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The Dollar and Stocks open 2019 – New Year Preview

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Wall Street concluded a crazy year last week as major stock indexes posted their worst performance in a decade following one of the most volatile Holidays Season that I remember.

While the FX market was relatively calm during the holidays season (excluding the GBP and JPY maybe), stocks were all over the place.

Just take a look at the before and after Christmas:

weekly markets analysis

VIX during the holidays season

It was a real roller coaster ride as the Bulls and the Bears “used” the holidays low trading volume to send the S&P500 3-4% up and down almost on a daily basis.

Thanks to Trump and Powell, things have calmed towards the end of the year and SPX’s price closed (barely) above the long term uptrend line (see more below).

In this Weekly Markets Analysis edition, I will focus on summarizing the Holidays Season price action and share my thoughts and trading ideas for the near term future – 2019 preview

Economic Events In focus this week:

Rate decision in Canada (rate hike expected)

Powell and Carney speak

FOMC minutes

U.S data – CPI



SPX analysis

As mentioned above, SPX had a roller coaster Year End.

Going back to Christmas week, this is how SPX weekly chart looked like:

weekly markets analysis

SPX on Christmas week

On Christmas Eve SPX price fell below the long term uptrend line (started at 2009!) and kissed the 200 weeks MA line.

Things looked bad for stocks as the Christian world celebrated the birth of Jesus.

But…that kiss to the 200 weeks MA line was enough.

Perhaps it was thanks to its red color (just like Santa) but the 200 MA line played its role as support and the markets had a huge comeback following Christmas with the Nasdaq jumping more than 5%.

I wrote and mentioned the potential false break in my Facebook Page and my Instagram (@themarketzone) Account – That false break scenario was confirmed last week:

weekly markets analysis

SPX weekly chart

weekly markets analysis

SPX monthly chart

weekly markets analysis

SPX daily chart – Harmonic trading pattern

The S&P 500 continued its post-Christmas rally and climbed back above the monthly uptrend line.

Notice that SPX re-tested the trend line last week and bounced from it? (Daily chart above)

That’s probably a short term bullish sign that signals that the Bulls will try to push the Index higher… most likely towards 2600 (first target zone).

Near term future scenarios:

As long as SPX holds above the uptrend line, the direction will be probably be up.

It can be a bullish pullback following November and December’s declines (2600 and 2700 as potential target zones)

It can also be the start of a new bullish wave that will end with a new All Time High – We saw that happens every time that SPX touched the trend line in the past.

I guess it depends on how bullish you are and how Trump and Powell will play with the markets.

Technically, following the weekly bearish signals we’ve seen during the last two months, I think it is better to be cautious and play the pullback scenario than to go All-In stocks assuming that SPX will conquer its previous top.

For those of you who seek bearish opportunities:

  • Wait for SPX to reach one of the target zones mentioned above to try and sell a potential top
  • Wait for SPX to break below 2430-2450 again – That can generate a long term bearish signal and really shake things up for stocks.

DXY Analysis

Powell talks down the 2019 Fed’s rate hike expectations and the Dollar Index shows it:

weekly markets analysis

Dollar Index (DXY) breaks below a trading channel

The Dollar Index (DXY) daily chart above shows that the Dollar’s price broke below a rising channel last week, following Powell’s speech, and generated a short term bearish signal.

With Powell talking down future rate hikes in the U.S and, on the other side, other central banks pumping potential rate hikes talks, it seems like the fundamentals are catching up with the technical signals – 2019 can end up to be a very bad year for the Dollar.

Things now depend on one specific line – The 200 weeks MA line

weekly markets analysis

DXY weekly chartAs you can see, the Dollar’s Bulls are fighting to keep the price above the 200 weeks MA line (currently still support)

Technically, as long as the 200 weeks MA line holds as support DXY may continue to climb.

First it will have to climb back into the broken channel and only then we may consider more bullish scenario (like DXY to 100).

But…

If DXY will break below the 200 weeks MA line it will generate another bearish signal (long term this time).

In such scenario the path will be paved for the Dollar Index to slide towards 95 (200 days MA line, 94 (50 weeks MA line) and perhaps even to 92 to re-test its weekly uptrend line.

weekly markets analysis

GBPUSD analysis

Last week we saw some huge spikes in most of the FX pairs.

We saw a 600 pips spike in AUDJPY (see my latest Facebook Post), we saw a 400 pips spike in USDJPY and we saw a 250 pips spike in GBPUSD:

weekly markets analysis

GBPUSD – Spike hits support

Those spikes happened in a low volume market and besides being a classic Holidays dirty stop hunt, you probably shouldn’t read too much into them, but notice GBPUSD’s spike:

  • The downside move reached exactly to the top of the broken weekly channel (support).
  • The price rallied back up above the weekly support zone.

That’s an interesting price action that perhaps indicates the GBPUSD intends to climb higher.

The technical confirmation came on the following trading day when GBPUSD’s price climbed back up above the Fast MA line for the first time since November 2018.

The weekly chart reveals a potential reversal pattern – Outside Bar (read more about how to trade Price Action patterns):

weekly markets analysis

GBPUSD – Weekly Outside Bar

The nearest resistance zone is 1.28.

The nearest support zone is 1.26

Upside potential (if GBPUSD will close above 1.28) – 200 pips to reach 1.3-1.31

The events that can impact GBPUSD this week are:

  • Carney’s speech (GBP)
  • Powell’s speech (USD)
  • FOMC minutes (USD)
  • GDP in the UK (GBP)

It can be another volatile trading week for the Cable.

 

Want to trade with me next year?

Send me message on my Facebook Page and I will add you to our Telegram Trading Group for just 20$ per month.

 

 


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