI oil began its break to the upside on December 3rd/4th, in the preceding week oil finally breached the critical psyche level of $100 a barrel. Price breached the critical 200 day simple moving average mid-week. Price has breached the upper Bollinger band, whilst the last HA candle of the preceding week was bullish with a closed body and upward shadow. PSAR is below price. The MACD and DMI are positive and making higher highs when observed through the histogram visual. Stochastic lines have crossed, but are just short of the overbought zone, the RSI is at 65 whilst the ADX is at 29. The movement since early December has seen price rise by circa $8 a barrel. Traders who have enjoyed this bullish momentum move must lock in profits by way of trailing stops and remain vigilant given that the critical psyche level of $100 may prove to be an organic resistance level where many buy, sell and take profit limit orders will be clustered.