Trend Analysis For The Week Beginning August 25th 2013
On first inspection the big policy and news events of last week, including the Jackson Hole Symposium that finished on Saturday, did little to alter the overall market direction, despite a slight recovery to the upside taking place during Friday’s sessions. The main market many investors use as a barometer for sentiment, the DJIA, closed down on the week just above the critical 15,000 level. For investors who scale up from the daily timeframe, to look for long term direction from the weekly, the indications and the omens set by the weekly candle, using Heikin Ashi, certainly looked dark; the weekly candle was red and closed with a shadow to the downside. Other weekly indicators were equally ominous; PSAR above price, DMI on an adjusted setting of 20 remained negative, as did the MACD. The middle Bollinger has also been breached to the downside. The stochastic lines, on an adjusted setting of 9,9,3, had crossed, only the RSI ‘held back’ by not crossing the median line of 50.
The main publications ranking as high impact during last week were the PMIs. European PMIs were particularly encouraging adding to investor belief that the recession in Europe may be technically over. Inflation figures for Europe and the USA also printed bullish. However, negative sentiment also stalked the market through the week in the form of several indices that suggested the recovery mode is fragile and in many ways the market recovery is only as strong as the level of asset purchase the Fed stays wedded to. Apologies readers but you knew it was coming, the ‘T’ word – “tapering”, the latest market meme that the mainstream financial press cannot move past…
High impact news and policy events for the coming week
Monday sees durable goods orders from the USA as the key data. Tuesday sees consumer confidence data published from the USA and the German IFO climate figure. On Wednesday the UK’s BoE governor Carney speaks, whilst pending home sales for the USA and Australian private capital expenditure numbers are published.
Thursday sees the preliminary GDP figures for the USA published and the weekly unemployment insurance claims. The FOMC member Bullard speaks therefore once again investors and market makers and movers will be looking for news on “tapering”.
Friday witnesses the publication of Europe’s unemployment rate, scheduled to stay static at 12.1%, whilst Canadian core CPI is published and USA personal spending and
Income figures are printed.
Technical analysis on daily time frames for major currency pairs, indices and commodities.
As is our habit we’ll now move on to analyze the major currency pairs, the leading indices and select certain currencies using the most accepted and preferred indicators favoured by swing traders to determine potential direction for the coming week. We plot the price action using Heikin Ashi candles/bars. We use PSAR, MACD, DMI, Bollinger bands, stochastics and the RSI, together with moving averages such as the 200 SMA.
EUR/USD saw momentum to the upside during the preceding week leaving investors and speculators precariously balanced with the formation of a perfect doji to end Friday’s sessions. However, having come under selling pressure on Thursday, the sentiment was violently reversed on Friday with the majority of indicators returning to bullish sentiment. PSAR remained below price during the week, the DMI on an adjusted setting of 20 made higher highs, the MACD is balanced on the median zero line, RSI is at 60, the stochastic lines have crossed and upturned, price is above the middle Bollinger line, whilst price is significantly above the 200 SMA. Traders who are long would be looking for several of these indicators to become bearish before shorting this major currency pair. A signal to close the long trade would be the PSAR above price, the PSAR should also be used as a daily indicator to adjust trailing stops and lock in the long term profits already captured.
GBP/USD experienced a sell off during the preceding Friday sessions, however, the weekly candle was bullish with a closed body and upward shadow. The bullish trend for cable began on August 2nd. Daily candles for the last days of the preceding week suggested that sentiment for cable may be reversing. The middle Bollinger line has been breached to the downside, whilst the MACD and DMI failed to make higher highs. The price action observed on the Heikin Ashi candles during the preceding three days suggests that this major currency pair may be in a position to break out to the downside, investors may already be focusing on the BoE governor’s speech later this week. Traders who have ridden this long trend trade from its start early August would perhaps look to close should PSAR appear above price and or several other indicators turn bearish.
USD/JPY has remained in a fairly tight range since the bullish trend became evident on August 12th. Currently the MACD is making higher highs, the DMI is positive and making higher highs, RSI is printing at 53, stochastic lines are both upturned and have crossed on a 9,9,3 setting, the middle Bollinger has been crossed, whilst the PSAR is below price. As a minimum, technical traders operating off daily time frames, should look for bearish confirmation by way of indicators such as the PSAR before closing the trend trade and potentially reversing direction.
The DJIA printed six week lows during the preceding week and closed the week precariously above the critical psyche level of 15,000. However, closing on a near perfect doji candle has encouraged much technical trader chatter that this bearish trend may be ending. The MACD is making higher lows as is the DMI when using the histogram option. The RSI has exited what many believe to be the oversold zone of thirty, whilst both stochastic lines, on a smoother, slower setting of 9,9,3, are extremely close to crossing. The DJIA had recovered strongly from its six week low on Thursday therefore many traders will be looking for certain indicators to turn bullish in order to encourage a long trade. Perhaps as a minimum traders would be advised to await the PSAR to appear below price to close and lock in the profits gained since August 5th/6th.
WTI OIL has once again proved to be an incredibly difficult trend trade, particularly given the large stops required in order to swing trade this security. The security has fallen significantly after reaching its recent highs of 108+. Since exploding to the upside in the late weeks of June and the first week of July and reaching yearly highs in the week of July 17th, the security has traded in a relatively tight range. Traders would be looking for the PSAR to appear above price, combined with other key swing trading indicates to turn bearish, before shorting this security.
XAU/USD has continued the bullish trend that began to develop on or around August 8th. Despite indecision appearing on several Heikin Ashi candles in the preceding week last week closed with a bullish candle supported by bullish tendencies on the majority of the most common swing trading indicators. The MACD and DMI made higher highs using the histogram visual, PSAR is below price whilst the upper Bollinger band has been breached during previous days. A note of caution should be noted were gold is concerned given that the RSI is in what’s considered to be approaching the overbought territory, currently printing at 69, whilst both stochastic lines are printing over 80 on a slower setting of 9,9,3 suggesting once again that this momentum trade may be approaching exhaustion. Traders may prefer to close this trade on the apple acne of further bearish indications and monitor their trailing stops carefully to lock in the profits enjoyed since early August.
« Mind The Gap; mid morning European session update before New York opens Mind The Gap; European session update pre New York’s open »
