Yesterday’s session may not have been a game changer but we definitely saw an uptick in gold’s volatility and momentum. That’s a first step towards a more significant movement hopefully in the near future.
What changes do yesterday’s upswing bring?
First of all, the price confirmed the bounce off the mid-term up trendline (red) connecting higher lows since the middle of December. We also made new yearly highs, and to top it off the price managed to break the horizontal resistance on the 1830 USD/oz. With all that, I’m guessing gold bulls are at least a little bit satisfied.
What stays the same?
The price is still inside of the long-term symmetric triangle pattern (blue). As long as we stay inside, there is no legitimate, long-term trading signal. For this, we would have to see the breakout of the upper line of this formation first. The thing is we can easily go to this line and bounce, which will bring us back to the boring, exhausting sideways trend.
I think that recent movements on gold disappointed everybody, even traders who aren’t interested in the asset. Yesterday, the light in the tunnel appeared bringing us a little hope to finally introduce some action to this precious metal. Staying above the 1830 USD/oz support should definitely help.
Markets can’t find a direction, movements are rather choppy and it’s hard to talk about any strong, dominant trend. Buyers are preferring to stay away right now, giving more space to the bears. All this falls in line with a very handsome setup on DAX, that I’d like to present to you in this analysis.
The last three weeks on DAX, allowed the price to create a very beautiful Head and Shoulders pattern (green). I assume it’s less beautiful for buyers (as it promotes the downswing) but even they have to admit that the pattern’s drawn really technically. Top of the head bounces off the all-time highs and the neckline (yellow) is a horizontal support which, at the first half of December, was a crucial horizontal resistance.
The bad news for buyers is that today we managed to break that support, which in theory gives us a proper sell signal. The potential target for this is on the absolutely crucial long-term support around 14900 points (orange). In theory, we should suspect that the price will get there in the next few weeks.
That sets a bearish tone of course. From a technical point of view, that bearish signal could be cancelled, if the price comes back above the neckline or today’s breakout happens to be a false one. There’s always a chance of that happening, so before making any decisions, one should make sure that the bearish breakout is legitimate. Closing a day below the yellow support would help but also the next daily candle with lower lows and highs would confirm the breakout.
We will discuss the situation on the weekly chart, so there is not much here for the scalpers and day traders. First of all, taking a quick look on the chart and you do not see this Armageddon effect which was supposed to happen after Brexit. Traders, have no hesitations in terms of buying the Pound and they have been doing that constantly since the March 2020.
The main reason, why we wrote this piece is the fact that after weeks of declining, the price finally reached the mother of all supports for the EURGBP. This support is a horizontal area around 0.8320. It was a key level, at the end of 2016 and beginning of 2017. Also, at the end of 2019 and beginning of 2020. It is important now as well.
EURGBP reached that support last week and surprise surprise, we saw a bullish bounce. This is an amazing place to open a long-term long position, in theory though. We always need to be aware of the possible breakout to the downside. That should not worry us as there are always stop loss orders, which you can use and, in this case, it is pretty clear where they should be placed – below the orange support. That gives us an amazing long trade possibility with a very tempting risk to reward ratio.
In case the support would be breached, that opens us an occasion to go short but chances for that are now limited, although we cannot exclude this possibility and if it will happen, traders should act accordingly, so open a long-term short.
With almost every tick down, sellers are celebrating the new bear market. Most of that is generally just wishing not trading and is mostly betting on possibility than probability, but we all know that in trading it’s the probability that wins.
With that being said, let’s talk a look on the SP500, trying to be as much objective as we can, taking into consideration only the chart and the story behind it. First thing you see is the rise from the end of the year, which ended with establishing the new all-time highs. Many will call it a Santa Rally and they will not be mistaken. We can see, that it allowed to break the crucial horizontal resistance around 4740 (orange). Just for a while though, which actually can be worrying as it makes a false bullish breakout (yellow). False breakout usually tends to give strong signals in the opposite direction, so in our case, to the downside.
There is an important resistance (orange) but there is also a support. The crucial one is the dynamic up trendline (black), connecting most recent higher lows. It helped the buyers a few times and can help them again.
We are currently locked between the horizontal resistance from the top and the dynamic resistance from the bottom. As long as we stay between them, there is no clear trading signal. The breakout of the 4740 resistance, will give us another mid-term buy signal and the breakout of the up trendline, will give us a signal to sell, as for now, the best option seems to patiently wait.
It happened! Dollar eventually ended the two months sideways trend that has been going on since the middle of November. As we expected in our yesterday’s analysis of the EURUSD, it happened with the help of the CPI data. Yesterday, we talked about the EURUSD, today, let’s check the situation on the general Dollar Index.
Here, we had a pennant formation (green lines), which in theory should be a trend continuation pattern and promote the breakout to the upside. Reality hit this instrument differently and the price broke it’s lower line. That was a first crucial support to be broken thanks to the CPI print. Second one was the mid-term up trendline (blue), which was connecting higher lows since the end of May. Breaking those two should be enough to claim the bearish victory.
I have one problem to give this victory away just like this and this problem is the horizontal support on the 94.6 (orange). As long as we stay above, Dollar buyers can still have hope. Yes, breakout of this line will be the end of the USD strength in the mid-term but as long as this line holds, we still cannot claim full bearish victory.
We’ll see. The reason we are looking forward for an increase in volatility is that the EURUSD is approaching the end of a rather boring sideways trend and traders need to eventually decide which way they want to go.
The sideways trend on the EURUSD has lasted since the second half of November and is shaped like an ascending triangle with a horizontal resistance at 1.137 (orange) and the rising dynamic support (red). A breakout of one of those two should bring us a proper mid-term trading signal. A breakout to the upside should give us a buy signal and a breakout to the downside should give us a sell signal.
In case of a breakout to the upside, there’s one additional resistance that we should be aware of. This resistance is a long-term down trendline (blue), which connects lower highs since May 2021. Only a breakout of that resistance will bring us a legitimate and powerful buy signal on the EURUSD, just crossing the 1,137 level may not be so significant.
The CPI data that we’ll find out really soon look like a potentially great fundamental trigger to start one of the movements described above. In this case, we don’t have to be so patient, the data will be published really soon.
In December, 38,2% acted as a bullish stronghold, stopping the bearish correction, which started in June. We are not surprised as 38,2% Fibo is famous for doing that.
The correction itself was a very beautiful flag (green lines) and what makes it even more beautiful is that the movements inside of this flag were in line with the Fibo levels mentioned above. OK but how can we use it in our favor? First, we need to check where we are now. The price is currently waiting on a combination of two important resistances. A horizontal resistance, so a 38,2% Fibo and a dynamic resistance, so the upper line of the flag. You can imagine how crucial those levels are for the future of this pair.
Price breaking those two, would trigger a new long-term buy signal, which would possibly give us a long, bullish wave, possibly lasting for weeks. On the other hand, price bouncing from this area sharply, would delay or even cancel that scenario.
We need to be patient and wait for the price action to give us a proper signal. We can look for hints elsewhere. EURUSD and Dollar Index are currently locked inside of very narrow sideways trends. Breakout on those two instruments should show us the direction for the American Dollar, so in consequence for our instrument as well. Buyers on the GBPUSD need the weaker Dollar. Everything for the buy signal on Cable is ready. All we need to see is the price closing a weekly candle above the 23,6% Fibonacci. Chances for that are quite high.
We can say in all certainty that the first few days of 2022 for the tech heavy NASDAQ have been terrible. 2021 ended close to all-time-highs and 2022 so far is a year of misery and suffering. Sure, maybe those words are too strong but I’m sure that people who are going long would totally agree.
Post pandemic trading on stocks and indices can be pretty much summed up by one phrase: Buy the dip! So, when over those several months we had a correction, traders were eagerly anticipating the local dip to buy with vengeance. That created a lot of V-shaped reversals on the chart and frankly speaking was a bullet proof approach for months. Will that be the case now too?
The reason we are wondering is because the NASDAQ is currently flirting with an absolutely crucial long-term support. This support is created by the combination of two important lines: a horizontal and a dynamic one. First the dynamic one – it’s an uptrend line, which connects crucial higher lows since June 2020 (blue). The horizontal one is the area around 15600 points (orange), which has already proven to be a great help throughout December.
It’s absolutely crucial for buyers to buy the dip here and defend this area (green). If we will see a breakout, that would mean a long-term sell signal and potentially huge trouble for the tech index. The next few days should be really interesting.
To be honest, I thought that gold and silver would do a lot better, but here we are today where both are in the group of some of the worst performing commodities over the past several months. And the situation just got even worse.
First the H4 chart, where you can see a very handsome head and shoulders pattern. The neckline (red), was already broken, so the formation is up and running, which means a further drop. Currently, we have a small stop (green rectangle), which is just a very flat correction proving the bearish point.
You can see that the price is approaching the orange horizontal support. What is that line? Silver’s daily chart will definitely help us understand. That is 21,7 USD/oz, so an ultimate long-term stronghold for buyers. This level means ‘to be or not to be’ for the bullish fraction on silver.
The way to trade it is pretty simple despite the gravity of the situation. A proper bounce (with a pattern or candle) would be a legitimate buy signal. On the other hand, a breakout with a nice-looking candlestick, would mean a proper sell signal. For now, all we can do is wait.
At the beginning it was fine, because swings were pretty significant, but the giant symmetric triangle was narrowing and the latest price changes were almost invisible. For example, look at the orange rectangle. No direction whatsoever.
The situation changed a bit recently. At the end of last year sellers managed to take initiative and the price broke the lower line of the triangle. Normally, that should give us a proper, long-term sell signal. I mean it did, but it happened to be a fake one (red rectangle).
How is that helping us? Well, false breakouts can be great trading opportunities in themselves. Yes, initially you are caught in a movement in the wrong direction but the comeback gives you a chance to close your losing trade and open one in the opposite direction. Usually, false breakouts give amazing signals to the other side. So, in theory, when we had breakout to the downside, now we should see a few bullish days or even weeks.
With the price being back inside of the triangle. The next direction should be the upper line of this pattern, which leaves us a lot of space to jump into a bullish trade. As long as the price stays above the lower line of the triangle. The sentiment is positive.
So far, the recovery from Friday’s carnage is, let’s say, pretty mild. The same mild as apparently, the symptoms from the new coronavirus strain are. That information was about to drive today’s reversal but as you can see, traders are not encouraged to buy the dip at this point.