Swing/trend analysis for week beginning September 30th

Sep 30 • Is The Trend Still Your Friend • 2194 Views • Comments Off on Swing/trend analysis for week beginning September 30th

trend-analysisThe hangover from the Fed’s ‘no taper’ decision appeared to seamlessly gel with the drama concerning the USA debt ceiling during the preceding week. Both issues added to market uncertainty, causing the main USA and European indices to retreat during the week, as investor sentiment remained fragile…

Many of the manufacturing, service and flash PMIs, for Europe the UK and the USA, were published in line with expectations during the week. Europe’s services flash PMI printing ahead of expectations at 52.1 with the German flash PMI likewise at 54.4, the USA flash manufacturing PMI disappointed at 52.8 from expectations of 54.2.

Core durable goods orders fell in the USA by 0.1%, whilst new home sales increased by  421K. Private loans in Europe fell unexpectedly by 2%, whilst the UK balance of payments worsened by £13.0 billion. UK GDP came in at 0.7%, but annually growth was revised down to 1.3% (year on year) whilst business investment fell by 2.7%.

Unemployment weekly claims in the USA fell to 310K for the week, however, there are still questions regarding the accuracy of the data given that California’s and Nevada’s supply of data has been disrupted. Pending home sales in the USA fell by 1.6%.

The ECB president Mario Draghi held court late in the week suggesting that the ECB could reignite the LTRO programme should the fragile recovery in the Eurozone show any signs of faltering. Personal income and personal spending in the USA was in line with expectations, whilst the revised university of Michigan sentiment index came in at 77.5, down from the expectation of 78.2.

 

Upcoming fundamental policy decisions and high impact news events for week beginning September 30th

The ANZ sentiment gauge for New Zealand begins the week of high impact news events, it’s a survey of approx. 1,500 businesses which asks respondents to rate the relative 12-month economic outlook. Canada’s GDP is published on Monday, expected to come in at 0.6%. Late on Monday we’ll receive the Chinese manufacturing PMI predicted to print at 51.6, Australia’s retail sales are expected to print at 0.3%. Early Tuesday the RBA publishes its decision on the base rate expected to remain the same at 2.5%. The accompanying statement from RBA officials will give clues as to their forward guidance regarding rate setting and potential monetary easing.

The unemployment rate for Europe will be published on Tuesday which is expected to remain at 12.1%, whilst the UK manufacturing PMI is expected to come in at 57.5, meanwhile the final manufacturing PMI for the USA is predicted to print at 52.8. Building approvals in Australia and the trade balance for Australia completes the rest of the high impact news events for Tuesday.

Wednesday sees Spanish unemployment numbers printed and the construction PMI for the UK, tagged to the latest UK house prices published courtesy of the UK Halifax bank predicted to rise by 0.6% month on month.

The European base rate decision is revealed on Wednesday with the expectation that the rate will stay at 0.5%, an ECB press conference will explain the rationale behind the rate setting. Later in the afternoon the USA ADP private jobs number is released with expectation that the number will come in at 177K for the month.

A high impact event, sure to pique the curiosity and attention of investors and traders on Wednesday, will be the conference handled by Ben Bernanke, later that evening we receive data from China concerning their non-manufacturing PMI data.

Thursday sees the UK’s all important services data published which is expected to print at 60.4. Retail sales for Europe are published on the same day, as are USA unemployment numbers which are expected to rise to 315K and the ISM non manufacturing print expected to come in at 57.2. Japan’s monetary policy statement will be accompanied by the BOJ statement.

Friday sees the non farm payroll print and the level of USA unemployment expected to print at 7.3%. The ‘NFP print’ is expected at 179K jobs created, still half the required rate to reach pre recession levels of employment and the 6.5% unemployment rate necessary for monetary easing/asset purchasing to stop.

 

Technical swing/trade analysis for major currency pairs, indices and commodities for the coming week

This weekly analysis column now moves on to analyse many major securities using many of the most popular indicators. The use of price action by way of; Heikin Ashi candles, looming round or psyche numbers and typical patterns will also be analysed.

The indicators used for our swing/trend analysis are the; PSAR, RSI, DMI, MACD, Bollinger bands, the ADX and stochastics. All indicators are left on their standard setting with the exception of the stochastic lines which are adjusted to a 9,9,5 reading in an attempt to dial out potential trading ‘noise.’

 

Major currency pairs

EUR/USD continued its rise last week, the momentum witnessed since September 9th has been considerable and relatively unbroken. PSAR is below price, the DMI and MACD are making higher highs using the histogram visual, the RSI is at 65, (short of the over-bought 70 area) the ADX is at 30, suggesting a strong trend is still with us. Stochastic lines are in the overbought territory whilst price is above the middle Bollinger band. Traders who have ridden this move since the 9th September will have hopefully locked in a considerable level of profits by way of a trailing stop, perhaps by utilizing the PSAR reading. If looking for a reason to close (if the move hasn’t hit the target) perhaps PSAR ‘appearing’ above price would be the ideal reason to close.

 

GBP/USD cable has experienced a substantial bullish movement since September 2nd, the movement, similar to that experienced by EUR/USD has been largely unbroken other than the period when investors predicted a Fed ‘taper’, with news of the debt ceiling impasse last week the dollar fell as did the major indices in the USA and Europe. The movement of cable has been circa 700 pips, traders must lock in profits if they’ve stayed with this trend since its beginning, perhaps by way of a trailing stop. In late trading last week the DMI and MACD were making higher highs, the RSI reading was at 70, the ADX at 38, stochastic lines in the overbought territory and the upper Bollinger band close to being breached. Most notably PSAR reversed to above price offering up the ideal opportunity to close the long swing trade. There are many readings being exhibited by this security suggesting that this move may have reached a potential point of exhaustion which is why any traders still long must lock in their profits and take great care that the profits they’ve enjoyed in this extreme bullish move are not evaporated. Many traders would have closed the trade once PSAR appeared above price on the 24th September but avoided a short trade given that many of the other indicators are still bullish. As PSAR has once again reversed to below price traders may once again consider a long trade given that the majority of  indicators are once again bullish.

 

AUD/USD arrested its bullish momentum over the preceding week, the PSAR appearing above price on September 24th causing many swing/trend traders to close their long trades. However, similar to the position of those trading cable, many of the most commonly used indicators have remained bullish preventing a short trade being engaged. PSAR is above price, the DMI is still positive, the MACD is negative, the middle Bollinger has been breached, stochastics have exited from the overbought zone, the RSI is at 53.55, ADX at 25 and Friday’s Heikin Ashi candle was closed with a shadow to the downside. Traders may be encouraged to take a short trade on AUD/ USD given the combination of indicators currently in play, or traders may prefer to wait for the DMI to also become negative. The high impact news event on Tuesday, concerning the Australian rate setting, is also obviously on investors minds’.

 

Indices

The DJIA reversed its visible daily trend on September 19/20th due to the no taper decision and the debt ceiling impasse thereafter, since which time the retracement has been considerable. The majority of the indicators are bearish; PSAR above price, middle Bollinger breached to the downside, MACD and DMI printing lower lows on the histogram visual, RSI, below the median 50 line, ADX reading at 21, stochastic lines having crossed (and are at 66 and 44) having exited the overbought zone. Price has breached the 50 SMA to the downside, whilst all the week’s Heikin Ashi candles were closed with shadows to the downside. Traders committed to the downside would be encouraged to remain bearish given the indicator readings, however, should the debt ceiling impasse be solved then positive sentiment could envelope the market immediately. Traders should be aware that indicators lag, they do not predict, they simply reflect current sentiment in the market. For those short this index traders should monitor the fundamental news over the next week, particularly with the Tuesday October 1st debt ceiling deadline.

 

WTI OIL has fallen sharply since September 9th. Having reached a yearly high of over $110 per barrel the retracement had been severe, price having collapsed to circa 103 during recent trading sessions. PSAR is above price, the lower Bollinger was breached to the downside then rejected during the week. The MACD is negative and printing lower lows on the histogram visual, RSI is at 40, ADX at 13, the stochastic lines are in the oversold area. Traders short oil would be advised to monitor their trading stops carefully particularly if price makes a further break to the 100 level given that this critical level would contain an inordinate volume of buy and sell orders. 

 

Spot gold arrested its slide on September 18th when it become extremely favourable as a safe haven asset. However, having broken to the upside with such momentum the security failed to adopt the pattern of a bullish security. Currently gold is proving to be a difficult trend/swing trade; PSAR is below price, the DMI is negative, as is the MACD, RSI is reading 47, stochastic lines are 33 and 44, whilst price appears to have rejected the 50 SMA to the upside, whilst the ADX is at 19 and the mid Bollinger band has been breached then rejected. The pattern is suggesting a break to the upside, however, traders must exercise great caution given that spot gold has not obeyed the ‘normal’ risk on/risk off safe haven correlation recently.

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