14Dec 2016

The Bells are Jingling – A look at Indexes, Oil, Gold, Forex

We are coming to the end of November and it is pretty clear the Xmas Bells are ringing loud and clear – my local radio station is beating out the painful Xmas ‘hits’, TV Ads are in full swing and the weather has certainly got that Xmas nippy feel to it. December is normally the strongest month of the year although the ‘Santa Rally’ tends to happen right at the end and often in the gap between Xmas and New Year – but the trend is very strong and I am happy to be going into this final month of 2016 with only a small Short Position on the FTSE100 which if we get a pullback in the early days of December I would be quite happy to close out.

Last week was pretty soggy which was no great surprise with the US Markets disrupted on Thursday and Friday by Thanksgiving. This week may also be shaped by events as we have an Opec meeting on the 30th Nov (I think that’s right), US Non-Farm Payrolls on Friday afternoon to give Day Traders some excitement and on Sunday we have the Italian Constitutional Referendum which could cause a stir in the first week of December.
As I understand it, if the government loses the Referendum Vote, then Prime Minister Renzi will resign (he has threatened to do so but I guess there might be a chance he does the usual Politician’s trick of totally back-tracking on what he has said) and the President of Italy will invite some other chap to try to form a government (it’s all about Coalitions apparently). Only if that bloke fails to get a stable government will a new General Election be called and that is when things get really interesting because there is a very good chance the Anti-EU ‘5 Star Movement’ run by a Comedian (aren’t they all?) will win and take Italy out of the EU which would be the end of that Brussels Regime and no doubt cause immense turmoil in Global Markets. This is only the first of several tests for the survival of the EU in 2017 and this could very well be a continual theme of the Year and something to be very wary of. If the EU gets through the Italian situation, then we have a big existential threat from the French Election and others like Dutch Elections could kick up some trouble.

 

December Market and the view from the Almanac
According to the UK Stockmarket Almanac 2016, since 1984 when the FTSE100 was started, the FTSE100 has delivered 2.3% of Upside on average and is the Best Month of the Year. In addition, since 1984, the FTSE100 has only fallen 5 times in December (this equates to rises in 84% of years). This record is also repeated across the World with pretty much all Stockmarket Indexes loving December. In a typical December, we get gentle gains in the first 2 weeks and then it goes into “overdrive” with the last 2 weeks being the strongest period of the Year – indeed, 3 of the Best Days are in this fortnight.

The coming week (w/c 28th November 2016) is historically Up for 55% of years with an Average Gain of 0.6% for the FTSE100 – in other words don’t expect much yet.

Right, onto the Charts……

FTSE100
On the chart below (as ever, all charts are screen-scrapes from the award breaking ShareScope software I use all the time), I have zoomed in on the FTSE100 Daily Candles to just about the last 5 months. The key thing here is how the FTSE100 broke upwards last week above the Top Line of the Black Lines Triangle (this is pretty obvious, it is where the Black Arrows are pointing and I discussed it in recent Blogs) and this is a Bullish development.

However, note how on Friday we got a ‘Doji’ Candle, highlighted in the yellow circle, which shows how the Bulls have failed to charge out of the Triangle although this is no great shock as the US Markets were closed mostly and gave little impetuous themselves. The key Resistance Level now is that 6880 level which I have shown in the Blue Textbox – note how the Price is also very near the 50 Day Moving Average which I have marked with the Blue Arrow.

Note further down I cover the Oil and Quid Charts and both of these suggest there could be weakness in the FTSE100 as it has been largely driven by these other Charts for most of 2016.


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It’s really noticeable how many of the FTSE100 Indicators are at ‘neutral’ levels – things like the RSI and Overbought/Oversold Oscillator especially – I won’t show them here as I tend to stick to the really important charts but it is something to be aware of. I guess the implication is that the FTSE100 is lacking a clear direction at the moment and neither the Bulls nor the Bears are in command.

The chart below has the MACD (Moving Average Convergence Divergence) for the FTSE100 Daily and I have marked where we had a recent Bullish MACD Cross and now moved into positive territory. The Blue Arrow is pointing to this on the ‘Line’ form of showing the MACD and my Black Splodge is showing it as ‘Histograms’.


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The Screen below has the Weekly Candles for the FTSE100. My Yellow Circle highlights an Up Candle from last week and after the ‘Inverted Hammer’ from 2 Weeks back, which I have marked with the Black Arrow, the direction here seems to have turned upwards. Obviously there is a lot of Resistance up above that the Price needs to wade through, but things look decent enough for Bulls here.

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DAX (German)
I find this Chart interesting although I don’t have much (if any) exposure to this myself. I have shown the DAX Daily Candles going back about 4 months and the first thing to look at is the High Point at 10828 (shown with the Blue Text Box) – this is the Key Resistance Level that needs to be cracked and if the DAX can achieve this, then it is very likely the Bulls can push things much higher.
It actually gets a lot more interesting than just this. If you look at my big sort of Green Circle, this is highlighting some ‘sideways’ action (nudge, nudge) that has been playing out for a couple of weeks after a huge move up as I have marked with my Black Arrow. It is very possible that this is a ‘Bull Flag’ pattern – my Black Arrow is marking the ‘Flagpole’ and my Green Circle would be the ‘Flag’. If this plays out in this way, then the theory is that if the Price can breakout to the upside, then it could rise by the height of the Flagpole which would be around 450 points !!!It’s interesting to consider how the Technical Chart outlook is quite different from worries about the Italian and French Elections which are Fundamental Fears – I wonder which will prove to be correct?

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Euro vs. Dollar
My Chart below has the Daily Candles going back about 3 years as an attempt to show the ‘Big Picture’ for the Euro/$ (I can see a ‘Euro’ symbol on my keyboard but god knows how I make it work). The thing to note here is how the Euro collapsed against the USD during 2014 and since then it has all gone sideways in a Range between about 1.05 to 1.16. At present we are down at the bottom of this Range.

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The screen below has the Daily Candles for Euro/USD – first off note my Black Arrow which highlights the 50 /200 day Moving Average ‘Death Cross’ and then look at how things played out after this – these Crosses are extremely useful and worth nothing when they happen (along with the ‘Golden Cross’ which is more pleasant for Bulls). The Darker Blue Wavy Line is the 50 day Moving Average and the more Faint Blue Wavy Line is the 200 day Moving Average.

The important thing really is how the Price has continued to make fresh New Lows as the Euro has plummeted against the Dollar as the latter has strengthened. What we need to see here for the Euro to start to recover is a test of a Low that actually holds and helps to start building a Base of Support. In this immediate example, if the Price can move up a bit and then move down and test 1.0518 or just a bit higher, then we could get a start of building Support. At the moment, the Price is really in free-fall and the best we can hope for is that a Range forms between about 1.0518 and 1.066 (as per my Blue Text Boxes).


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In the bottom window on the Screen below, we have the RSI (Relative Strength Index) for the Euro/USD. With a current reading of RSI 32 we are at an extreme low reading and it seems quite plausible that the Euro can recover a bit from here. So maybe a Support Base can start to be established.

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This is very intersecting. The Chart below has the Weekly Candles for the Euro/USD – my Yellow Circle is highlighting a cracking example of a ‘Long Tails Doji’ which was created last week – in the context of a strong move down in the previous 2 weeks, this is quite possibly a Reversal Signal and we will see the Euro recover a bit.

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Pound Sterling vs. US Dollar
The chart below has the Daily Candles for the £/$ (ah, I can find the Symbols for these on my keyboard !!) and regular Readers should recognise this sort of thing from recent Blogs. Firstly note my Blue Arrow which is pointing to the 50 Day Moving Average line and note how the Price is now right up against this Line – this could act as Resistance and a move above this line would be a positive sign for the Quid.
Apart from that, the Pound seems to be slowly recovering ground against the Dollar and there is good Support being built below the price which suggests to me that we have now seen the Low Point for the Quid down at 1.1947 – only if this level fails will that picture change. It still looks to me like the immediate Key Levels are 1.23 below and 1.2675 above – as per my Blue Text Boxes.

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The chart below shows the Monthly Candles for the £/$. I have to put in a huge CAVEAT here that we are still a few days away from the end of November so this picture could change and needs to be monitored. If things stand as they are, then my Yellow Circle is highlighting a possible 2-Month Candle Pattern which is a ‘Bullish Harami’ (Candlestick Bingo – please now mark off the ‘Pregnant Woman viewed from the side’ box on your form) and in the context of the strong move down for many months, this could well mark the start of a Reversal Upwards.

Remember, this has big relevance – if the Pound recovers some ground, it could well drag on the FTSE100. It would also impact the Brexit ’Remoan’ argument that leaving the EU will cause Inflation due to a weaker Pound.


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Nasdaq Composite (the main US Tech Index)
The chart below has the Daily Candles for the Nasdaq Comp – this goes back to the Credit Crunch lows back in 2008 and apart from the wobbles in early 2016 there is a very clear Uptrend Channel here.

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The Chart below zooms in on the Daily Candles for the Nasdaq Comp and the key thing here is that despite the strong run up in recent weeks, we might still see a little bit more as we have not yet had a clear Reversal Signal on the Candles. Key Resistance is now the new All Time High at 5400 and obviously if this is taken out it shows the Bulls are still very keen.

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The bottom window on the Screen below has the RSI for the Nasdaq Comp Daily – with a reading of RSI 62 it is clear it can go a lot higher by its historical norms. This is a good sign we can see more gains here in the very short term.

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Nikkei 225 (Japan)
I don’t often show the Nikkei because I don’t personally have a Dog in this Fight – however, there are some interesting things going on which I think some Readers may find useful (I know many people have Japan exposure). First off my Black Arrow is pointing to a ‘Golden Cross’ between the Dark Blue Wavy Line (Green Arrow) of the 50 Day Moving Average and the Faint Blue Wavy Line (Red Arrow) of the 200 Day MA. As I mentioned earlier, these are useful Crosses because look what happened after the Golden Cross – nice move up.
My Yellow Circle is highlighting the beautiful example of a ‘Long Tails Doji with a Narrow Body’ which was bashed out on Friday 25th November and this could well mark a Reversal Signal – and it is very clear that there is Resistance at the end of the top Tail at 18483. Such things as this are beloved by Short Term Position Traders because if the Market opens lower than the Friday Close on Monday, then a Short Position can be put on and the Stoploss would be placed up above the 18483 Level.The other interesting bit here is that the 2 Candles in my Yellow Circle followed a ‘Gap Up’ – if we get a ‘Gap Down’ now, then it would mark a ‘Gap Island Reversal’ which tends to mean more falls to come. Much of the move up on the Nikkei will have resulted from the Dollar strength causing a Weak Yen – if this changes then it would make sense for the Nikkei to fall back.

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S&P500
The chart below has the Daily Candles for the S&P500 – the main US Index in my view (the Dow Jones Industrials only has 30 huge Megacaps so it is fairly unrepresentative of what is going on in Trumpland) and my Yellow Circle is pointing out a Big White Up Candle from Friday 25th Nov which suggests more gains to come. The key here is the new All Time High at 2214 which needs to be taken out (marked with my Blue Text Box). Underneath, there is good Support from the previous All Time High (remember, former Resistance becomes Support and vice-versa) at 2194, marked with my Red Text Box.

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In the bottom window on the Chart below we have the RSI for the S&P500 Daily – with a reading of RSI 65 it is getting quite high by the usual standards of this Index so we might see a Reversal soon.

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VIX Volatility Index (The ‘Fear Gauge’)
This chart is interesting because the VIX is down at a very low reading – it can stay down here for a while but a Low VIX tends to predict a High VIX and this suggests the current bullishness in the US Markets particularly will come to an end in the near future – I suspect we can see out 2016 ok but early 2017 might be fun.

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Brent Crude Oil (Spot)
The Chart below has the Daily Candles for Brent Oil (Spot) going back about 6 months. My Black Arrow is pointing to a Big Red Down Candle which was created on Friday 25th November, turning down off 3 Dojis from the days before. This suggest more falls and if this happens then the FTSE100 might suffer with it.  There is a lot of Support down below in a bit of a range between about $47 and $45. Note how the $50 day Moving Average (Blue Wavy Line) is acting as Resistance at about $49.

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Gold (Spot)
Starting off with the ‘Big Picture’, my Chart below has the Monthly Candles for Gold (Spot) going back 9 years or so. First off note the Green Line marked with my Green Arrow – this seems to be a Resistance Line that needs to be got over if Gold is going to please the Goldbugs. Note my Parallel Blue Lines which are marking a short Uptrend Channel that has been in force for most of 2016, but we have now dropped out of it – this is not good.
It’s all about Support now. Down below we have strong Support at $1046 as per my Black Text Box and then further below that we have Support at various levels between $1000 down to $680 (as per my Blue Text Boxes). I would see $1000 as an extremely critical level – if this fails, then Gold could become very painful for Holders.

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There is a glimmer of hope for Gold Bulls on the Chart below of the Daily Candles going back a few months. My Black Arrow is pointing to a ‘Long Tails Doji’ Candle from Friday 25th November, and note how it has a long down ‘Tail’ which hints at a Reversal – so we might see a rise in coming days especially in the context of recent heavy falls. Support at $1171 is obviously important now.

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The chart below has the RSI for Gold Spot. At RSI 26 this is very low and sort of confirms that the Reversal Doji shown in my previous Chart could well work out nicely for Bulls.

Right, that’s it for now, Good Luck for the coming battles…..

Cheers, WD.


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