Weekly Trend Analysis Week Beginning September 1st 2013
Manufacturing and services PMI published courtesy of Markit Economics, the USA ‘Beige Book’ publication, the monthly NFP jobs numbers and the ECB press conference are set to dominate the week’s financial news. Combined with these high impact news events we’ll receive data on German manufacturing and the UK’s BoE Monetary Policy Committee, the MPC, will announce its base rate decision and any potential alteration to the asset purchase facility which has remained static at £375 bn for over twelve months.
The preceding week saw many of the main global indices shed significant percentages. The main reason due to the ongoing escalation of the Syrian crisis and continual speculation regarding the USA Fed’s tapering of its $85 bn per month asset purchase scheme. The DJIA finally breached the crucial psyche/round number of 15,000 to the downside. Whilst oil spiked aggressively as the crisis became more critical. Naturally safe currency havens were invested in, as were precious metals.
As is our custom we’ll analyze the technical indications in order to attempt to predict, with a measure of reliability, the direction of many of the global indices, major currency pairs and certain commodities for the coming trading week. We’ll analyze the trends by plotting price movement on a daily chart using many of the indicators favoured by swing traders, key moving averages (such as the 200 SMA) and price action determined by using Heikin Ashi candles/bars.
The DJIA Index.
The DJIA began its bearish movement to the downside on approx. August 5th/6th. The fall since then has been in the region of 800 points, quite a significant sell off which became accelerated last week once the index breached the key psyche level of 15,000. Looking at the key swing trading indicators PSAR is above price, the DMI on an adjusted setting of 20 is negative and making lower lows, whilst the MACD has also made new lows on Friday of last week. The 200 SMA, currently ‘hovering’ close to the 14,400 level, cannot be ruled out as a medium term target should the sell off, due to Syrian tensions and tapering concerns, continue throughout this week.
There are oversold indications that index traders should be concerned over; the stochastic lines (on an adjusted setting of 9,9,3) have crossed and are currently in the oversold zone, whilst the RSI (on a setting of 14) is also in the oversold 30 zone, both momentum indicators could be suggesting that speculators believe the index is currently oversold. Deriving further sentiment courtesy of the recent price action is difficult given the appearance of a closing doji candle on the Thursday of last week. Traders who have ridden this trend, from early August until now, would be advised to lock in profits by way of trailing stops. Similarly any traders with thoughts of reversing trend and swinging long would be best advised to wait for confirmation by way of many of the afore mentioned swing indicators whilst keeping advised as to the fundamental policy decisions regarding the Middle East and potential tapering of the current monetary easing programme.
WTI OIL
Oil spiked to over $110 per barrel on 28th August, a yearly high, before retreating. Currently priced at circa $107.84 per barrel once again oil is proving to be an incredibly difficult security to trade given the complicated geo political Middle East situation. Despite many of the most commonly used swing indicators being positive the price action determined by the Heikin Ashi candle suggests that the sell off may have more momentum given the closed nature of the candle on the last trading day of the previous week. The PSAR is below price, DMI and MACD are positive and making lower highs, the RSI is close to the median 50 level, whilst the stochastic lines have crossed on the adjusted setting of 9,9,3. The lower Bollinger is close to being penetrated whilst the middle band has been breached. Traders looking for further indications to short WTI oil could perhaps look towards the PSAR to appear above price.
Spot Gold
Gold began its bullish movement on or around August 8th. Despite its safe haven appeal price plotted on a daily chart appears to be displaying signs that this bullish momentum move may be reaching a point of exhaustion. Both stochastic lines and the RSI have exited from what are regarded as overbought areas. The PSAR is currently below price, the MACD and DMI (using the histogram visual) are making lower highs, whilst the recent trading days’ Heikin Ashi candles appear to be exhibiting bearish tendencies – a doji has been followed by a negative candle with a protruding shadow to the downside. Traders looking for impetus to end this long trade and reverse their swing to the short side would perhaps be advised to wait for PSAR to appear above price as a reason to close out this long trade and bank some profit.
Forex
The sell off that EUR/USD experienced last week, as investors sought refuge in safe haven investments, was considerable. Many swing traders will have swung to the short side from August 29th when many of the preferred swing trading indicates registered negative. The MACD printed negative lower lows using the histogram visual, PSAR appeared above price, the RSI fell below the median 50 line, the stochastic lines crossed, as has the DMI on an adjusted setting of 20 in order to filter out noise. The lower Bollinger band has been breached whilst the 200 SMA, currently close to 1.31337 and the daily support level of S2, cannot be ruled out as a medium term target. Traders currently short EUR/USD would be advised to avoid long swing trades until many of the afore-mentioned indicators return to positive readings.
The positive GBP/USD swing long, that began on August 2nd/3rd, finally came to an abrupt end on approx. August 22nd. The majority of negative indications appeared on or around August 27th. Crucially the 200 SMA has been breached to the downside, PSAR is above price, the lower Bollinger band was breached on August 28th, the stochastic lines have crossed, having exited the oversold area, whilst the DMI and MACD are negative and reaching lower lows using the histogram visuals. The RSI is still above the median 50 level. Given the save haven flight to USD and concerns regarding the UK BoE and new governor Mark Carney’s forward guidance advice, cable (as GBP/USD is referred to), may continue its down trend. Traders considering a swing long would be advised to await many of the preferred indicators to register bullish before considering a swing long.
AUS/USD has traded in a narrow range over recent weeks. The current trend is bearish, but there are indicators exhibiting oversold properties such as the RSI and the stochastic lines on an adjusted setting of 9,9,3. Price is currently some distance from the 200 SMA (at circa 100,00) which could discourage many traders from trading the Aussie long even should many of the preferred swing trading indicators turn bullish. Currently the majority of the remaining swing indicators are bearish; PSAR above price, DMI and MACD making lower lows (using the histogram visual) whilst the lower Bollinger band was breached on August 28th. Traders considering a long trade should be mindful of the fundamental issues relating to the Australian economy and the heavily correlated strength of China’s data (to be published this week) given Australasia’s over reliance on China as an export market.
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