I’m not a big fan of diagonal support/resistances. I like horizontal and clearly defined support/resistance levels on price charts. Especially horizontal support and resistance levels on the weekly and monthly scale charts. However, current price action and the outlook on the U.S. indices is worth mentioning. Most of the major Dow Jones indices are rebounding from trend channel supports.
Trend channel support is more reliable for the Dow Jones Utilities index as the lower boundary of the trend channel was tested several times over the past 5 years.
Dow Jones Transportation index is trying to rebound from trend channel support.
Dow Jones Composite index which is a combination of Industrials, Transportation and Utilities is also finding support at the lower boundary of its trend channel.
European indices are at critical levels. Breakout higher could result in a multi-year uptrend. Failure to clear those strong long-term resistance levels could signal the end of last 5 year’s uptrend. Whatever the outcome, the implications will be long-term.
STOXX EUROPE 50 index cleared the 15 year-long trend resistance in late 2014. EURO STOXX 50 and EURO STOXX 600 are challenging their long-term trend lines. Fresh breakouts on these two indices could add momentum to the uptrend.
Unless gold prices recover above 1,130 levels in the following weeks, probability of a sell-off towards 1,000 levels will increase. In mid-July gold price broke below the support range between 1,130-1,150. Since then the rebound has been weak and price failed to recover even above 1,110 levels. Lower boundaries are considered to be negative extremes and upper boundaries; positive extremes in terms of sentiment. If price is breaking below the lower boundary, that signals extreme weakness for the analyzed instrument. Downtrend remains intact for gold. Strong resistance stands at 1,130 levels.
Weakness in emerging market equities can be seen across the board. From commodity exporting South American countries indices to China’s trading partners in emerging Asia, all show downtrends.
Head and shoulder top is a bearish chart pattern and usually forms after prolonged uptrends. It acts as a reversal chart pattern and successful completion could result in a multi-month downtrend. Malaysia’s KLSE Composite Index formed a 2 year-long head and shoulder top. Support remains at 1,670 levels. Decisive break (on a weekly closing basis) below 1,670 will complete the head and shoulder top and result in a downtrend towards 1,400-1,450 area.
Commodity exporting countries currencies are weak against the U.S. dollar. Especially energy and metal exporters are showing significant weakness. One of those is the Canadian dollar. USD/CAD cross rate is now testing a strong resistance at 1.3040 levels. Breakout above 1.3040 levels can result in a runaway price movement to historical high levels. Though RSI, a momentum indicator, is not confirming the latest rally (more info on negative divergence on RSI). While in the short/medium-term the uptrend looks over extended, long-term traders/investors should keep a close eye on the critical resistance at 1.3040. Breakout above 1.3040 level can complete a massive multi-year base formation with a long-term price target of 1.60.
I wrote several updates on Copper. This one is another update on Copper’s strong downtrend. While it has been a volatile price movement, especially the sharp pull back towards 3 levels, copper respected all the strong technical levels. Following its pull back, industrial metal resumed its downtrend. Now price is breaking below January lows (2.40) and targeting the lower boundary of its trend channel around 2 levels. Outlook for copper is negative for the following weeks.
Vietnam equities are showing strength. Massive multi-year base formation may be close to completion. Vietnam’s VN Index is testing 640 levels for the third time since 2009. Breakout above 640 will be very positive and can push the index towards 1,000-1,100 area.
Another form of base formation can be seen on the VIETNAM Market Vector ETF that trades in NYSE (VNM). The ETF is forming a possible complex head and shoulder bottom with the strong resistance at 19.7 levels. Breakout above 19.70 will confirm the H&S bottom on VNM.
Both charts suggest following months and year can be positive for Vietnam equities.
Emerging market currencies continue to lose ground against the strong U.S. dollar. Already weak South American currencies can enter the second stage of weakness after completing major multi-year base formations.
After completing a rounding bottom between 2009 and 2014, USD/COLOMBIAN PESO, broke above 2,000 levels and rallied towards 2,600-2,700 area. Critical long-term resistance could be the neckline of a decade long double bottom chart pattern. Breakout above this area could result in further weakness in Colombian Peso with a possible price target of 3,500-4,000.
I think it is time to revisit our agricultural commodity charts. Especially the latest bullish development on Wheat prices. Agricultural commodities have been weak. They are more than 50% lower from their 2008 levels. Though, a change in trend is in progress. Wheat prices tested long-term trend line support and prices have rebounded.
FUTURES (SEP 2015) – WEEKLY PRICE CHART
On the daily chart price formed an inverse head and shoulder with the short-term resistance standing at 545 levels. Breakout from this short/medium-term base formation can result in an uptrend towards 640-650 area. Both the short-term and the long-term charts suggest higher prices in the following months. A decisive break above 545 levels will confirm the inverse head & shoulder chart pattern.
FUTURES (SEP 2015) – DAILY PRICE CHART
U.S. dollar remains strong against major cross rates. U.S. dollar strength is a long-term theme and it’s here to stay in the coming months. The most vulnerable group is the emerging market currencies. We have seen significant weakness in emerging market currencies over the past year. Long-term charts suggest further weakness for the emerging market currencies.
From the EM group Indonesian Rupiah is exposed to sharp depreciation. USD/IDR is breaking out of a decade-long horizontal consolidation. Breakout from long-term chart patterns are usually followed by strong trend periods. In the last quarter of 2014, USD/IDR broke above 12,400 levels – strong resistance since 2001. As long as the cross rate remains above 12,400, we will expect higher levels in the coming months.