Trend Trade Analysis For The Week Beginning September 8th
Whilst the diplomatic crisis in Syria continued to dominate the fundamental discussion in the mainstream media during the preceding week, many of the most active markets continued their recent unbroken momentum trends.
There were several high impact economic publications that supported the general feel good factor, suggesting that global economies are improving. From building approvals in Australia rising, to the manufacturing PMI number in the UK printing recent highs, there was plenty of reason for investors to feel optimistic regarding future direction. There was, however, one major high impact news event that caused concern in the investment community; the very poor NFP number printed on Friday…
Despite unemployment in the USA lowering by 0.1%, from 7.4% to 7.3%, the job creation numbers were dire and made even worse by the adjustment of the previous month’s data. August saw the creation of only 163K jobs, whilst the previous month’s figure was scaled back to 104K. Perhaps it was fatigue setting in, but the investment community appeared to ‘shrug off’ this poor print, with the DJIA finishing down marginally (by 0.10%) on the day. But it’s when you begin to analyze the jobs created in more detail that the real worries begin…
The vast majority of jobs being created are part time; waiting on tables and such like. What’s worse is that for the months’ of July and August seasonal adjustments usually cause a summer spike in jobs. Typically analysts will warn investors not to read too much into the spike in job numbers at this time of year, warning that it’s; “seasonal summer, temporary jobs bolstering the market”. But this year that hasn’t materialized. Instead analysts are now left scratching their collective heads wondering how bad the jobs’ prints will be in the final quarter of 2013.
Fundamental policy decisions and high impact news events for the coming week
Sunday evening will see the publication of China’s inflation figures with CPI expected to print at 2.6%. Building permits in Canada are predicted to rise in Monday’s publication to 4.4% from the previous month’s fall of over 10%. Japan will also publish its recent monetary policy meeting minutes.
Tuesday sees the USA NFIB small business index, which although not a high impact news event, does illustrate the overall sentiment within the small business community in the USA. JOLTS job openings could also illustrate just how well underpinned the USA recovery actually is. A Japan business index is also published, as is the Japanese current inflation figure.
Wednesday’s high impact news events includes the UK’s unemployment claimant count were the expectation is for a fall of 21,000 and the unemployment rate remaining static at 7.8%. In the evening there’s a raft of high impact news events concerning New Zealand, most notably the base rate decision and the accompanying monetary policy decision narrative. The base rate in NZ is expected to remain at 2.5%. Australia’s unemployment rate and claimant count will also be published, the rate predicted to increase to 5.8% from 5.7% the previous month.
Thursday sees the USA unemployment claims numbers expected to rise to 332K, but still in that permanent ranging band of between 320K and 350K. The UK conducts its inflation hearings.
Friday is dominated by USA inflation figures and retail figures. Retail sales for the month are anticipated to rise by 0.5% whilst inflation is set to remain at 0.2%.
Weekly trend analysis for the week beginning September 8th
We’ll analyse several of the major currency pairs, indices and commodities in order to attempt to determine the future trends these main markets will make during the coming week. We’ll defer to technical analysis using the most popular trend trading indicators; (PSAR, MACD, DMI, Bollinger bands, stochastic lines and the RSI). We’ll combine these indicators with the price action currently developing using Heikin Ashi bars, patterns and key ‘psyche’ levels such as critical round numbers and moving averages. All analysis will be conducted on the daily chart with the occasional deference to the higher time frame of the weekly.
The DJIA broke its fall to the downside on 29th/30th August. Since which time the index has traded in a narrow range and without a defined/confirmed direction. Having broken the critical psyche 15,000 level to the downside the index has struggled to confirm a breakout above this level. The majority of indicators are inconclusive as a cluster. PSAR is above price and therefore negative, the DMI is negative and printing lower lows on the histogram visual. Both stochastic lines, on an adjusted setting of 9,9,3, have crossed and exited the oversold zone. The MACD is positive, whilst the RSI is above the median 50 line. Price has breached the middle Bollinger line to the downside. The 200 SMA at 14519 is a significant distance from current price. There is little to be discovered from the current price action as displayed by the Heikin Ashi bars given the closed doji on Friday’s session indicating indecision. Traders looking for direction on this index, given the fundamental backdrop of the Syrian conflict and rumours of the USA Fed tapering monetary stimulus, would be advised to wait for confirmation of all indicators before committing to a preferred direction.
EUR/USD has continually broken to the downside since August 28th. All the most commonly used indicators are negative. The PSAR is above price, the DMI and MACD are making lower lows, the RSI is below the median 50 line, whilst stochastics have crossed, but are short of the oversold area on a 9,9,3 setting. The middle Bollinger band was breached midweek. The 200 SMA has been breached to the downside. The price action illustrated using Heikin Ashi bars suggest that the euro has further to fall. Traders short this security since late August would be advised to remain in this trade, but use a trailing stop to ‘lock in’ profits. For reasons to close the trade traders could look for; the PSAR to appear below price, or for the stochastic lines to reach the oversold territory. In order to trade long traders would be best advised to look for confirmation from many of the commonly used indicators to align. Perhaps as a minimum PSAR, DMI and the MACD to exhibit positive indications.
GBP/USD broke to the upside on September 2nd. 5th September saw many of the preferred swing trading indicators turn positive; PSAR below price, MACD and DMI positive and printing higher highs (using the histogram visual), RSI at 60, with the upper Bollinger band having been breached, whilst the stochastic lines have crossed, but at circa 44 are far short of the overbought zone. Traders long would be advised to monitor the security carefully perhaps moving their stops according to the PSAR daily reading.
AUD/USD had traded in a narrow range for in excess of a month before tentatively braking out to the upside on September 3rd. PSAR is below price, RSI at 57, the DMI and MACD are positive and printing higher highs on the histogram, the upper Bollinger band has been breached to the upside, whilst stochastic lines on their adjusted setting have crossed, but at circa 50 and 36 are yet to reach the overbought territory. The Aussie is still far short of the 200 SMA, therefore many traders will be cautious trading this security as a long trade, particularly given that the price action displayed by the Heikin Ashi bars is inconclusive. Traders looking to short this security would be advised as a minimum to wait for the PSAR to be above price, and the DMI, MACD and RSI to exhibit negative tendencies.
WTI OIL has once again broken to the upside and at over $110 per barrel has threatened to take out the yearly highs. PSAR is above price, both the MACD and DMI using the histogram visual are positive reaching higher highs. The RSI is over 60, still short of the oversold area, whilst the stochastic lines have crossed, but also short of the overbought area of 80. The upper Bollinger band has been breached. Naturally, given the current Middle East tensions, oil is a highly sensitive security to trade. Traders looking to short this security would be advised to look for all the most commonly preferred indicators to turn bearish before committing. As a reason to close any long trade, looking towards momentum indicators and oversold areas, could prove useful and or the PSAR turning negative could prove critical.
Spot Gold began its fall to the downside on or around August 29th, however, not all the preferred swing trading indicators have become negative, suggesting that the break to the downside may have more energy, or that investors are yet to be convinced that gold still represents a safe haven in such uncertain times. PSAR is above price, the DMI is not yet negative, but is printing lower highs, the MACD is negative, stochastics have exited the overbought area, RSI is at 56, whilst the lower Bollinger band has been breached. Price is significantly below the 200 SMA, whilst the price action illustrated by the Heikin Ashi bars suggests that the downside is the current direction. Traders would be advised to monitor the situation carefully given the Middle East tensions. If short by locking in profits by way of trailing stops and if looking to trade long as a minimum the suggestion would be for all the preferred swing trading indicators to become positive.
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