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U.S Equities and the Dollar Index bracing up towards mid-term elections

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Following more than a month of nothing but red, the S&P500 and U.S equities saw some green last week.

SPX rallied from 2600 to 2750 and the VIX fell back below 20:

weekly markets analysis

VIX- Back below 20


In my previous newsletter I mentioned that S&P500 must hold above 2600 in order to have any chance for a Year-End Rally in 2018… the Bulls heard me and that’s exactly what happened.

SPX bounced from the monthly support zone (see below) and climbed back up above 2700.

weekly markets analysis

SPX – Saved by monthly support

It is way too soon to call a Year-End Rally, but now chances that we will have one, are much better.

Near-term focus remains on this week’s Mid-Term Elections.

The atmosphere towards these elections is extremely tense and it seems like the U.S is more divided than it has even been… still, historically, stocks tend to rally following the Mid-Term elections.

Will they? Will election boost stocks again?

The polls are suggesting that the Democrats will win the house.

I am not sure that investors will be thrilled about a situation that the ruling party doesn’t have the majority in the house.

On the other hand, will investors be thrilled if Trump and the Republicans will win?

 

Maybe it is going to be the coming holidays season that will boost stocks?

11.11 is just around the corner – That can boost Chinese stocks that are beaten and oversold.

Later we will have Black Friday and Cyber Monday and increased consumers spending towards Christmas – Strong online Sales and Shopping can boost Amazon, eBay and other retailers that have been suffering tremendously in recent months.

A rally in stocks is definitely a reasonable option following the last week’s price action and the bounce from monthly support.

But…

It won’t be easy!

Just look at where the S&P500 (SPX) stopped last Friday, following the NFP report:

weekly markets analysis

SPX – Rejected by a weekly trend line

weekly markets analysis

SPX – Rejected by the 200 days MA line

SPX was rejected by a Resistance Zone that includes a weekly trend line (now resistance) and the 200 days MA line (or the 50 weeks MA line).

For SPX to continue higher, it must close above 2780 first.

That will be SPX’s test for this trading week.

Although SPX’s next Resistance Zone isn’t that far above (2800-2820), a close back up above the weekly trend line will put S&P500 in a much better position to try and ignite a Year-End Rally.

 

Economic Events In focus this week:

This week’s top economic events:

  • Mid-term elections
  • Rate decisions in Australia, New Zealand, and the U.S
  • GDP in the UK
  • Brexit Talks
  • Earnings Season

 

Dollar Index continues to point higher

The Dollar Index continues to stay in a steady course towards 98.

Despite a small setback, DXY continues to make higher highs and higher lows and last Friday it bounced from support:

weekly markets analysis

DXY – Holds above support

My projection that DXY will hit 98 is based on harmonic trading.

As you can see, we have a potential harmonic trading pattern forming in DXY – The harmonic pattern completion zone is near 98.

The 98 zone is also near the top of the rising channel that DXY’s price is currently trading inside.

The potential routes to get to 98 are shown in the chart below:

weekly markets analysis

DXY – Trading scenarios

 

DXY is currently testing a minor resistance zone – 96.6-96.8.

Key Support Zone – 95.8-96

 

As long as DXY stays above 96 and inside the trading channel I project that it will complete the pattern and hit 98.

 

GBPUSD – Trading the Brexit Waves

GBPUSD exploded last week following news about EU-UK agreements.

I’ve shared with my Elite Zone members several bullish trading scenarios for GBP pairs prior to the GBP’s rally and indeed all of them worked extremely well for us.

For example – Bullish Harmonic Trading Pattern in GBPUSD:

weekly markets analysis

GBPUSD- Successful harmonic pattern

Based on the GBP’s recent rally, it looks like it aims to continue higher.

Right now it is facing a weekly resistance zone:

weekly markets analysis

GBPUSD – Weekly Chart

In order to continue higher, it must climb above and re-conquer the 1.3-1.305 zone.

 

weekly markets analysis

GBPUSD – Trading Scenarios

It won’t be easy.

Especially if DXY will continue to rally as its chart suggests – we saw a decline in GBPUSD last Friday as DXY got a boost from NFP.

As I see it, if you want to go long GBPUSD, you need to wait for it to close above 1.305 first… or use a pullback move to 1.285-1.29 and seek for bullish reversal patterns near this potential support zone.

If you are looking to short GBPUSD, perhaps a short term rally back to 1.3 will give you an opportunity to sell the Cable with a stop loss above 1.305.

 

SLV – Long term opportunity to buy Silver?

It has been a rough year for Silver.

Since January 2018, Silver price declined by almost 20%.

SLV’s price is now back near 2015 lows – Right before it exploded and gained 50% to reach from 13$ to 20$.

Will it happen again?

weekly chart analysis

SLV – Double bottom?

As you can see, the key support zone is 13-13.5$

It includes:

  • Weekly Structure Zone (with 2015 lows)
  • The bottom of a falling wedge pattern
  • The Potential Reversal Zone (PRZ) of a Bullish Butterfly pattern

Last week SLV was rejected by the Fast MA line (yellow) – That means that the sellers are still in charge.

If SLV will manage to close above the Moving Average Line, it will generate a weekly bullish signal and give the go-ahead for the buyers to storm in.

The daily chart shows some bullish progress:

weekly markets analysis

SLV – Daily chart

SLV has generated a small uptrend since September and its price is now above 2 daily MA lines (now should turn to support lines).

It may take some time but technically, as long as SLV stays above 13$, Silver has a chance to repeat 2016’s rally… or at least to reach the top of the falling wedge (near 15%) and gain 5-6% in the process.

 

 

 

 

 

 


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