S&P 500: Recovery after the bearish rebound
Most of the U.S. indices suffered from a strong selling pressure this past week. The S&P 500 benchmark had an attempt to continue the uptrend on Monday but gains were short-lived and limited as sellers stepped in after disappointing macroeconomic reports on Tuesday and Wednesday. As a result of the bearish rally, the index dropped to 2873.9 on Tuesday and 2855.3 on Wednesday (low values). However, equity investors had found those rates attractive for heavy-volume entries and lifted the index to 2950.7 (weekly close rate), which allowed the bulls to recover almost all of the mid-week losses (-1.00%).
At first glance, the technical sentiment is mixed with a long-term uptrend still in play as the Ichimoku Cloud trend indicator kept the bullish bias of the leading span, while daily close rates appeared above Base Line resistance after testing the bottom of the cloud. On the other hand, Average Directional Index points to a negative sentiment with its mainline far below the threshold, which indicates weak momentum. Trues Strength Index also turned into the bearish territory after both lines crossed each other on September 25.
That all makes bearish retracement more likely, although bullish whipsaws are still possible. If the buyers were able to lift the S&P 500 index above the resistance mark of 2982.2 and 3000.0 points in extension, then the uptrend power would renew chances for the bullish breakout of all-time highs. Otherwise, the index would be vulnerable to a further correction below the bottom band of the leading span at 2902.4 points, which would end the bullish phase and signal a long-term bear market. The sell-high trading strategy is preferred in such an environment, however, stop-loss orders have to be kept rather tight.
DXY: Bearish retracement started
Since the U.S. dollar index failed to hold gains above 99.50 handle, the market signals that a bearish retracement started. The index measuring greenback’s strength versus six major currencies declined four days out of five last week, and the southward continuation is likely amid weak demand for the world’s reserve currency across the board.
Although the nearest support curve represented by 21-days exponential moving average is not breached yet, slow MACD trend indicator signalled a bearish retracement, if not a reversal, after both lines performed the bearish crossover and the histogram turned negative. Two additional confirmations have to come in before concluding the previous assumption. First, 14-days Relative Strength Index has to come down below the 50% level, which divides growth from decline. Second, the index has to close a day below EMA21 (98.74) and head towards EMA55 (98.31). An upswing would draw a possible right shoulder of H&S reversal pattern, increasing the likelihood of bearish divergence on technical indicators, thus it might not lead to a significant achievement for the bulls. Therefore, even if the market players are intended to proceed with the uptrend in DXY, a healthy retracement is required. Shorting the greenback looks reasonable so far.
WTI Crude Oil: bearish breakthrough
The black gold lost almost 6% of its value last week. After a four-days sell-off, the price of WTI Crude oil tested $51.00 handle, the level never seen since August 7. Although the bullish rebound took place on Friday, and the price regained some strength up to $53.33 per barrel, the technical sentiment changed completely. The ascending channel (blue lines on the daily chart below) was breached in the last trading day of September, and the green descending triangle is back in play. The horizontal static support comes at $50.59 and it has already been tested three times in recent months. Thus, a fourth test looks imminent and it might be successful. If that is confirmed, a bearish breakthrough and acceleration might happen.
On the other hand, the bulls would not give up just like that, and we should probably see a counter-attack this week. One more test of the descending green trendline is likely as the first technical rule says that the breached support (now resistance) has to be re-tested from the other side after the breakout. Therefore, a price range of $53.50/54.00 looks attractive for swing short positions. Going long on WTI Crude Oil is too dangerous as the selling pressure is consistent and robust, while the bullish upswing towards $62.00 was nothing but fake breakout.
USD/JPY: Bearish slide
The Japanese Yen was one of the strongest currencies versus the greenback this past week as USD/JPY dropped -0.94% to 106.92 after re-testing the static resistance level at 108.50 at the beginning of the week. Two factors influenced such a negative performance of the pair. First, weaker-than-expected U.S. PMI and NFP data, which forced traders to talk about one more rate cut by the Federal Reserve this year. Second, trade war concerns as China’s officials did not express too much willingness to step back with requirements from the United States.
Technically, the pair is still in the bullish upswing, however, things might turn upside down this week. At the time of writing, USD/JPY was trading above the crucial support level of 106.80 yen per dollar, which is represented by the upper band of the Ichimoku Cloud. However, there was a downside weekend gap noticed on Monday morning, which might point to the market’s sentiment to sell the pair on the back of risk aversion. If that selling pressure continued, USD/JPY could slide towards 106.00 support and 105.50 in extension. Such a scenario suggests a bearish trend resume, underlining that the recent upswing towards 108.50 was nothing but retracement. Traders wil
USD/CHF: Bullish continuation
The Swiss Franc was surprisingly the weakest currency among majors as USD/CHF continued gaining strength despite the greenback’s weakness across the board. The pair appreciated +0.46% and closed the past week at 0.9955. What’s more, the parity between the U.S. dollar and Swiss Franc was tested for the first time in 17 weeks. The demand for USD/CHF should continue in the week ahead and here is why.
Bollinger Bands indicator (21 days) is bullish with the rate placed in the upper part of the channel. As long as the daily rate is above the BB middle line, the bullish continuation is likely. The blue ascending channel points to the resistance trendline, which has already been tested three times recently. Although there were three consecutive long upper shadows on daily candlesticks, the bears cannot push the pair below the support range. Williams %R and Stochastic RSI oscillators indicate a gradual uptrend with no sharp spikes in the momentum, which confirms previous assumptions. The trading week opened with a bearish gap but was filled immediately as traders prefer buying USD/CHF amid global economic outlook.