U.S Equities have experienced a strong and aggressive recovery during the last two weeks as politicians and Fed members did their best to fuel a Year-End Rally by sending dovish messages about the Fed’s rate policy and creating a positive atmosphere towards Trump – China discussions in the G-20 meeting.
This bullish sentiment burst will probably continue this week following the weekend’s positive news regarding U.S – China trade talks (read more)
The rally that we have witnessed in the last couple of weeks in U.S equities shouldn’t have come as a surprise to you.
Back then, SPX was testing a monthly support zone that was mentioned in my content.
When the breakdown failed – The rally began:
Although the upside potential is currently limited (technically), I don’t think that this rally is over yet.
2018 is now Flat and, in order to bring it back to the green zone, stocks need to push higher.
This week’s focus is on Powell’s testimony and on OPEC’s meeting – Dovish words from Powell and positive news for Oil can ignite this rally and send SPX above 2800.
On the other hand, disappointment from Powell and OPEC can end the rally and send stocks back to the red zone again.
Where is the next potential stop for U.S equities?
Read SPX’s analysis below.
Also in this week’s newsletter – Analysis of the Dollar Index and AUDUSD charts towards the end of the year.
Economic Events In focus this week:
- Rate decision and GDP in Australia
- Powell’s testimony
- Speeches from Draghi (ECB) and Carney (BOE)
- OPEC’s meeting
In the Intro part, I mentioned the monthly Moving Average Line that was the technical reason for SPX rally in the last two weeks.
In addition to the monthly support zone, there was also a harmonic pattern that could have been used to time the long entry:
As you can see, last week SPX broke and closed above a downtrend line – This is a positive sign for stocks…
However, SPX is facing some strong resistance zones from above:
SPX is about to hit the 200 days MA line (and the 50) from below – That’s the nearest resistance zone that SPX will face in the coming trading week.
The weekly chart (the upper picture) shows the weekly resistance zone that SPX will face – A bit wider than the daily range and it includes the psychological round number – 2800.
Assuming that SPX will open higher following the G-20 news, there’s a good chance that we will see SPX above the 200 days MA line right at the beginning of the trading week.
If that will indeed be the case, SPX will probably continue towards the top of the weekly resistance zone to test the 2800 handle.
In such a scenario, the 200 days MA line will turn to support again.
The most bullish scenario that I currently see in the chart is a harmonic one:
If the bullish sentiment will continue and drive SPX higher, above the nearest resistance zones, the Index can complete a bearish harmonic pattern just below 2900.
The daily chart above shows that in addition to Harmonic Trading Pattern and its PRZ (Potential Reversal Zone) we also have structure resistance near the psychological round number 2900.
That’s definitely a Price Zone that you want to mark on your charts if you are looking to try and trade the next bearish wave.
The strength of last week’s rally and the positive news from G-20 lead me to think that we will see SPX climbing above the 200 days MA line and moving forward towards 2800 this week.
However, you shouldn’t be euphoric and you definitely need to pay close attention to the resistance zones that were mentioned above.
We see a strong reaction from Investors and the markets to the developing Trump- Powell rates dispute and to the crash in Oil prices – Both of these issues are in focus this week so we should expect strong moves in the markets and increased volatility.
It can go either way.
I remain slightly bullish for the near-term future, but I intend to reduce my overall market exposure and collect some of the profits that I accumulated during the last two weeks.
The Dollar continues to climb despite the recent dispute between Trump and the Fed regarding the pace of their rate hikes:
The chart above shows how quickly sellers rushed to sell the Dollar when Powell sounded a bit more dovish than usual this week.
The Elite Zone members received a bearish setup from me, last Monday, with a harmonic pattern that worked out perfectly for us:
But, the Dollar returned back to climbing following the Fed’s Minutes that showed that December’s Hike is still on track.
DXY’s bounced from the Fast MA line (yellow line in the daily chart above) and climbed back up above 97:
If the pressure that Powell will probably face from politicians in the Congress will lead him to sound more dovish towards 2019, chances are that we will see DXY crashing down towards the bottom of the trading channel.
The nearest potential Sell Zone is near 97.4 – The PRZ of another harmonic trading pattern – A bearish Bat pattern.
If DXY will ignore that resistance zone and continue to climb, it will probably continue towards the top of the trading channel and towards the PRZ of the daily Butterfly pattern (see the daily picture of DXY above) – near 98
Besides the U.S Dollar, another currency that will be in focus this week is the AUD.
With a rate decision, GDP number and a meeting about Oil in this week’s calendar, AUD is expected to be highly volatile.
Here’s how AUDUSD chart looks before the beginning of the trading week:
Notice that despite USD’s strength last Friday, AUDUSD continued to climb.
The Aussie is now testing a weekly structure zone and the neckline of a potential Inverted Head & Shoulders pattern.
The Weekly Chart shows that AUDUSD rally started when the currency found support after touching the weekly Fast MA line (Yellow)
If AUDUSD will manage to overcome the sellers that wait between 0.735 and 0.74, it will trigger the bullish H&S pattern and will probably climb towards the next weekly resistance zone – 0.75.
Otherwise, we can see AUDUSD sliding back down to 0.715-0.72 to re-test support.
We are 3 weeks before the end of this year:
- We have Powell and OPEC this week.
- Next week we have the ECB meeting
- On the week before Christmas, we have the last Fed meeting (FOMC) for the year and a rate decision in the UK.
And That’s not it….
Add Brexit deal, Russia –Ukraine heating up, U.S-China Trade Talks and Elections in Japan and you get a recipe for Volatile Markets.
Here are 3 Tips that will help you to make it through these volatile weeks:
- Focus on higher time frames and reliable technical zones
Volatile markets generate false breakouts – If you’ll focus on reliable zones in higher time frames and work with a wide stop loss (adjust position size accordingly), you can nail some highly profitable trades.
- Make your trading plans ahead of the news but time your entries around the news
Prepare your trading plan in advance. Know all the potential scenarios towards a major news event (like Powell’s testimony or FOMC for example).
Once you know your plan, try to time your entries around the news (during or slightly after) – See the markets’ reaction and act according to your plan.
- Focus on Risk, not on Profit
It is the end of the year. Whether it was a good year for you, or a bad one, try not to make it worse. Focus on managing and controlling the risks and not on how to gain the most profit.
Want to trade with me next year?
Send me an email to firstname.lastname@example.org and I will add you to our Telegram Trading Group for just 20$ per month.