The Week Ahead
From Nic Lenoir
The Week Ahead
It's beginning to look a lot like Christmas, at least volume-wise. Hard to think today could have been much slower. So without further ado, here are the key things to watch for technically next week.
The Dax has been the clearest index technically in the US and Europe so I will rely on it to trade the roadmap ahead. I see that starting at 6,125 we have traced an impulse which has topside target between 6,675 and 6,750. It corresponds to the trend channel resistance as well as the standard Elliott Wave extension for the impulse. After that we should get a correction back towards 6,400 at the minimum. I would start scaling into puts around 6,700, knowing that if we break directly below 6,557/6,570 we should sell off directly without reaching those targets. The support corresponds to 1,156 in S&P which if not be violated here we could make new highs though not by much as momentum is very weak and the market over-extended. That is inline with our observations on the 19th when after the sell-off we pointed that if 1,173/1,175 was bypassed we would potentially keep grinder higher. We have bypassed slightly the 1,155/1,165 topside I had indicated for the S&P future but the sell-off on the 19th was a good oppotunity to average out at better levels. The technical set-up based on the VIX signal and momentum divergence remains intact and a pull-back towards 1,123 is more than likely. It is this last level that will determin if we retest the trend envelope at 1,034 (88-week moving average).
The USD look like it could rally here as well. The original target once 80 was broken on the downside was 74.90 but the hammer on the lows put in last week set up a potential reversal pattern which has not been invalidated so far and allowed us to capture a nice 2% move earlier this week. Here again we can observe that the EURUSD has so far held the 76.4% from the highs, and the AUDUSD is setting up another pottential H&S with neckline around 0.9700. If bypassed expect another sharp sell-off like we epxerienced this week.
In Fixed Income while we remain for the medium term in a bullish trend, if the 10Y future bypasses 126-10 we would trigger a H&S near-term which could take us back towards 124-24. Failure to accelerate lower however would open up potential towards 130 in a hurry once we bypass the highs.
I have added the charts of the Nikkei and the Shanghai Composite. The Shanghai composite for one is very bullish if the market exits the channel to the topside. Note that this is not necessarily incoherent with the SPX selling given that in 2008 the SHCOMP bottomed in September 2008, just when Lehman collapsed!! The Nikkei is also set-up with a potential inverted H&S. 9,600 is the intermediary resistance before the neckline at 9,750. If that last level is broken then expect a significant move up.
Good luck trading and have a great weekend,