Andy Dodd – MSTA - +44 020 7031 4651 [email protected]Twitter : @louiscaptech Louis Capital Markets UK LLP is Authorised and Regulated by the Financial Conduct Authority (FCA) FRN 225544 Registered Address 130 Wood Street, London EC2V 6DL SX5E: at downtrend SXXP: Potential bullish break but needs confirmation DAX: target reached and rally tiring SPX: 2543 target reached and bearish ‘Inside Day’ Transports: bearish price action Gold: bullish still but nearing key resistance US 10 Year Yield: still bearish short-term Dollar index: nearing support EURUSD: potential top GBPUSD: downtrend intact but room for more upside short term Crude: Needs to break higher Brent: Bullish but resistance still at 58.37 Copper: Bullish Candle at Support….375 Target Miners: Bullish Patterns Confirmed Banks: still cautious stance More detailed comment and charts below
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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. There is still a clear uptrend intact and I said in recent
notes that risk reward remained to the upside whilst that was the case, despite a couple of bearish candles over the
last few months. Monthly Chart
S&P Cash Medium Term: Uptrend Intact The same applies in this timeframe as the index rallied off its uptrend over the last few weeks, closing at another new high last week. The resulting Doji candle is a sign of indecision here but not a reason to be overly bearish.
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SPX Short Term: Still lacking momentum following the ‘Inside Day’ candle.
The index remains in an uptrend and the rally off there reached my 2543 target a couple of weeks ago. I closed my long as that target had been reached and the index has since failed to build on those gains convincingly.
I remain cautious here because of the bearish ‘Inside Day’ candle of October 6th which is a sign that further upside
may be limited. The last time such a candle appeared was in the session after the Trump speech back in March and
the resulting move lower is only too clear to see, despite the seemingly bullish candle in the previous session. That candle was followed by a Bearish Engulfing which is another warning that the rally may have run its course, at least in
the short-term, and I am not a buyer at current levels because of those.
The uptrend is also some way below here, around the 2508 support, and should make a good area to be looking for
bullish reversal signals as long triggers should recent candle prove correct and the index drifts lower from here.
Daily Log Chart
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NASDAQ 100 Short Term: Uptrend intact and bullish break
I said in previous notes that, despite risk reward remaining to the upside whilst the uptrend was intact, the index still needed to break above 5996 before more a move of any significance.
That level failed a couple of weeks ago and the bullish candles in that and the next session suggested more upside from that close which proved correct as the index made another new closing high last week. Thursdays’ bearish Shooting Star was the first reversal signal that has appeared in the latest leg of the rally and is a warning that momentum has slowed but risk reward remains to the upside whilst the uptrend is intact.
That uptrend now coincides with a support at 6010 making that an obvious stop level on a closing break and I will also be watching for any unclosed gaps lower on the openings next week, due to the resulting bearish Island Reversal Pattern.
Russell 2000 Medium Term: Uptrend intact and bullish break
Risk reward was still to the upside following the break above 1452 and that rally continued into Fridays’ close. The
uptrend is now some way below current levels though and the smaller candle of last week shows a slowdown in
upward momentum.
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Transports: Bearish Candles short and medium term
I have had a target at 9767 target since the break above the neckline of a bullish pattern last September and the index finally broke above there three weeks ago, with the bullish candle at the time suggesting more upside. However momentum has slowed and this weekly chart left another bearish candle last week, which is a sign that the rally may be unsustainable short term. Note that the daily chart also left a bearish Engulfing candle on Friday which suggests a move back towards the uptrend before a possible continuation of the rally and should be used as a trigger to take profits on longs in that time frame.
MSCI World Index: 2026 target reached but still bullish
I have been bullish due to the bullish continuation pattern, which was confirmed on the break above its neckline last July, as that pattern has a measured target at 2026. I said last week that there was still scope for more upside whilst
the uptrend remained intact and that the break above 1971, accompanied by a bullish candle, allowed for more upside towards that 2026 target which was reached last week. Despite that there are no bearish reversal signals yet
on this weekly chart and therefore no reason to be short whilst the uptrend remains intact.
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US 10yr Yield Long Term: Downtrend Persists but some way higher.
I sometimes feel a little lonely as I am seemingly often the only one who believes that yields are heading lower, when the fundamental consensus view is the polar opposite. I but take solace from the fact that this has been the case now
for many years as the fundamental analysts have been consistently wrong for so long and I like a good trend.
10-year yield remains in a clear downtrend and the sharp move higher following the US election failed to make a higher high, which leaves that downtrend intact. The bullish candle on election week, has offered support to pullbacks
since at its 2.1077 Marabuzo level which has served well on pullbacks since and the rally off there in September broke above a shorter-term downtrend three weeks ago, although the Spinning Top was a sign of indecision around those
levels.
US 10 Yr Yield Short Term: More downside following bearish candles (2.23 target)
In the short term the rally from the lows broke above a key resistance area at 2.3302 but I pointed out the two
bearish Shooting Stars suggested a pullback from there in last weeks’ note and expected a move lower because of
those. That move gained some traction in Fridays’ session and the 120 min chart left a bearish (for yields) top pattern
whose measured target is just above the 2.2268 support.
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KBW Bank Index: Bearish price action
The banks obviously have a high correlation with yields and I have been bearish of both SX7E and the US names because of that. The rejection of a break above 99.77 in the KBW Bank Index left a series of bearish candles which
suggest more downside from that area and the oscillators also show a clear reversal in momentum.
Citigroup: A good example of bearish price action in the banks as it left a Bearish Engulfing candle following
numbers last week. That candle suggests limited upside from here short term, despite an uptrend remaining intact below.
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STOXX 600 Medium Term: Momentum Slowing
The price action around the key 371.33 support was bullish and I opened longs because of the two consecutive bullish Hammers, as they suggested a rally from that area. Those candles proved correct and the rally from there broke above a short-term downtrend channel which allowed for more upside. However the ever-smaller candles suggest that momentum is slowing.
Weekly Log Chart
SXXP Short Term: Bullish Gap but needs confirmation
This daily chart had left a bearish Hanging Man at the 390.96 resistance which suggested a pullback towards the uptrend and I said last week that I would not be a buyer based on recent price action as a result. That theme continued last week as the index spent most of it consolidating below that level but managed to gap above there on Friday. That move left a bullish Pennant which suggests more upside but the resulting Doji is a sign of indecision and I would like to see a bullish candle in Mondays’ session to confirm the pattern before I commit to a new long.
Daily Log Chart
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SX5E Medium Term: Momentum Slowing at the downtrend
I suggested a long a few weeks ago because of a bullish Hammer, left by the rejection of a break below the 3402
support, as that candle was a warning of a rally from that area. The index has rallied over 6% from that support since but is now testing a longer-term downtrend and I suggested taking some profit on longs around there in recent notes.
Whilst this weekly chart has not shown any bearish reversal signals they are starting to appear on the daily chart, on which I comment below.
I still see no reason to be a new buyer here in any timeframe until a break above that downtrend.
SX5E Short Term: Limited upside whilst 3616 is intact
I suggested buying the 11th September break above downtrend channel as that allowed for more upside towards the longer term downtrend and resistance at 3616, where I suggested closing longs a couple of weeks ago.
The rally has since failed to break above that resistance and Thursdays’ Hanging Man candle suggested a pullback
from there. Friday saw another failed attempt of a break higher thwarted but I would have liked to have seen a lower close as that would have left a bearish Shooting Star, which would have increased my conviction further. Nevertheless a short with a stop/reverse on a break higher still has a good risk reward.
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DAX Medium Term: Rally lacks momentum
Similar to the SX5E I suggested buying the break above the downtrend with a view to adding on a move above
12,344 due to the resulting bullish reversal pattern, whose measured target just below the 12,842 resistance was reached a few weeks ago.
I said last week that it would be sensible to close longs here because of the bearish Hanging Man of 4th October, as that suggested a pullback from levels at the time, but I was unable to recommend a short with any real conviction without confirming signals. That remains the case and, whilst I would not be a new buyer here based on recent price action, I still need to see those signals appear before committing to a short.
Any unclosed gap lower from here would now leave a bearish Island Reversal which I would use as a trigger to open
a short. I will update during the week should one appear.
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Crude Medium Term: Still a short until a break higher This WEEKLY chart failed to break above the neckline of its potential bullish pattern and, whilst I would still look to be
long on such a break, remain short here until that occurs. Last week’s rally actually leaves a bearish blended candle Hanging Man and I see no reason for a change of opinion because of that move. Note that the measured target
should the pattern be confirmed is at the 84.05 resistance so there should be plenty of opportunity to reverse to a
long on a break.
Brent Medium Term: 58.37 Still Key Resistance but still bullish. I recently pointed out a bullish reversal pattern whose measured target is at 88.49 but said that the 58.37 resistance needed to fail before a further rally. The Shooting Star there proved a good warning that the level would hold short
term and I would still not look to add to longs until a clean break of that level, although I remain bullish longer term due to the reversal pattern.
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Gold: 1308 Key resistance I recommended a long in last weeks’ note because of the bullish Hammer at the 1273 support as that candle
suggested imminent rally from there and that has so far worked out nicely. The rally is now nearing a downtrend and resistance at 1308 and I would still look to ADD to longs on a clean break of that level as that would allow for more
upside towards 1424.35 longer term.
Remember also that the longer-term weekly chart continues to trade above its downtrend which acted as a support
on the recent pullback.
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Dollar Index medium Term: Bullish The bullish Inverted Hammer four weeks ago suggested a rally from there and the break back above 92.63, which is a
key level in all time frames, allowed for more upside. This chart remains bullish and is backed up by a bullish Hammer in September on the monthly chart.
Dollar Index Short Term: At Support
The Shooting Star suggested a move lower before a resumption of the rally and I said at the time that I was not a buyer there because of that candle. Instead I suggested waiting for bullish reversal signals around the 92.63 support
should the candle prove correct and the index drifts back towards that level, which is what occurred last week.
Downside from here is now limited whilst the uptrend is intact and I am happy to be long in small size with a view to adding on a bream above the neckline of the potential reversal pattern, which would allow for a pop higher towards
96.17.
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BBDXY Index Short Term: 1168.32 Key Resistance The broader index also left a similarly bearish candle as a break above its downtrend channel was rejected and I
expected a move lower from there as a result. That proved correct last week as the index drifted lower throughout the week but I would caution against being over bearish as the longer-term charts still suggest a rally
from here. A break above 1168.32 would both invalidate the downtrend and leave a bullish Flag Pattern on this daily chart and I would look to be a buyer should that occur. Note also the 20 day MA (purple) crossed above the 50 day
(Green) last week for the first time this year. I have circled the last times this occurred, both up and down, and the
subsequent moves are only to clear to see.
EURUSD: Short-Term Top The 1.2047 resistance proved too much for the bulls over the last few weeks, with the rejection of a break above there leaving a bearish Shooting Star on this daily chart on 8th September. The resulting move lower took the pair
below the 1.1823 neckline of a short-term top pattern, whose measured target is around the 1.1542 support, but the
1.1715 support still needs to fail before that target is achievable.
I said last week that it would be wise to reduce shorts until that occurs as the small Hammer there suggested a short-term rally. That candle proved correct as the pair rallied to the 1.187 resistance and I would expect it to start moving
lower from here now if the top pattern plays out as expected. There is also a now a POTENTIAL larger top pattern forming but that required a break below the yellow neckline before being confirmed. I would look to add to shorts
once again should that occur.
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Cable Medium Term: Bearish still but room for more short term upside My short idea at the downtrend and 1.3506 resistance worked nicely but I said last week that it would prudent to take
some profit as the move lower from there was nearing a short-term uptrend.
Whilst there were no real bullish reversal signals at the time that trend was always going to limit further downside
whilst it remained intact and the pair rallied from that area, and the 100 day MA last week as expected. Positioning is becoming more of a challenge here as that short-term uptrend will soon cross the longer term downtrend but I
always back the longer term one and would therefore expect a resumption of the move lower soon.
This time a break above 1.3506 would invalidate that longer-term downtrend, making it an obvious stop on shorts,
but I will be looking for bearish reversal signals on a further rally as a trigger to be adding to shorts once again.
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Copper: 375 Medium Term Target Still Applies I suggested adding to longs on the last pullback as the daily chart has left a bullish Hammer as it tested a short term uptrend, which suggested a rally from those levels. I still have a target at 375, which is based on the bullish reversal
pattern confirmed on the break above its neckline in July, and expected that move lower to be a textbook ‘return move’ to the neckline, which are common in such patterns.
I added to that long once again a couple of weeks ago on the break above 299.4 and recent price action gives me no
cause for concern.
FTSE 350 Mining Index: As a reminder I remain bullish of miners in general and this daily shows the break above
the neckline of a bullish reversal pattern which has a ‘stupidly high measured target’.
Recommended reading list below
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For a good understanding of the candlestick patterns mentioned in the report this book my good friend Clive Lambert is perfect.
Note that these are general comments about markets and the time frames may not
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