The big event next week is on Monday (tomorrow at the time of writing) and is the first of the TV Debates for the US Presidential Race between Mrs Clinton and Mr Trump. Of course it is very difficult to predict accurately what will happen in both the Presidential Race and the Market’s reaction to it. My current view is that the Markets are expecting a Clinton win and she is the Wall Street Candidate and I suspect a large amount of Bias is making Traders quite blind to the fact that Trump has closed up in the Polls hugely since Clinton’s confirmation as the Democrat Candidate. Trump seems to be capitalising on seeming more ‘normal’ than the usual run of the mill Politicians - his utter lack of Politically Correct language and behaviour is his major attraction to Voters who are sick of the Washington Elites.
Trump would most likely worry the Markets I think - firstly the Media Narrative is that he is an unstable, racist, warmongering Hitler enthusiast, but of course the reality is very different and we are seeing a repeat of exactly what happened with the Brexit Vote where the Political and Big Business Elites only see what they want to see. Secondly, Trump has some fairly radical Economic Policies - I view them as a cross between Ronnie Raygun and Jezza Corbyn - which although there may be some merit in them, would take a huge upheaval to implement; and this would get Markets worrying about the US Deficit and Debt Levels.
So, the TV Debate tomorrow night will be really ‘Must See’ TV - I’m not sure what time it is on but I would guess it is late in the Evening UK time - I will definitely be tuned in and all eyes will be on Hillary’s health; any slightest hints of illness and you can bet she is in big trouble.
Anyway, lets check the Almanac and move on to the Charts.
I’m pretty sure Regular Readers will be fully aware that September is the Worst Month of the Year usually and the Autumn can be a difficult time on the Markets. So far September has actually been OK with a decent gain on the FTSE100 of around 100 Points, however, we still have a Week to go and a Presidential TV Debate…….
According to the UK Stockmarket Almanac 2016, the coming Week (Week Commencing 26th September 2016) has been Up historically for 48% of Years with an Average Return of Positive 0.1% - so it tends to be a Flat Week really.
Let’s start with the ‘Big Picture’ - it’s been a couple of weeks since I updated this one (remember, we should always start with the wider view first and then drill down). The Chart below (a screen-grab from the superlative ShareScope software that I use as my ‘Workbench’), shows the Daily Candles going back to the Low at 2009 and this clearly has the Uptrend Channel marked top and bottom with the Red Lines. The Key thing here is taking place within the Yellow splodge and I will delve into that on the next Chart.
I am loving this Chart below - there is a lot going on here that is really significant - and how it plays out will dictate where the FTSE100 is going to go. The most important thing here is the Red Line (marked with my Red Arrow) which is the Bottom Line of the Long Term Uptrend Channel which I showed in my last Chart. Now look at my Black Arrow which points down to where the Price moved up and touched the Red Line but then it fell back - in other words it failed to break through the Resistance of the Bottom Line of the Uptrend Channel. This is technically beautiful - remember the Critical Rule that “Former Support becomes Resistance and former Resistance becomes Support” - this is clearly being obeyed here (the former Support of the Red Line which held for around 6 years is now acting as Resistance).
My Green Arrow points to where we are now - at this point in time we do not know if this is a new Peak (High) or if we can keep moving up. However, if we turn down now then that will be very bad. If we continue moving up, we should then test the Red Line again - will it hold as Resistance or will we get a very bullish breakthrough?
We have more guidance here. Firstly, look between my Black Arrow and my Green Arrow - you should see another Peak (High) which actually dates form 2nd September - although you can’t really tell that from this Chart. The key point here is that on that occasion the FTSE100 failed to even manage to get back up to the previous High where my Black Arrow is - so this was a first sign of weakness.
It doesn’t end there. Now look at my Blue Line (marked with the Blue Arrow) - this was a line I drew in some weeks ago and comes off the Peaks from back in early 2015. We are at a really important point now - note how my Green Arrow points to where the Price is now touching the Blue Line - if it fails to break up through the Blue Line and falls away, then this is very bearish confirmation and means that both the Blue Line and the Red Line are now STRONG RESISTANCE.
See, I told you it was a juicy Chart.
Right, let’s go in even closer and look at the Candles and see if they tell us much (I’m not sure they do really). The Chart below zooms in and we still have the Blue Line and the Red Line but note there are now a couple of other Uptrend Channel Lines in Green.
The action is all really happening in my Yellow Circle - look at the Big White Candle which was generated on Thursday 22nd September and peaked out at 6937 with a bit of a ‘Wick’ or ‘Tail’ at the top of the Candle - this shows that despite the strong rally that day after the Fed News, it couldn’t hold the High of the day and that was a hint of weakness. Note how the high point of that Candle pretty much touches the Blue Line and then pulls back. Note also that the Green Line at the top of the new Uptrend on this Chart is also a line of Resistance - so there is a lot going on here.
On Friday 23rd September we got a sort of ‘Star Doji’ thing - this might be telling us that the Market will turn down next week. In support of this, the Oil Chart looks ropey and this could drag the FTSE100 down with it.
The Screenshot below in the Bottom Window shows the ‘Overbought/Oversold’ Oscillator for the FTSE100 Daily. My Green Circle shows where we are now and it looks like it has turned down from quite a high level - this is a very short term indicator and things can change very quickly. If this Indicator is correct (or more accurately, if my interpretation of it is correct !!) then it means the FTSE100 is most likely to drop early next week - so this would confirm a new Peak on the Charts above and be very bad news for Bulls.
In the Bottom Window below we have the RSI (Relative Strength Index) for the FTSE100 Daily. My Black Arrow is pointing to where we are now with a reading of about 59 and it looks like it might have flicked down. For many Assets this is not a particularly high level but the FTSE100 has a history of struggling at the Green Line around RSI 64 for the last couple of years and it very rarely gets up to the Red Line at RSI 70 (which is the conventional ‘Overbought’ Line for pretty much all Assets). With it being Autumn and with a Looney about to take over the White House, maybe an RSI up around here is going to struggle. Note the RSI is a very Short Term Indicator but it is a bit ‘slower’ than the Overbought/Oversold Oscillator and I utterly adore the RSI.
The Bottom Window on the Chart below shows the MACD (Moving Average Convergence Divergence) for the FTSE100 Daily. My Yellow Circle is highlighting how both the Red and Green Histograms and the Blue Signal Lines show a Bullish MACD Cross - so this is good for Bulls but of course this can turn down quite fast (look to the left to see an example of about 4 Green Histogram Bars which show how a Bullish MACD Cross can soon fizzle out).
The Screen below has the Blue Bollinger Bands above and below the Price Line for the FTSE100 Daily Candles. My Green Circle shows how the Price touched the Upper BB on Thursday but it is very likely we will fall back now from the Upper Band. However, an alternative is that we might go sideways - I doubt this will happen.
The Chart below has the Weekly Candles for the FTSE100. My Black Arrow shows a nice big White Up Candle from last week - this is a Bullish thing but of course we know from the earlier Charts that it is very possible that the Resistance up above will stop any Rally. Note Support at 6700, 6654, 6615 - if these fail, then we go a lot lower I suspect.
I don’t want to spend hours on the DAX because there are loads of Charts to get through, but there are some interesting things going on here and it is important because Global Indices have a very high level of Correlation - so they all rise and fall together to a large extent - often it is just the size of the Moves that differs, not the direction (the outliers to this can be some of the Emerging Markets and the Chinese Market).
The Chart below has the Daily Candles for the DAX going back just a few months. Note the Yellow Circle which marks the Inverted Hammer Candle that is still dominating this Chart - the Intraday High at 10800 is capping any Rally.
My Green Circle is showing the Big White Up Candle from Thursday 22nd September and then the Small Red Down Candle which was produced on Friday. This is interesting because we have an ‘Inside Day’ (the Candle from Friday is inside that of Thursday) and this is important because we have the start of a 3-day Candle set-up; if the Monday gives us a higher Up Candle then we are likely to see more gains in coming Days but if we get a lower Down Candle on Monday, then expect more falls.
Nikkei 225 (Japan)
I have popped this Chart in because there is important stuff going on here. The Chart below has the Daily Candles for the Nikkei 225 going back about a Year. First thing to note is how the Darker Blue Wiggly Line (marked with my Green Arrow) is very near crossing the Lighter Blue Wiggly (marked with my Red Arrow) - if this happens, then we will have a 50 / 200 Day Moving Average Bullish ‘Golden Cross’ - which tends to mean more gains to come in the Weeks ahead. My Yellow Circle is highlighting how these Lines are moving together.
My Black Line (marked with the Black Arrow) is showing a Resistance Line going back for much of 2016 - the Price must get over this. Note the Critical Resistance Level at 17156 - if the Nikkei is going to Rally, then it must crack this Level.
S&P500 (US Main Sensible Index)
The Chart below has the Daily Candles for the S&P500 going back just a few months. First off note the small Blue Arrows at the top which are showing the ‘Double Top’ which I mentioned first a few Weeks ago - this is still dominating the Price Action and has Strong Resistance at the New All Time Highs at 2194.
Next up note my Red Arrow which is pointing to a Downtrend Resistance Line - the Price must break through this for the Bulls to get excited. My Black Arrow is pointing to a Big Ugly Down Candle that was produced on Friday 23rd September - this looks pretty nasty. It is particularly Bad News if the Price fails to get over the Peak (High) from Thursday 22nd September at 2180 - if this fails, then we have a succession of ‘Lower Highs’.
The Chart below has the Weekly Candles for the Nasdaq 100 (note, this is a different Index to the Nasdaq Composite, but tends to move in a similar way) going back for 2016 so far. My Yellow Circle is highlighting a ‘Long Tails Doji’ Candle which was created last week and this suggests indecision - neither the Bulls nor the Bears had the upper hand. It is difficult to interpret this really - if we had a clean run of Up Candles and then saw one of these, then it might mark a Turning Point and a Bearish Reversal - however, in the context we see on this Chart, it is not so clear cut.
Bearing in mind the Rally off the Lows earlier in 2016 and around the Brexit Vote in late June, the preponderance of so many Doji Candles in the last 7 Weeks suggests to me that we might be near a Turning Point. Fundamentally this would add up nicely because I am very much of the view that the Presidential Elections will cause some Uncertainty and consequent Weakness in Markets.
Note the New ATH at 4895 - the Bulls need to push it over this level. I have a Short Position on this Index.
VIX - Volatility Index ‘The Fear Gauge’
If you listened to the last Podcast I recorded with Justin for VoxMarkets, you may have heard me banging on about something called the ‘VIX Index’ - well this is it. I don’t know the exact details but it is somehow calculated mechanically off the S&P500 and moves in an Inverse manner - so if the S&P500 goes up, then the VIX falls and vice-versa.
Anyway, if you look at the Chart below, my Blue Arrow points to where we ended up last week down around the 12 level - if you look to the left you will see this is pretty much about as low as it gets - so a Trade where we go Long on the VIX around these levels could work really well. I know igIndex offer a Spreadbet Trade on this. I am tempted to give it a go but I might wait a day and see how Monday plays out.
Note how ‘spiky’ the Chart is - this demonstrates the ‘Asymetric’ nature of the Trade I was on about - if a Long Position is opened down near the Lows then the Downside should be quite limited (bear in mind that Volatility can never go to Zero) but the Upside can be fast and provides gains that are multiplies of the Downside Risk. It could be a great way to Hedge a Long Stock Portfolio.
Brent Oil (Spot)
The Chart below has the Daily Candles going back about 4 months. The key thing here is the Candle which was bashed out on Friday - note, there is a quirk with the ShareScope Software I use which is always slightly different to the underlying Market Price - I think this is because Oil is traded 24 Hours a Day but ShareScope updates at 10pm and I guess it is something to do with this timing issue. Anyway, I looked on CNBC and Brent Oil closed the Week out down at near $46 after rising to $48 earlier in the Day on Friday - this looks pretty bearish because a Rally has failed again. My Black Arrow points to the Candle produced on Friday but in light of what I said above, note that it closed near $46 which I have highlighted with the Blue Text Box.
Clearly my Red Line marked with the Red Arrow is acting as Strong Resistance and on the downside I think Support at $45 must hold.
The Chart below has the Daily Candles going back about 7 months for Gold. Note first my Black Arrow which shows a very clear Downwards Sloping Resistance Line - the Price must get over this to go higher.
My Blue Circle is highlighting a strong area of Support down below - $1300 is the Key Level that must hold. My Yellow Circle is highlighting the 2 Candles that were produced on Thursday and Friday last week - these are both ‘Dojis’ of various shapes and suggest that we might see some Downside in coming Days.
OK, that’s it for now, I hope everyone has a Productive and Pain-free Week,
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