Equities: Weekly Technical Overview 2nd October 2016

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1 Andy Dodd MSTA adodd@louiscapital.com Twitter Equities: Weekly Technical Overview 2nd October 2016 Equity Index Technical Dashboard The table below is intended as an easy to read reference of key levels and trends. For a more in-depth description please see my comments on the individual charts below. Market Supports Resistances Comment SPX Long Term KEY SUPPORT SPX Short Term Top Pattern 2019 NDX Bull Trap? 4454 INDU 18,247 17,978 18,447 18,622 Top Pattern 17,579 17,210 SXXP *351.51* Key Resistance SX5E Long Term *3157* Downtrend at SX5E Short Term Potential H&S Top UKX *6412* *6950* Key Resistance Short Term Futures Dashboard Future Supports Resistance Comment SX5E (VG1) DAX (GX1) 10,524 10,386 10,316 10,127 10, S&P (ES1) Key Support 10, ,804 Downtrend 10, , Top Pattern Charts along with more detailed comments below

2 S&P Cash Long Term The break above 2120 back in July allowed for the potential of more upside as that level had acted as a good resistance to any attempt at a rally since February That break came despite of a bearish Hanging Man candle in June, which had suggested that the level would hold, but the price action since the break has shown a lack of upward momentum. That lack momentum was highlighted by the second successive Doji candle in September as the index has rallied off 2120 to close pretty much unchanged for the month and it has yet to manage a close above that of July, closing September 5 points below that level. The Dojis are however not bearish reversal signals in their own rite and downside from here will still be limited whilst the 2120 level remains intact as a support. They do however suggest that current levels do not offer the best entry point for new longs or adding to existing positions and I would still urge caution here, especially based on the shorter-term charts. (See below) Monthly Log Chart

3 S&P Cash Medium Term As on the monthly chart the break above 2120 invalidated a sideways channel that had remained intact since February 2015, allowing for the potential of more upside. However, the ever-decreasing size of the candles immediately following that break were an early sign of lack of upward momentum and I said a number of weeks ago that a test of 2120 as a support was likely as a result. The level held when tested on the pullback three weeks ago and will still limit downside from here whilst it remains intact but the price action of that week left a Bearish Engulfing candle, which often serve as a warning that a rally has run its course. MACD had also crossed below its signal line, which is another sign that momentum is slowing, and I said as a result that I not be opening new longs or adding to existing ones here as a result. This remains the case, based mostly on the daily chart, despite an uptrend remaining intact on this weekly. S&P Cash Weekly Chart

4 S&P Short Term I suggested taking profits on shorts a couple of weeks ago as the move lower had reached the key 2120 support, where it had left a number of bullish candles which suggested a rally from there, especially as there was also an uptrend intact as well. The candles proved correct as the index continued its move higher last week but the gap resistance held once again on Fridays rally and the move looks to me like a re-test of the neckline of a bearish top pattern. Remember also that the gap lower on 9 th September left a bearish Island Reversal pattern which are often powerful signals and result in sharp moves lower over the following weeks. I see little value in new longs here until a break above 2194 and would still be erring on the short side, with a view to adding on a break below Daily Log Chart

5 Dow 30 Medium Term The Industrials also broke to new all-time highs recently but, similar to SPX, the price action had shown a lack of upward momentum. That lack of momentum was shown by the Doji candle on the monthly chart in August, as the index failed to extend recent gains following the break higher, and this was followed by a Spinning Top last month which has a similar meaning. The weekly chart also left a Bearish Engulfing candle on the pullback a couple of weeks ago and such candles are often good indications that a rally has run its course. The oscillators on the same chart continue to show bearish signals with MACD crossing below its signal line at the same time as RSI continues to show bearish divergence. The consolidation over the last couple of weeks also looks to me like a re-test of the neckline of a bearish top pattern. Such return moves are common in such patterns and usually precede a sharp move lower. The price action over the next couple of weeks will therefore prove crucial for the future direction of the index, in both the long and short-term, and I still expect a move lower from here. Daily Log Chart

6 DJ Transportation Index The rally from the 7715 support took the index back above the neckline of a potential bullish reversal pattern last week but it still needs to make a high above 8149 to confirm a break. Should that occur I would expect upward momentum to increase and I am still looking to buy such a break but the 120 min chart posted a couple of bearish candles towards Fridays close which suggest a breakout is not imminent. Daily Log Chart

7 NASDAQ 100 I had expected the move lower to continue towards the 4454 support and 200 day Moving Average following the bearish Island Reversal pattern, which was confirmed on the gap lower on 9 th September. The longer-term weekly chart had also left a Bearish Engulfing candle at the same time which backed up that view. So the rally from the 4694 support, which took the index to new highs, came as a surprise technically but the price action following that break has been unconvincing so far. I am still struggling to have any faith in this rally, especially as RSI continues to show bearish divergence, and get the overwhelming impression that this latest move will turn out to be a Bull Trap. I said last week that I would not be surprised to see a pop higher as the last remaining bears throw in the towel but I am still staying away as there are not enough confirming signals for me to turn a bull just yet. Daily Log Chart European Equity Summaries Below

8 STOXX 600 The level remains key, in both the short and medium term, as it is also the neckline of a POTENTIAL bullish reversal pattern. As with all such patterns a break above the neckline is required before it is confirmed but, should that occur, the measured target would be some 14% above there at around the same level as the resistance. So far has held three times when tested and risk reward therefore remains to the downside whilst it is intact. As a result, I am happy to be short still but my stop/reverse should the reversal pattern be confirmed remains valid. Daily Log Chart

9 SX5E Medium Term The index has been trading below the neckline of a large bearish top pattern since the failure of that neckline back in January and, as a result, risk reward in the longer term has remained to the downside ever since. It has continued to trade sideways below 3157 all year and, more recently, has been consolidating below a resistance at 3044 with breaks below 2978 so far being rejected. This occurred once again last week as the index rallied into Fridays close but the price action left a bearish Hanging Man candle which suggest limited upside. As a result, I still see no real reason to be a buyer here against the prevailing trend and would look to sell further rallies towards 3157 but, with a stop/reverse on a clean break of that level as such a move would confirm a Double Bottom. Weekly Log Chart

10 SX5E Short-Term Short-term positioning over the last week has been a challenge based solely on this daily chart as the index continued to trade sideways between support at 2916 and resistance at I got a little out of synch on my daily futures note as a result, which led me to give back most of the profit that I had made by shorting the last rally as I was topped and tailed in the last two sessions. Upside from here will still be limited whilst 3089 remains intact but there is a lack of short-term trend. There is now a POTENTIAL bearish top pattern forming on this chart, the neckline of which held into Fridays close despite being breached intra-day, and that neckline may prove key next week. As on the weekly chart the longer-term trend remains lower, and therefore risk reward to the downside, but that trend line is some way above current levels. I don t really have a strong view at current levels due to the lack of trend but would suggest selling further rallies towards 3089 and the top of the sideways channel OR a break below the neckline which would confirm the top pattern and allow for a move towards Daily Log Chart

11 DAX Cash Short Term The gap lower on 12 th left a Bearish Island reversal pattern, which suggested more downside in the medium term but such moves lower have so far been rejected. Despite Fridays rally I remain bearish as a result of that pattern and further upside form here will be limited whilst the downtrend, which sits at around 10,650, remains intact. The longer-term weekly chart also left a bearish Hanging Man candle last week and this daily chart continues to exhibit bearish RSI divergence, along with MACD remaining below its zero line. Daily Log Chart

12 FTSE 100 (Cash) The break above the resistance at at the start of July confirmed a bullish H&S reversal pattern and the move took the index to the key 6950 resistance. That level dates back as far at 1999, holding every time since when previously tested, and I suggested taking shortterm profit on longs four weeks ago as further upside was limited whilst that level was intact. The rally into the end of last week took the index to a close just below 6950 but the price action left a bearish Hanging Man candle, which suggests a pullback from here. Note also that bearish RSI divergence persists and I still see no reason to be a buyer here as a result. I would urge those that did not take profits on longs on the last rally to 6950 to do so, especially as Fridays rally left a similar candle on the daily chart. Weekly Log Chart

13 SXPP Comment In last weeks note I pointed out that the sector had reached the key resistance, the failure of which as a support last August led to the sharp move lower, and said that the moves last week would likely prove crucial to its future direction. The sector broke above there in Thursdays session leaving a bullish candle and there is now scope for more upside towards and, on extension, the longer-term downtrend above. Note that the move also took the sector above a short-term resistance relative to SXXP which allows for the potential for more upside on a relative basis as well. Daily Log Chart FX & Commodities Quick Comment Below

14 Crude In last weeks note I suggested taking some profits on shorts as the pullback from the 49.9 area had reached a support at which coincided with a short-term uptrend, which would obviously need to fail before more downside. The rally from there was quite sharp, taking it above a short-term downtrend on the daily chart, and there is now scope for more upside in that time-frame towards 49.9 once again. Longer-term this weekly chart still has a POTENTIAL bullish H&S reversal pattern forming but the rally will need to break above its neckline before that is confirmed and that neckline is just above the 49.9 resistance, at around Note that the measured target for the pattern, if confirmed, would be at around 78 but that is obviously a little way off at present. Weekly Log Chart

15 Gold Rallied off the key 1308 support following the Fed decision and I remain bullish whilst that support remains intact. This weekly chart also posted a Bullish Engulfing candle at that support which suggested that it may hold in the medium-term. However, there is still a lack of momentum, as can be seen by the bearish RSI divergence and MACD also crossed below its signal line a few weeks ago. A failure of 1308 would leave room for more downside towards its 144 day Moving Average and 1273 support (daily chart) and my stop on a break below there remains intact. Daily Log Chart

16 Dollar Index I suggested taking profits on shorts a few weeks ago as the index had reached a longer-term uptrend and support at which would limit further downside. The index rallied off that support, following a bullish candle there on 8 th September, but has since struggled to break above its 200 day Moving Average and Resistance. There is still every likelihood of a sharp move, in one direction or the other, over the next few weeks as the longterm uptrend is about to meet a shorter-term downtrend, one of which will obviously need to fail. I would usually back the longer-term trend to survive and would expect a sharp pop higher on a break above that short-term downtrend. However, the monthly chart is still showing bearish signals and the 200 day Moving Average on this daily is turning lower as momentum stalls. Should this continue and lead to a failure of the uptrend the KEY support remains at as a break below there would confirm a top pattern, whose measured target is around the same level as the support, but that is obviously a little way off at the moment. Weekly Log Chart

17 Recommended reading list below For a good understanding of the candlestick patterns mentioned in the report this book my good friend Clive Lambert is perfect. Paperback/dp/B00KLO7O2C/ref=sr_1_4?ie=UTF8&qid= &sr=8-4&keywords=clive+candlestic For an in depth study of technical analysis this book by John j. Murphy is widely recognized in TA circles as the bible. Comprehensive/dp/ /ref=sr_1_sc_1?ie=UTF8&qid= &sr=8-1- spell&keywords=tedchnical+analysis+of+the+financial+markets For more information on any point and figure charts the Jeremy du Plessis book below gives an in depth tutorial. Comprehensive/dp/ /ref=sr_1_1?ie=UTF8&qid= &sr=8-1&keywords=point+and+figure+charting Note that these are general comments about markets and the time frames may not always match your investment criteria. As always position sizing is more important than the ideas and levels. I always encourage clients to ask for chart views and asset allocation ideas that have been written specifically for them and their individual time frames and risk tolerances. If you would like to play any of these ideas through derivatives our options desk will be happy to suggest strategies. Important notice / disclaimer This material was prepared by Louis Capital Markets UK LLP, which is authorised and regulated in the United Kingdom by the Financial Conduct Authority (FCA) under ref This document must be treated as a marketing communication for the purposes of Directive 2004/39/EC as it has not been prepared in accordance with legal requirements designed to promote the independence of research; and although Louis Capital Markets UK LLP is not subject to any prohibition on dealing ahead of the dissemination of investment research, Louis Capital Markets UK LLP applies this prohibition through its internal systems and controls. The analyst or analysts responsible for the content of this marketing

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