Such a lovely and welcome change to have some decent weather today - maybe ‘Flaming June’ is finally upon us and I won’t be turning on the heating this week……..
Obviously the Brexit Vote is getting close now and is just under 3 weeks away - as I mentioned in my last Blog, I think some sort of drop in the FTSE100 is most likely prior to the Vote (it may not happen, but that is what I think is most probable) and there are some signs that the recent moves up are weakening, and this is also the case in the US. This is even more noticeable with the Gold Chart which looks to be turning up - I think this will act inverse to the Indexes and we will see Gold rise if the Indexes fall and vice versa.
There are no really clear Signals for me on the Indexes yet, but the Weekly Candles are hinting that some Bearishness may hit us soon and the Brent Oil Chart looks like a Pullback is on the cards. I have shown this in the Charts below.
As per my Blogs from previous weeks, according to the UK Stockmarket Almanac 2016, June is the 2nd Weakest Month of the Year (2nd only to September) and it tends to start well for a few days and then drop away for all of the Month.
Historically, the coming Week (w/c 6th June 2016) is Up for 56% of Years with an Average Return of 0.1% - i.e. it tends to be pretty flat. Skipping ahead, I note that the next 2 Weeks tend to be very poor - but of course this Year we have the added bonus of a Brexit to worry about.
As we got towards the end of last week I noticed that the Weekly Candlesticks on most of the Major Indexes were looking quite Bearish and only an amazingly strong Up day on Friday 3rd June 2016 would have avoided this scenario. As it turns out when the Candles completed, we did get the Bearish setups that I expected.
The Screen below from the superb ShareScope software that I use shows the Weekly Candles for the S&P500 over about a Year and a bit. My Black Arrow is pointing to a sort of ‘Hammer Doji’ kind of thing that was created last week - in the context of the strong gains of the week before, this could turn out to be a Reversal Signal meaning we could drop in the coming week. However, this is not cast iron guaranteed and such a Candle might simply be telling us that the force of the move Up has softened and any more upwards progress might be slow.
Having said that, there is another critical factor on this chart - that is the matter of very Strong Resistance up above. The Key Level of Resistance that needs to be broken through is the 2135 Level which is the All Time High (ATH) for the S&P500 - it will be a big ask to break this level, but if it can, then it should make a strong move up afterwards.
Before it can crack 2135 though, there are a couple of other very difficult Levels of Resistance to get through - firstly 2105 which was the high point last week and then 2111 and 2120 especially. As you can see, there are a lot of Levels where Selling Pressure is likely to be very forceful - are we really going to find enough extremely committed Bulls to keep paying ever higher Prices and drive it up? Seems unlikely with a Brexit Vote looming and with the Trumpster about to become Leader of the Western World……
On the Support side of things, if we do Reverse down now, then there is Support around 2080, 2040, 2020 and 2000 which is a bit below the 200 Day Moving Average (the Light Blue Wavy Line).
The ScreenShot below shows the Weekly Candles for the FTSE100 going back about 10 Months ish. My Blue Circle puts rings around the Candles for the last 2 Weeks and this could be seen as Bearish - I can’t remember what the Pattern is called (it might be ‘Dark Cloud Cover’ but I always find those confusing), but I see this as the opposite (the Inverse if you like) of a ‘Bullish Harami’ 2 Candle Pattern which you get after a move down and is the ‘Pregnant Lady viewed from the side’ one. Think of the opposite of that after a move up, and that is the kind of 2 Candle Pattern we have here in my Blue Circle.
However, this is not a great Bearish Indicator and might just signal that the up move has waned pretty quickly and we might just go sideways or slowly move up - probably the best Signal we will get is if the FTSE100 starts falling straightaway this week and sort of confirms the bearish possibilities fo the Pattern. The biggest issue with calling this a Bearish Reversal Pattern is the context - we only really had 1 big Up Week before with a couple of small Up Weeks before that - so it was hardly a sustained ‘wave’ upwards.
On the flipside, like with the S&P500, there is Strong Resistance not far up above - in this case we are looking at 6290, 6300, 6374, 6427 and particularly at 6487 which will be a difficult Level to crack.
The Chart below has the German DAX Weekly Candles going back about a Year. My Black Circle marks an almost identical Candle Pattern to that on the FTSE100 and the correlations here are quite striking. Note also my Blue Line (marked with my Blue Arrow) which is showing a Downtrend Resistance Line which needs to be broken to enable the DAX to move higher. There is a lot of Resistance at 10475 here.
The Chart below has the NASDAQ Composite (the wider US Technology Index) Weekly Candles going back about a Year and a Half. My Yellow Arrow with the Black Border (yes, you can see I have been playing with the ShareScope Shape settings………) is pointing out a very clean ‘Doji’ Candle which was formed Last Week - on this Chart, it does look quite likely that it will mark a Reversal. Note the Resistance at 4971 and even if the Price can crack this Level, then there is a lot of Strong Resistance up above.
The Chart below shows the Japanese NIKKEI 225 Weekly Candles going back about a Year and a Half. My Green Arrow (it’s pretty small, you have to look closely) points to a pretty Bearish looking Candle from last week but I have seen a lot worse. However, the really interesting bit on this Chart is the ‘Triangle’ that is formed between my Blue Downtrend Line (marked with Blue Arrow) and the Black Uptrend Line (marked with my Black Arrow). As ever with any Triangles, the way it ‘resolves’ will determine the likely direction of a larger move - in other words, if it breaks down below my Black Line then it will probably go a lot lower or it if breaks up above my Blue Line, then it will most likely go a lot higher. It’s something to watch and the Triangle is very near its ‘Point’ so we should get a Signal pretty soon.
The Chart below has the Weekly Candles for Brent Crude Oil. My Blue Circle captures the Candles for the last 2 Weeks and it looks quite like the ‘Inverse Harami’ thing I invented up above on the FTSE100 Chart - however, even if you just ignore that, last Week’s Candle was a very clean ‘Doji’ and really does suggest that the strength of the Up Move (which is very distinct in this case) is waning. We might not fall straightaway, but any more upside will probably be limited and hard won.
Of course the issue here is Resistance - first of all we need to crack $51 and the $54 Level looks really hard to get above. You may have seen me mention this on a Tweet, but this week Nicole Elliott ‘The Trader’ in Investors Chronicle, mentioned that she thinks the recent strong move Up by Brent Oil from the Lows right at the start of 2016 might just be a 50% Fibonacci Retracement of the bigger Down Move from the Highs in 2015 around $70 - and if she is right, it might mean we see Brent Oil back down near $40 or even $25 later in 2016 (if you want to read this, it is on Page 18 of this Week’s Printed Investors Chronicle Magazine).
Below we have the Weekly Candles for Gold. It isn’t always the case, but it can be generally claimed that Gold can act as a Hedge for the Major Indexes and if this is to be true, then obviously we would expect to see some Bullish signs on the Gold Chart if the Indexes are likely to drop.
And if you look at my Black Circle, we have a pretty clear Bullish Harami 2 Week Candle Pattern - this is the Bullish Pregnant Lady thing. In the context of 4 Down Weeks, this looks a pretty good Reversal Signal and I expect Gold to rally now. Note the Key Support Level at $1200 and the Key Resistance Level at $1304 which we need to break to the upside.
Ok, enough of that Weekly business, the FTSE100 is the one that interests me the most (could it be possibly because I have a huge Short Position on it ?????), so I fancy more of a dig on that.
On the Screen below, I have switched to the Daily Candles and this shows about the last 8 Months. On Friday we had a Bullish looking Up Candle but its failure to hold its Highs and dropping back is not all that positive. To a large extent this is a game of Support and Resistance - whichever way it resolves will point to the likely direction. My Yellow Arrow is pointing to Support around 6152 which happens to be just about on the 200 Day Moving Average (the Light Blue Wavy Line) and the Resistance seems to be at about a little under 6300. In other words, if it breaks down below 6152 then it will probably fall more and if it can break over 6300, then it should go higher.
My Small Black Arrow is pointing to the 50 / 200 Day Moving Average ‘Golden Cross’ which was created about a Month ago - this is still a Bullish feature.
I have looked at several other Indicators like the RSI, MACD, Bollinger Bands, Overbought/Oversold Indicator etc. and everything just looks rather ‘Neutral’ - not really signalling anything much - so I will spare us all the inconvenience of looking at those !!
After scaring everyone with my repeat of comments from Nicole Elliott, I thought it would be good to put in this Chart just to remind us all how Bullish the Brent Oil Daily Candles Chart looks - as in previous Weeks, my Blue Uptrend Channel is clearly still being obeyed and it would need to fall out of this Channel to suggest that there is more Bearishness to come. We might get a pullback to the bottom Uptrend Line, but that might be all any Bearishness amounts to.
“Don’t panic Mr Oil Baron !!”
However, to add to the slightly Bearish tone, the Chart below shows that the ‘Bearish RSI Divergence’ which I talked about last week is still in place - this suggests more falls. The key to this if you remember, is that the Blue Line I have drawn on the RSI Chart at the bottom is sloping Downwards, whereas the Black Line I have drawn on the Upper Price Line points Upwards - this ‘Divergence’ is the problem.
The Chart below shows the Daily Candles on Gold for most of 2016 so far. My Blue Arrow is pointing to a belter of an Up Candle which was produced on Friday 3rd June and looks really Bullish after turning up off the 4 tight-range Candles which preceded it - this is very Textbook stuff and looks great for further gains on Gold (remember how I mentioned that Gold can move opposite to the Major Indexes - this could be telling us something).
My Black Downtrend Line (marked with the Black Arrow) is a Line of Resistance that needs to be broken for Gold to go higher - and of course the $1304 Horizontal Level is vital to get over.
That will cover it for this week, I hope everyone stays safe - with the Brexit Vote imminent I see no need for heroics and I will be nice and lazy with my Trades as I have been for all of 2016 so far - I just don’t see any need to be doing much. However, I would love a decent drop around the Brexit Vote so I can close out the FTSE100 Shorts and get buying some Stocks I want to topup on.
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