The volatility levels are on the rise towards the summer months.
The VIX kept steady above the 14-15 handle (support) during the month of June and the SPX failed to create a higher high (see charts below).
Trade Wars, Politics and the end of the QE era are taking their toll on the markets and it shows as Investors uncertainty rises.
You can see it in the equity markets (see more below) and you can also see in the FX and commodities markets (see Dollar and EURUSD analysis below.
Both the Bulls and the Bears can find supporting technical elements in the charts that will support their biases, but a smart trader knows that having a bias… any bias… is a mistake.
The analysis section below, focusing on higher time frame following the close of June’s monthly candles, will provide you with an understanding of where we at right now… and what you should be focused on during the Summer Trading Weeks.
Key Global Economics Events and Data this week
Rate decision in Australia (AUD)
Trade Balance in Australia and Canada
U.S jobs week
Dollar Index (DXY) analysis
Starting with the FX market, let’s take a look at the Dollar Index that, since my latest newsletter analysis, has completed a short term bearish correction move and jumped back up:
Basically, DXY is still inside the same resistance zone (potential sell zone) that it was 3 weeks ago:
The only difference is that since my latest analysis, DXY has formed two weekly patterns that can turn to weekly reversal patterns if the price will continue to slide lower:
- A Weekly Pinbar
- A Weekly Spinning Top (or a Doji)
The daily chart shows us the battle that we have between 94.5 and 95.
On one hand, if you focus on the daily time frame, you can say that DXY continues to make higher lows and higher highs…
But, on the other hand, if consider the higher time frame (the weekly) and see the Bears reaction to the 200 weeks MA line and the bearish harmonic pattern, you can clearly see the risk in trying to trade the Dollar higher… or the potential of trying to trade the Dollar lower.
As a swing trader, I tend to focus more on the weekly chart when I am trying to determine which direction I want to trade.
The R/R we currently have on the bearish side is much more appealing to me, than trying to buy the Dollar. That is why I intend to focus on counter dollar trades in the near term future.
A close below the Fast MA line, on the daily chart, will generate a confirmation signal and allow me to place my trades
Key elements to focus on:
- Fast MA line, daily chart
- 200 Weeks MA line
- Bearish Bat Pattern
In the Dollar Index analysis above I described why I find the counter Dollar trades much more appealing for the near term future.
One of the trading options that I am currently exploring is buying EURUSD:
The weekly chart above shows that EURUSD is currently being supported by:
- A weekly structure zone – The Yearly Resistance Zone has turned to potential support.
- A weekly uptrend line
- The PRZ of a bullish Bat pattern (yellow)
- The 200 weeks MA line is a bit far from where the price is currently at, but it provides additional support from below.
Notice that despite the volatility that we’ve been experiencing in EURUSD for the last couple of weeks, the bullish Bat pattern hasn’t been violated yet – Trading it is still a viable trading scenario:
The strong bullish reaction to the weekly uptrend line provides an additional signal that the Bulls are interested in this price zone.
A close above the Fast MA line can create a higher high and boost EURUSD higher:
Those of you who want to trade the current downtrend, can try to short EURUSD if it will reach the 50 MA line.
By reaching the 50 MA line, EURUSD will complete a bearish harmonic pattern (recognize it?) and can generate a short term bearish opportunity that can be exploited for a quick profit.
The FX analysis section above showed signs of a potential correction wave coming for DXY.
Although nothing is certain, it seems like the odds of a correction wave in the Dollar Index are higher than a continuation of the uptrend (as long as DXY stays below the 200 weeks MA line).
For stocks, things are a bit more complicated.
Let’s take a look at SPX chart:
As mentioned above, SPX failed to generate a new higher high, during the months May-June, when it failed to close above 2800.
The Bears saw that as a sign of weakness and drove SPX’s price back below the Fast MA line, the daily uptrend (green line in the chart above) and, last week, also below its 50 MA line.
These are three short term weakness signs… no doubt about it!
When we take a second look at the daily chart above we see that:
- SPX hasn’t made any lower low or lower high
- SPX is above a structure
- SPX is above the 200 days MA line (strong daily support line)
When we zoom out to the weekly time frame we can see that SPX has another line that supports it:
The weekly Fast MA line still acts as potential support for SPX.
The key Price Zone is 2670-2700.
As long as it will hold as support, we could see SPX pushing back up towards 2800… end even towards 2850-2860 to complete a bearish Butterfly and form a weekly Double Top.
If 2670-2700 will fail to hold as support and SPX’s price will close below the 200 days MA line, not only that it will signal weakness, but it can also trigger a reversal pattern in the monthly chart – A monthly Pinbar Pattern that was formed in June:
Just like SPX, the Nasdaq is also testing a critical support zone today:
NAS100 is testing a structure zone that was resistance during the first half of 2018 and now, following a potential breakout, will be tested as support.
I am talking about the round psychological handle – 7000.
For the safety of things and due to the fact that it is really close to 7000, I suggest to include the weekly Fast MA line as part of the potential weekly support zone.
That means that the price zone that you should mark on your charts towards the summer weeks is 6850-7000.
Similar to what we saw in SPX, also in the NAS100 a close below 6850 can trigger a monthly reversal pattern – A monthly Pinbar Pattern that was formed when NAS100 tried to break a record during the month of June:
As I described in my intro words, both the Bulls and the Bears can find things in the charts that may support their biases.
The Bears can look at the monthly Pinbars and see signs weakness.
A close below 6850 can generate a second monthly false break to 7000 (!!!) – That can be a major warning signal if that will happen.
The Bulls can see re-test of the 7000 handle (NAS100) and 2700 (SPX) as potential Buy the Dip scenarios and look for bullish short-mid term opportunities in stocks.
As long as you are familiar with these Price Zones and you know what each scenario can lead to, you will know what to do when the time is right…
Enjoy the summer and trade safe!