Andy Dodd MSTA - +44 020 7031 4651 adodd@louiscapital.com Twitter : @louiscaptech SXXP and SX5E nearing their downtrends. Gold remains a short in line with the trend Dollar index at key support EURUSD bearish candle GBPUSD long-term downtrend above Crude limited upside whilst the trend is intact S&P Cash Long Term: Uptrend Intact The break above 2120 last July allowed for more upside in all time frames and the index has continued to make new highs having rallied off that level following the US election. In my last few overviews, I pointed out that index was trading at its upper Bollinger Band which, whilst not a sell signal, is not usually sustainable for a prolonged period. The smaller candles over the last few months are however an indication that upward momentum has once again stalled and the small Shooting Star in June was the first slightly bearish signal to emerge, but was not enough on its own to warrant a short against the trend. The small gap higher at the start of August now leaves room for a Bearish Engulfing candle, should the monthly close fall below 2431.39, and I would use such a close as a trigger to be taking some profits on longs in this timeframe. For the time being though there is still scope for more upside in line with the trend. Monthly Log Chart
S&P Cash Medium Term: Uptrend Intact but Momentum Stalling The break above 2401 in May took the index to my 2408 target, derived from the bullish continuation pattern confirmed on the move above its neckline last July, and that move also left a bullish Flag Pattern which suggested more upside. The index continues to make new highs but there are still signs of a slowdown in momentum, the first of which was the Bearish Engulfing candle a few weeks ago, and the price action over the last two weeks has left a couple of Dojis. These are not reversal candles but show the indecision around current levels and I still see no reason to be a new buyer here based on recent price action. Despite that lack of momentum any downside will be limited whilst the short-term uptrend, which suits just below the 2454 support, remains intact. I previously advised taking some profit on longs because of the Bearish Engulfing candle and am still happy to be long here having done so. S&P Cash Weekly Chart
SPX Short Term: Rally Stalling In my last overview I said there was scope for more upside following the bullish Hammer, which came at an uptrend and support, and that proved the case as the index rallied from there to new highs. More recently the rally has stalled with the price action over the last couple of weeks leaving a number of bearish candles which suggest limited upside. The lack of upward momentum is also highlighted on the oscillators where MACD crossed below its signal line last week and there has been persistent RSI divergence throughout this last leg of the rally. There is still an uptrend intact below which will limit downside but I see no reason to be long here in this time frame because of those factors. Daily Log Chart
NASDAQ 100 Short Term: Bearish Candles Despite the uptrend remaining intact, that trend is some way below current levels and the rejection of a break higher on 27 th July left a Bearish engulfing candle, which offers resistance to further attempts at a rally at its 5956 Marabuzo level. Such candles are often a good warning that a rally has run its course and a sign to be taking profits on longs in this time frame. Note the reversal in momentum is also clear to see on the oscillators as MACD crosses below its signal line at the same time as RSI shows persistent bearish divergence. Such signals proved incorrect on the last pullback as the index gapped higher before rallying to new highs but the more recent price action would suggest that there is limited short-term upside. Note also that any unclosed gaps lower on the openings next week would eave a bearish Island Reversal pattern and I would use such a gap as a trigger for a short-term short. Daily Log Chart
Russell 2000 Medium Term: Bearish Candles The rally off the key support at 1341.5 reached the 1436 target, derived from the bullish continuation pattern which was confirmed on the break above its neckline last July, but the price action since suggests limited further upside. This weekly chart left two Shooting Star candles which suggested a pullback from those levels and that move began last week as the index drifted lower. That move is also invalidating the uptrend and there is some way before the next support level, at 1341.5 is reached. Transports Medium Term: Hammer at Support The pullback from the 9767 target, derived from the bullish continuation pattern, left a bullish Hammer at an uptrend last week and that candle suggests a rally from here. Those that follow Dow Theory will be aware that it requires both the Transports and Industrials to be making new highs to confirm the rally, which is not the case at the moment, and so the price action over the next couple of weeks may prove important for the market as a whole.
MSCI World Index: Long term target at 2026 Despite a lack of upward momentum a few weeks ago I stuck to my long-term target of 2026, which is the measured target of the bullish continuation pattern confirmed on the break above its neckline last July, saying at the time that pullbacks to the uptrend and support at 1814 should provide good buying opportunities. The index resumed its rally over the last month and, whilst the smaller candles show a slowdown in upward momentum, there is no real reason for a change of opinion yet based on this weekly chart.
US 10yr Yield Long Term: Downtrend Persists Technically speaking the 10-year yield remains in a clear downtrend and the last rally failed to make a higher high. The sharp move higher in November following the US election left a bullish candle, which offered support to pullbacks since at its 2.1077 Marabuzo level, and the rally off that area tested a shorter-term downtrend which has so far held. A break above there would allow for more upside, with the key level to be aware of on such a break up at 3.05, but such a move was rejected last month. US 10 Yr Yield Medium Term: Potential Bullish Flag In the medium term the rally from recent lows took it to the top side of a downtrend channel and a break above there would leave a bullish Flag Continuation Pattern which, if confirmed, would suggest more upside. I said in my last note that the price action around the top of the channel would be crucial in this time frame and the failure to break above there suggested there was no reason to expect a pop higher just yet. That theme has continued over the last two weeks as the downt4rend channel remains intact but, on such a break, the 2.6394 swing high will be key as a resistance. Longer term a break above 3.0707 would be needed to confirm a longer-term reversal and the long-term downtrend is very much intact above.
STOXX 600 Medium Term: Limited Upside I suggested closing longs following the Bearish Engulfing candle just below my 400.73 target and the index has continued to drift lower since then. The index rallied off the lower end of its short-term downtrend channel last week (See daily chart below) but the move still needs to break above that channel before further upside. The lack of upward momentum is still clear to see on the oscillators and the next support of note is still some way lower, at 371.33. Below there the 351.51 support, whose failure as a resistance confirmed the bullish reversal pattern from where I derived my target, would make a good area to be a buyer once again as it also coincides with both the 200 week Moving Average AND an uptrend. Weekly Log Chart
SXXP Short Term: Downward Channel Intact As I mentioned in my comments relating to the Weekly chart above the index remains in a short-term downtrend channel, which will limit upside in that time-frame whilst intact. Last week saw the index rally off the lower end of that channel and there is still scope for more short-term upside until the top of the channel is reached. However the trend remains lower and I will be looking for bearish reversal signals on such a rally as it nears the top of the channel for short-triggers. Note also that MACD remains below its zero line, which is common in a downtrend, and that the moving averages are starting to cross lower with the 50 moving below the 100 day last week. The resistance at 387.89 will prove important should the rally continue as a break above te4hre would both invalidate the channel and confirm a bullish reversal pattern should it fail. I would look to buy such a break but, for the time being, risk reward remains to the downside whilst the channel is intact.
SX5E Medium Term: Downtrend Above The remains in a short-term downtrend channel (see daily chart below) which will obviously need to fail before any potential re-test of the longer-term trend above. I would usually be looking to buy a break above that channel, due to the resulting bullish Flag Pattern, but cannot do so whilst that long-term trend remains intact. That downtrend is the main reason that I have been cautious with long positions on my daily futures note and have taken profit on any longs quicker than I would usually have done so. The oscillators also still show a clear lack of upward momentum and the move lower the last time that they were in this state back in 2015 should not be ignored. Last week saw the index rally off the lower end of its channel but it still needs to break above the 3524 resistance before more upside. Weekly Log Chart
SX5E Short Term: Downtrend Channel Intact The bearish Shooting Star of 9 th May proved a good warning of the impending move lower from that area and the index has remained in a downtrend channel since then. The move lower reached the 3456 gap support and I said last overview that it would be prudent to be taking profits on shorts around that area but with a view to trading that channel, as any rally would have limited upside. The index has since traded in a narrow range between there and the top of the channel. I previously pointed out a resistance at 3524 which was just below the top of the channel as an area to be looking to be a seller once again and that level was tested on Fridays rally, holding on a closing basis despite an intra-day breach. Note that 3524 also coincides with the downward-sloping 50 day Moving Average which adds weight to its importance in this time frame. Should that level fail the key resistance to be aware of is just above at 3539 as a break above there would both invalidate the channel AND confirm a bullish reversal pattern. I would look to reverse to a long on such a break with a view to taking profit on a further rally to the longer-term downtrend above. Daily Log Chart
SX5E Long-Term: Bearish Candle Long-term remember that the SX5E monthly chart left a bearish Shooting Star at its downtrend in May as it rejected the break higher. This suggested that there is now limited upside in this timeframe and I see no reason to be a buyer here based on that candle. Monthly Log Chart FX & Commodities Quick Comments Below
Crude Medium Term: Downtrend Channel Intact The rally has reached the top of a short-term downtrend channel which will limit further upside whilst it remains intact. The price action has left a couple of bearish candles as breaks above that channel, which coincides with the 49.9 resistance, were rejected and I prefer to be short here in line with that channel. Note also the 200 day Moving Average around current levels providing additional resistance. Gold: Downtrend Intact The trend line held when tested a couple of weeks ago and risk reward is still to the downside whilst that remains the case. Key resistance on a break above that downtrend is at 1308 and I am happy to be short here with a stop/reverse on a break above that resistance.
Dollar Index: 92.63 Major Support The break below the 99.233 back in April took the index below both its uptrend AND 200 day Moving Average, at the same time confirming a top pattern whose 94.65 measured target was reached a couple of weeks ago. The 92.63 support, which is also relevant on both the weekly and monthly charts, will now limit further downside and risk reward is to the upside from here. Note also that both this and the weekly chart left a bullish candle on the rally from that support last week, which suggests more upside from current levels and I am happy to be long here as a result. EURUSD: Bearish Candle The rally broke above a key resistance at 1.1715 a couple of weeks ago but the price action since suggests that further upside is limited. This weekly chart left a bearish Gravestone Doji last week on the failed attempt at a break above the 200 week moving average and I see no reason to be long here in the medium term because of that.
Cable: Downtrend Above The break above 1.2797 left a bullish reversal pattern on this daily chart which suggested a further rally towards the longer-term downtrend and resistance at 1.3506. That level coincided with the measured a target for the pattern and I said in previous notes that a long had a good risk reward in the short-term. However I suggested that those with a longer time horizon should still be looking to sell such a rally as there is a downtrend intact which will limit further upside from that area. The pair has largely followed the arrows which I added to this chart back in April to show the likely moves and there is no reason for a change of opinion just yet based on recent price action. Daily Log Chart
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. http://www.amazon.co.uk/candlestick-introduction-lambert-jan-2009- Paperback/dp/B00KLO7O2C/ref=sr_1_4?ie=UTF8&qid=1415553028&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. http://www.amazon.co.uk/technical-analysis-financial-markets- Comprehensive/dp/0735200653/ref=sr_1_sc_1?ie=UTF8&qid=1415553189&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. http://www.amazon.co.uk/definitive-guide-point-figure- Comprehensive/dp/0857192450/ref=sr_1_1?ie=UTF8&qid=1415553347&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 225544. 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 communication certify that: (1) the views expressed and attributed to the research analyst or analysts in the report accurately reflect their personal opinion(s) about the subject securities and issuers and/or other subject matter as appropriate; and, (2)
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