Andy Dodd MSTA - +44 020 7031 4651 adodd@louiscapital.com Twitter : @louiscaptech S&P Cash Long Term: Uptrend Intact Despite an initial slowdown in momentum following the break above 2120 in July, which was illustrated by the Doji candles in August and September, the index had still been making new highs and there was therefore no reason to be anything other than long in this timeframe. In my last overview, 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. March saw the index close a single point away from the February close with the price action leaving a Spinning Top candle, which was the first sign of some indecision in this latest leg of the rally but still not a reason to be overly bearish just yet in this timeframe. The small gap higher at the start of June leaves room for a Bearish Engulfing candle should the monthly close fall below 2388.5and I would use such a close as a trigger to be taking some profits on longs in this timeframe. Monthly Log Chart
S&P Cash Medium Term: Bullish Break The index had been struggling to clear resistance around 2401 and I previously pointed out that the price action had left an imperfect Shooting Star, like the one which preceded the last move lower from that area, at the end of April. I cautioned against new longs until a closing break above 2400.98 because of that candle and the fact that the oscillators showed a lack of upward momentum. The move lower from there filled the 2361 gap, from where it rallied into that weeks close to leave an imperfect Hanging Man candle but the index still managed to break above that 2400.98 level a couple of weeks ago. That break, accompanied by a bullish candle, allowed for more upside from that close and the move continued last week as the index closed near the weekly high to leave a similar candle. There remains no reason to be short here following that move, if the index can hold above 2401. S&P Cash Weekly Chart
SPX Short Term: Bullish Break I suggested closing longs as far back as 2 nd March because of the bearish Inside Day candle which followed the pop higher in the previous session as that was an indication that the rally had no staying power. The index has since failed to break above that high and, more recently, traded in a narrow range below 2041. That was until it managed to break above there as the rally from the 2356.18 gap continued and that break allowed for more upside. This daily shows no obviously bearish reversal signals to suggest a pullback just yet and any such pullback will be limited whilst the support and uptrend at 2378 remains intact. The key to the future moves may lie in the 10-year yield which is currently around a key support area and I comment on that below. Daily Log Chart
NASDAQ 100 Short Term: Uptrend Intact The gap lower on 17th May left a bearish Island reversal pattern which suggested more downside from that close and I therefore saw no reason to be a buyer then because of that pattern. This proved incorrect as the index rejected that break lower and the price action around that low left a new, steeper, uptrend intact. The index resumed its rally from that trend-line to take out the previous high and that move continued last week. With the uptrend still intact, just below the 5725 support, there is not really any reason to be short here against the trend. Daily Log Chart
Russell 2000 Medium Term: 1415 Key Resistance. The rally off the key support at 1341.5 had stalled as the index failed to hold its break above the 1415 resistance, with the price action in that week leaving an imperfect Shooting Star (as the tail was not twice the real body). I said then that I would not be a buyer until a break above 1415 because of that candle but it was not a strong enough signal to warrant a high conviction short against the trend. The index continued its drift lower from that area and was nearing the lower end of the sideways channel at 1341.5, which I suggested would make a good place to be taking profits on shorts, when I wrote my last note. That channel remains key to the future direction and the index made a weekly high almost spot on 1415 last week. I would caution against shorting at that level without bearish reversal signals though as a break above there would allow for more upside and there is also an uptrend intact. I would look to buy a clean break of 1415 as I would expect upward momentum to increase should that occur. but a break below there would confirm a top pattern which would suggest more downside. The short-term charts have also shown a lack of momentum, which backed up my slightly bearish view in this timeframe and there is also still bearish RSI divergence on this weekly chart. Weekly Log Chart
US Yields Update. US 10yr Yield: Downtrend Persists The sharp move higher in yields following the US election caused many commentators to declare the end of the Bull Market in Bonds. However, technical speaking at least, the 10-year yield remains in a clear downtrend and the last rally failed to make a higher high. The longer-term monthly chart paints a similar picture and left a couple of bearish Shooting Star candles on the recent rejection of a break higher towards the downtrend. These suggest more downside from current levels in this timeframe.
US 10 Yr Yield Short-Term In the short-term it is at a key support area, where the 2.1518 gap support coincides with the 200-day Moving- Average, and that area held in Fridays session. The price action did not leave any kind of bullish candle to suggest a rally from there just yet and a break below would allow for more downside towards the next support of note, which is at 2.0352. Daily Log Chart European Equity Summaries Below
STOXX 600 Medium Term: Limited Upside The break above 351.51 back in December confirmed a bullish reversal pattern, whose measured target was at the 400.73 resistance, and I recommended a long at the time following that break. More recently, the break above a short-term downtrend channel back in February also left a bullish Flag Continuation Pattern which suggested more upside towards the 400.73 target. I was looking to take profits on longs on a further rally towards 400.73 as there was a major resistance just above there at 400.73, which has held every time when tested since 2000. However, the Bearish Engulfing candle three weeks ago was a signal that further upside was limited and I no longer saw a reason to be long at all at those levels. This remains the case but last weeks candle was not a reversal signal and there are not really enough confirming signals to warrant a high conviction short just yet. Weekly Log Chart
SX5E Medium Term: Downtrend Above The break above 3157 in December confirmed a bullish reversal pattern, whose medium term measured target at the 3524 resistance was reached a few weeks ago, and I had recommended a long because of that pattern at the time. The rally extended past my target but recent price action allowed for the addition of a new, flatter, downtrend line drawn from the 2007 high and upward momentum has since stalled. Note also that the long-term monthly chart left a bearish Shooting Star just below that downtrend last month which suggests limited upside in that time-frame. I see no reason to be a new buyer here having taken profit as there is little upside in a long whilst the trend-line remains intact above Weekly Log Chart
SX5E Short Term: 3524 Key Support The index broke above its old downtrend as it gapped higher on the first-round French election results news and that break was followed by a bullish Flag Continuation Pattern, which suggested more upside towards the 3738 resistance. However, the bearish Shooting Star of 9 th May was an indication that the target would not be reached and the index sold off following that candle towards the 3524 support. That support coincides with the upper side of the previous downtrend and I therefore expected it to at least slow any move lower, especially as there was further support at the 3529 Marabuzo (derived from the bullish candle left by the break higher. I would therefore still look to sell any rally back towards the downtrend or a break below 3524, which would allow for a move towards the uptrend and support below. Daily Log Chart
SX5E Long-Term : Bearish Candle As I mentioned above the SX5E monthly chart left a bearish Shooting Star at its downtrend in May as it rejected the break higher. This suggests 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: Downtrend Channel Intact The short-term downtrend channel remains clearly intact on this daily chart but the price action last week left a bullish Hammer as a move below 47.01 was rejected. That candle suggests a possible re-test of the top side of that channel and should be seen as a trigger to be taking some short-term profit on shorts. However, any rally back towards the top end of the channel should be sold with the resistance at 51.67 making a good area to be doing so. Daily Log Chart
Gold: Downtrend Under Pressure In my last note I pointed out that, whilst the downtrend channel remained intact, recent price action suggested a potential break above that channel. The higher lows on the last pullbacks were the reason for this and I said at the time that I would NOT be a seller this time if the top of the channel is tested. Instead I was looking to reverse to a long on a clean break, as such a move would allow for more upside towards 1424.35, which is a resistance on the longer-term weekly chart. Last week saw the rally continue with Fridays close leaving a bullish candle but that came just below the downtrend. Todays close will likely prove important as the gap higher needs to be extended into that close to confirm a bullish break. Should the gap be rejected and the close come below 1263.93 the price action would leave Bearish engulfing candle, which should be used as a signal that the trend will in fact hold.
Dollar Index: Failed Uptrend and Bearish Top In previous notes, I said that the 99.233 support remained key to the future direction, as a break would both confirm a top pattern and take the index below both its uptrend AND 200 day Moving Average. I suggested shorting such a break with a view to taking some profit on a further move lower towards 96.17. That short was triggered a few weeks ago and, despite managing a couple of closes above there since, the move lower gathered pace once again to break below the 97.22 support. There is still scope for more downside from that close, as the top pattern has a measured target around the 94.399 support, but I would still look to make a print on shorts on the way down at the 96.17 level. Note also the bearish Flag pattern which adds to my conviction. Daily Log Chart
EURUSD: Bullish Break and 1.128 Target Reached In my last few notes I said that there was still scope for more upside as the rally had left a bullish reversal pattern, on the break above its neckline, and there was also now an uptrend intact below. That patterns 1.128 measured target was reached last week but there are as yet no obviously bearish reversal signals to suggest am imminent pullback from here. Should the rally extend past here the weekly chart has a resistance area at 1.1398, which has proven reliable historically, and there is a huge level at 1.1715. Daily Log Chart
Cable: Bullish Break above 1.2797 The break above 1.2797 left a bullish reversal pattern which suggested a further rally towards the longer-term downtrend and resistance at 1.3506. That level coincides with the measured a target for the pattern and I said in previous notes that a long has a good risk reward in the short-term. However, 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. I added arrows to the chart a few weeks ago to show the likely price action should the pattern play out as expected, which remain valid and the moves have so far mirrored the first of those. Weekly 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) no part of their compensation will be directly or indirectly related to the specific recommendations or views contained in this research report. Louis Capital Markets UK LLP has effective organisational and administrative arrangements set up within the firm for the prevention and avoidance of conflicts of interest with respect to research Recommendations, including information barriers. This document is for the use of the addressees only and is not intended for nor should be disseminated
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