I have left the Blog a bit late tonight, so I won’t do much introductory blurb and will get into the pretty pictures fairly quick. The big thing for me last week was the Breakout yet again on the US Indexes (the ‘News’ blamed it on Trump saying his Economic Budget would be “amazing” or something like that), and as I have pointed out on Twitter and in various comments on the Website, I see this as extremely Bullish behaviour and I have backed that by adding to my Long S&P500 Spreadbet Position.
I saw Trump going on about his Budget in the last couple of days and I think he implied it would appear in a few weeks - this is a big focal point for the Markets - if he can get anywhere near expectations, or better still exceed them, then perhaps the Rally can keep on motoring but if he disappoints with the scale of the Plans, they maybe we will get a sell-off. I wrote in last week’s Charts Blog about how I think Trump’s Economic Policies could cause a massive injection of life into the US Economy and by extension into the Global Economy - if you have not read it then I recommend you check it out.
On tweets in recent days we have had a short discussion about a ‘Shooting Star’ (or what I would say is really an ‘Inverted Hammer’ - hey, but what’s in a name, as both are Bearish) on the Monthly Candlesticks for the FTSE100 and I wanted to start with this as it is one of the few Bearish phenomena that is visible across Indexes in general.
The Chart below has the Monthly Candles and it is probably best to envisage it as if the White Up Candle that I have pointed at with my Yellow Arrow is not actually there (come on, I am sure I am not asking too much for you to just mentally block that out. If you are struggling, grab some Black Tape and stick it on your Screen to cover it up - now, that’s better….). I have a feeling I showed this Chart last week or the week before but I want to revisit it in particular because Nicole Elliott (‘The Trader’ in Investors Chronicle) mentioned this ‘Shooting Star’ in this week’s copy.
Anyway, the offending Shooting Star (or Inverted Hammer !!) is what my Blue Arrow is rudely fingering - the trouble is caused (no, not because the Blue Arrow gets arrested) because in the Context of a long Run Up - we have had around 11 Months pretty much of rises - getting a Bearish Candle like this could mark a Top and signal to us that a Reversal is about to happen.
These Bearish Reversal Candles are on the whole very reliable - I think I read somewhere that they can be around 75% predictive and in my experience that sounds about right - in fact, on the Longer Timeframes (i.e. Months rather than Weeks or Days or Hours) they tend to be even more reliable. However, on the flipside, look where my Black Arrow is how we had a very Similar Inverted Hammer type Candle (although in this case it was a White Up Candle as opposed to a Red Down Candle - but that is irrelevant) and although that predicted a fall which happened in the following Month, very quickly the Market Reversed again and carried on up.
Right, now pull the Black Tape off your Screen and clean up the glue marks. My Yellow Arrow is pointing to a White Up Candle which has formed up so far this Month - now it is important to realise that we do not have a Full Month here so I am jumping the gun to say that the Shooting Star / Inverted Hammer will be negated this time around, but it is clear that for the Bearish Reversal Signal to be activated, we need to get a pretty nasty Downturn for the rest of February (it might not happen straight away, it could of course tank in the last Day of the Month !!!). So far my hunch would be that this Signal will not be activated and Markets can continue rising - however, the FTSE100 has been affected so much by the Value of the Pound lately that perhaps a sudden rise in the Pound could happen and cause a Plunge in the FTSE100. We shall see.
At this point I just wanted to make this situation fairly clear (ok, I have probably confused everyone even more) and what we really need to watch for is how the Candle forms up when February is finished - a nice Up Candle would negate the Bearish Signal.
Right, I am going to freak you all out now by jumping to the US Indexes !!
Dow Jones Industrial Average
This is just 30 Huge Mega Caps Stocks and in many ways the S&P500 is a more meaningful Index - however the DOW is widely watched by everyone in the Markets and it is worth keeping an eye on.
The Chart below (as usual all Charts from the outstanding ShareScope software), has the Daily Candles going back 6 Months or so and the key thing to note here is where my Green Arrow is which marks yet another Horizontal Resistance Breakout on this Index. Note the last Candle on here which is from Friday 10th February couldn’t quite hold the New All Time High which was produced at 20298 - I am not sure this is really all that big a deal as the Intraday ease back by the Close was not all that large and it is no shock that Traders want to close out Long Positions by the end of the Week. Mondays have a tendency to be a bit ropey a lot of the time and perhaps we will see some pressure tomorrow before then charging on upwards again. Overall this continual Breaking Out to new All Time Highs is very Bullish Behaviour.
Another thing I really like about this Chart is how there is such solid Support not far below the Current Price. As you should be well aware of, the Technical Analysis logic is that “Former Resistance becomes Support and Vicy Versy” - which implies that all of these recent Breaks of Resistance at 19800, 20000, 20126, etc. are all very Strong Levels of Support. In fact, the whole 19678 to 20126 Band represents a very Strong Zone of Support - and you can throw in the Wavy Blue Line as well which is the 50 Day Moving Average which should add another Supporting Level.
However, if this Support Zone does fail at any time, then we might see a hefty drop and it would be difficult for the Market to recover and get back up through what would now change into a Zone of Resistance - don’t panic yet though, I doubt this is going to happen and we will get plenty of warnings.
The Chart below has the RSI (Relative Strength Index - the ‘Acceleration / Deceleration’ if you like) for the DOW Daily. On a current reading of RSI 66 this is very high but there is scope to go a bit higher before we get a turn down. Note however, that the RSI can fall just by the Price Level for the DOW going Sideways - it does not necessarily need to Drop to unwind an Overbought RSI Condition.
This is an important point that my mate Jase (@stealthsurf on Twitter and www.tradingbases.co.uk) often makes - any Market has 2 ways or calming down after an excitable move up - it can ‘Correct’ by dropping very fast like when we get sharp Sell-offs or it can unwind by going Sideways and in effect Consolidating over Time. I think the way Jase puts it is that Markets consolidate Gains by a Price correction or by a Time correction - something like that. I hope it makes sense.
My Red Arrow is pointing to a recent Peak on the RSI where it hit an extremely high reading of about RSI 82 - this is very unusual and if we see a similar move up then the Price would be way higher than it is now. I doubt we will see this without some sort of Correction (remember, this can be by Price or by Time !!).
The Chart below has the Daily Candles for the DOW with the Blue Wavy Bollinger Bands above and below. Note my Black Arrow which is pointing out how the Candle from Friday is up at the Top BB and this often means it will drop back soon. However, note my Yellow and Green Circles which show how often in the recent past the Price has been able to ‘hug’ the Upper Bollinger Band for a period of time - we might be able to do this now.
In the bottom window below we have the MACD (Moving Average Convergence Divergence) for the DOW Daily - my Black Arrow and Blue Arrow are showing different forms (Histograms and Signal Lines) of a Bullish MACD Cross which was done 2 days ago - this is obviously good although MACD can reverse quite quickly.
The Chart below has the Weekly Candles for the DOW. My Green Arrow is pointing to the Sweet Big White Up Candle from last Week - clearly this is Bullish.
The Chart below has the Daily Heiken Ashi Candles. My Yellow Circle is pointing out some nice Big White Up Candles with appropriate upwards pointing ‘Wicks’ or ‘Tails’ - with the way HA Candles work, this is very Bullish.
Just to add some comparative colour, here is the Monthly Candles Chart for the DOW - so we can see how this one behaved compared to the FTSE100 and that blessed Shooting Star thing. My Yellow Circle is highlighting a classic ‘Doji’ Candle - I would call this a ‘Star Doji’ because the ‘Body’ bit is so narrow (although I am not sure this is the ‘Textbook’ name). In the Context of a Run Up (remember, ‘Context’ is utterly vital when you are interpreting Candlestick Charts) a ‘Star Doji’ like this can be a Reversal Signal but perhaps more often it is just a Warning that the Up Move is getting tired and we should expect a Reversal Signal very soon.
In this case, it looks like the Star Doji was a Warning as we seem to be charging upwards - however, note that the Month is not completed yet and we could tank anytime over the next 10 days to actually activate the Star Doji as a Reversal Signal.
FTSE100 (again !!)
OK, now we have seen how Bullish the US Indexes are looking (the S&P500 and Nasdaq are very similar to the DOW) let’s go back to the FTSE100.
As I keep repeating, with Charting / Technical Analysis, it is always good form to start with the ‘Big Picture’ first and then to steadily drill down on the Timeframes as we look at the Charts. The reason for this is because the Longer established Trends dominate over any Shorter Trends - so quite often a Short Term Trend is just a wiggle within a Larger Trend.
You should recognise the Chart below if you are a continual Reader of my Charts Blogs - this is the FTSE100 since the 2009 Credit Crunch Low Point and my Red Arrow is pointing to the Bottom Line of the Uptrend Channel which has been in place on and off for the last 8 Years or so. Note how the Price Line dropped out of the Red Uptrend Channel back in August 2015 and in the last 6 Months or so the Price has been making various attempts to get properly back inside that Uptrend Channel and even now it does not necessarily feel like it has achieved this yet.
My Green Arrow is pointing to a Lower Parallel Line which could act as Support if we have troubles and the Price falls back out of the Red Uptrend Channel and tanks.
Don’t spend ages on the next Chart as I am only using it to point out an Uptrend Channel which is important here. This is the Weekly Candles for the FTSE100 and first off note my Black Arrow which shows a nice White Up Candle from last Week and this is Bullish.
What I really want your attention on is the Blue Lines which I have marked with Blue Arrows which show an Uptrend Channel which has been in place for about 6 Months - this is driving us nicely at the moment and the Price is staying within this Uptrend. Note we could fall a helluva a lot and still be within this Uptrend Channel.
Right, now we are Drilling In. The Chart below has the FTSE100 Candles going back around 6 Months. First off note the Blue Lines which correspond with the Blue Lines Uptrend Channel from my previous Chart and you should be able to see we are nicely within that Channel. Next check out the Red Arrow which is pointing to the Red Line and this is the Bottom Line from the Long Term Uptrend Channel which I mentioned on the first Chart in this second FTSE100 Section.
Note how the Current Price is nicely within this Long Term Uptrend Channel now and ideally I would like to see the Price keep moving up and to take out the Resistance at the New All Time High at 7354. I think if this happens we can safely say with a lot of confidence that the Price is properly established back inside that Long Term Uptrend Channel and this would be a highly Bullish Outcome.
Look now at my Big Green Circle - this is really important because it is pointing out a great pair of examples of “Former Resistance becomes Support”. My Green Circle is trying to draw your attention to how the Price fell back after the 7354 Peak (note the Inverted Hammer or ‘Shooting Star’ here !!) and then the Price went on downwards to ‘Test’ both the Red Bottom Line of the Long Term Uptrend Channel and the Black Horizontal former Breakout Level of an old All Time High at 7130 (marked with my Black Arrow). The double ‘Confirmation’ of Support in this way is a very nice compliance of the Charting Textbooks.
My Yellow Circle is pointing out the Daily Candle we got on Friday and it looks nice and Bullish.
In the bottom window below we have the RSI for the FTSE100 Daily. On a current reading of RSI 61 this has loads of space to go higher - of course that doesn’t mean it will, but if the Bulls get stuck in then there is no obvious reason provided by this Indicator as to why we could not see a lot more upside in the near future - to be fair, the only caveat to that is that in the recent past the FSTE100 has often turned down from RSI Levels around here.
In the bottom window below we have the MACD for the FTSE100 Daily. You probably won’t be able to see it on this resolution (note, if I have loaded the Charts correctly into the Website System then you should be able to click on the Charts and they will appear Bigger for you) but we actually got a Bullish MACD Cross on Friday - my Blue and Black Arrows are pointing to the 2 different methods of seeing this. It is obviously good as the word ‘Bullish’ implies !!!
Apologies for treating Readers as total numpties……..although it’s been a long Blog already and I can understand it if your eyelids are starting to falter…….
At last something that doesn’t look so good. In the bottom window below we have the ‘Overbought / Oversold’ Oscillator for the FTSE100 - my Red Arrow is pointing to the current level and you can see it is at an extreme high - clearly this will need unwinding soon. This is a very Short Term signaller so it doesn’t take much to unwind such an Overbought condition - maybe a drop on Monday and Tuesday or a bit of Sideways is all it needs to calm things down a bit and enable the next push up. This Indicator could go higher but that is highly unusual.
Yet more Bullish stuff. The Chart below has the Price Line with the Red 13 Day Exponential Moving Average Wiggly Line and the Green 21 Day EMA Wiggly Line. Note the 13 Day EMA has crossed over and gone above the 21 Day EMA about a Week ago (my Yellow Arrow) - this is Bullish and often means a few Weeks of gains to come, although it only takes a few Days for us to get the opposite situation where the 13 Day breaks down below the 21 Day and this is bad. My Blue and Black Arrows point to where this has happened before so you can see the consequent Price Movement.
Here’s the Daily Heiken Ashi’s for the FTSE100 - my Yellow Circle shows the latest form up and this looks very Bullish. As you know, I am really swept away by these HA Candles (it is Valentine’s soon and I am thinking of buying them some flowers) and I am so impressed with the clarity of their signalling and the way they cut out so much Noise - they work on any Timeframe (all Candles are Fractals remember) and I strongly suggest you try them - whatever Time Horizon you work on.
We got another Breakout to a New All Time High last week on the FTSE250. I won’t show a lot on this but the HA Candles below show mucho Bullishness with nice Big White Up Candles and ‘Wicks’ or ‘Tails’ up above.
Despite the Bullishness of the HA Candles, the bottom window on the Screen below has the RSI for the FTSE250 Daily - with a Reading of RSI 70 this is pretty darned high - it can go higher, but we are getting up near extremes so some sort of Consolidation may be needed very soon - as I mentioned earlier, this can be by Time or by Price.
As with the DOW and the S&P500, the Nasdaq Comp pushed out to yet another New All Time High on Friday, however on the Chart below my Yellow Circle is flagging a Doji Candle that was formed up. In the context of a strong run up, this could mark a Reversal or perhaps it is a Warning that a Reversal is coming soon.
The bottom window below has the RSI for the Nasdaq Comp - on a Reading of RSI 70 this is very high and although it could go a little higher, we are clearly quite extended now.
Here’s the HA Candles for the Nasdaq Comp - this looks bullish.
Note I have 2 Long Spreadbets on the S&P500 but I won’t show any Charts here because they are so similar to the DOW. Looks Bullish though.
Pound vs. US Dollar
The Chart below has the Daily Candles etc. for the £/$ going back about 6 Months. Sorry it is rather busy but hopefully what is on there is fairly important. My Yellow Circle is pointing out a sort of ‘Long Tails Doji’ which was created on Friday and this shows a lack of clear Direction and uncertainty really. It looks to me like the Pound is perhaps caught within a bit of a Range at the moment between 1.2676 or around there and 1.2347 or just above - I have marked both these with the Red text boxes.
It all just looks a bit Sideways really - this is important because the FTSE100 has been hugely reactive to the Pound since the Brexit Vote - this suggests the Pound will have little impact in the very near future. When I think about this in terms of the ‘Fundamentals’, the fact that Article 50 has now been in effect almost Triggered (it is off to the House of Lords but they are unlikely to delay it much) backs up the idea that there won’t be any clear direction for a while.
Brent Oil (Spot)
Obviously Oil has quite an impact on the FTSE100 and I am sure most Readers have some sort of exposure to Oil - even if it is just when you fill up the Morris Marina……
The Chart below has the Daily Candles for Brent Oil (Spot) going back around 6 Months (( have just realised that loads of the Charts I show go back 6 Months - I think this must simply be that I try to size them to show the Candles clearly and my eyes and brain must be pretty comfortable with the scale I use - I hope this suits you Peeps also !!) - the key thing here is that I think we might be in a bit of a Sideways Range really - from perhaps $53/$54 at the bottom to $57 to $58.375 ish at the top.
My Yellow Circle highlights a nice Big White Up Candle from Friday which looks bullish but I suspect the Resistance up above will kick in soon. We really need a Breakout over $58.375 to get things going.
The Chart below has the Daily Candles for Spotty Gold - and, guess what?, it is a 6 Month timeframe (bet you didn’t see that coming). The interesting bit here is that we might have an Uptrend Channel going on - although it is early days.
My sort of Purply Arrow is pointing to a similar coloured Bottom Uptrend Line and I have drawn a Parallel Line up above in a similar Purply Colour to suggest a possible Top Line to a Channel - however, there are few ‘touch points’ here and at this stage it is a bit early to rely on such a Channel. If I am right, then we are just wiggling around within this Uptrend Channel.
The other interesting thing here relates to something I mentioned on a ‘Technical View’ during the Week. Most nights I do a few words on how Indexes and stuff look and I put this at the top of the ‘M3 Manifesto’ page - in these I mentioned that Gold had done a ‘Tweezers Top’ - my Yellow Circle (yes, I appreciate it is a bit small, especially on that old Blackberry you have) is trying to point this out. I hope it makes sense, use your imagination to see the ‘Tweezers’.
That’s it for this week, good luck to all and may the Market Gods be bountiful.
Welcome to my Educational Blog Page - I have another 'Stocks & Markets' Blog Page which you can access via a Button on the top of the Homepage.
Please see the Full Range of Book Ideas in Wheelie's Bookshop.