Analys från DailyFX
S&P 500 Technical Analysis: Technically Beautiful
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Talking Points:
- SP 500 Technical Strategy: Flat
- SP 500 put in a top-side breakout of the symmetrical wedge discussed on Tuesday.
- Extreme volatility around FOMC opens the door for potential bullish or bearish positions based on next week’s price action.
It’s been a climactic week for US Stocks, with the highlight being the FOMC announcement yesterday that provided a series of significant moves in the SP 500. And if ever there were an example of technical analysis playing a key role in a market’s dynamics, the past two trading days have provided numerous iterations of such a theme. On Tuesday, we discussed the symmetrical wedge formation that had defined price action in the SP. As mentioned in the article, top-side breaks of 1,995-2,000 could open the door for long positions up to 2,021 – which is the 61.8% retracement of the most recent ‘major move,’ taking the 2,137 high to the ‘panic lows’ of August 24th. This is exactly where the SP topped-out on Thursday before Janet Yellen began the press conference that created precipitous selling across equity markets.
The selling ran into Friday and brought prices down through multiple support levels. There could be a setup on either side depending on the trader’s bias or point-of-view. On the bull side, there is a rising trend-line that, as of yet, hasn’t been broken by a daily close, and this is the same support trend-line that provided the under-side of the symmetrical wedge discussed on Tuesday. On the short-side thesis, a recent resistance inflection combined with an outsized sell-off that began on Thursday afternoon and snuffed out all of the SP’s gains for the week could be the prelude to another risk-aversion move that sees stocks swan-dive down to new support levels.
For short positions, traders don’t have the luxury of many nearby resistance levels for stop placement, so either profit targets will need to be further away to justify this additional risk, or more short-term levels should be used to place together stops. The most recent swing-high at 2,021.1 would be the most attractive level for stop placement, but traders would need an approximate 160 handle target to institute a 1-to-2 risk-to-reward ratio. This would put price targets in the ~1,880 range, and if price moves that far, traders may want to institute a scale-out type of logic in the event that even lower-lows may print at 1,833.50 (the 8/24 ‘panic low’) or 1,791 (23.6% retracement of the ‘big picture’ move taking the financial collapse low to the May all-time highs).
The more attractive risk-reward ratio may currently be seen on the long side of the SP. With another test of trend-line support (shown in the below chart in red) combined with an inflection off of the 38.2% Fibonacci retracement of the Fibonacci retracement mentioned earlier at 1,949.2, buyers could look at stops below this support zone to find rather attractive risk-reward ratios using previously defined resistance. Targets could be set at 1,985 (50% retracement of the most recent major move), 2,000 (psychological level), and 2,021 (61.8% of the most recent major move, and the most recent price action swing-high). This could allow for risk-reward ratios ranging from 1-to-2 all the way up to 1-to-6 by trading on the assumption of trend resumption.
Written by James Stanley of DailyFX. To be notified as new articles are published, you can join his distribution list by clicking here; and you can converse with him over twitter @JStanleyFX.
What’s inside:
- EURUSD broke the ‘neckline’ of a bearish ‘head-and-shoulders’ pattern, April trend-line
- Resistance in vicinity of 11825/80 likely to keep a lid on further strength
- Targeting the low to mid-11600s with more selling
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Coming into last week we pointed out the likelihood of finally seeing a resolution of the range EURUSD had been stuck in for the past few weeks, and one of the outcomes we made note of as a possibility was for the triggering of a ’head-and-shoulders’ pattern. Indeed, we saw a break of the ’neckline’ along with a drop below the April trend-line. This led to decent selling before a minor bounce took shape during the latter part of last week.
Looking ahead to next week the euro is set up for further losses as the path of least resistance has turned lower. Looking to a capper on any further strength there is resistance in the 11825-11880 area (old support becomes new resistance). As long as the euro stays below this area a downward bias will remain firmly intact.
Looking lower towards support eyes will be on the August low at 11662 and the 2016 high of 11616, of which the latter just happens to align almost precisely with the measured move target of the ‘head-and-shoulders’ pattern (determined by subtracting the height of the pattern from the neckline).
Bottom line: Shorts look set to have the upperhand as a fresh month gets underway as long as the euro remains capped by resistance. On weakness, we’ll be watching how the euro responds to a drop into support levels.
For a longer-term outlook on EURUSD, check out the just released Q4 Forecast.
EURUSD: Daily
—Written by Paul Robinson, Market Analyst
You can receive Paul’s analysis directly via email bysigning up here.
You can follow Paul on Twitter at@PaulRobinonFX.
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EURUSD: Retail trader data shows 37.3% of traders are net-long with the ratio of traders short to long at 1.68 to 1. In fact, traders have remained net-short since Apr 18 when EURUSD traded near 1.07831; price has moved 9.6% higher since then. The number of traders net-long is 15.4% lower than yesterday and 16.4% higher from last week, while the number of traders net-short is 0.4% higher than yesterday and 10.5% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EURUSD prices may continue to rise. Positioning is more net-short than yesterday but less net-short from last week. The combination of current sentiment and recent changes gives us a further mixed EURUSD trading bias.
— Written by Christopher Vecchio, CFA, Senior Currency Strategist
To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com
Follow him on Twitter at @CVecchioFX
To be added to Christopher’s e-mail distribution list, please fill out this form
Why and how do we use IG Client Sentiment in trading? See our guide and real-time data.
GBPUSD: Retail trader data shows 38.2% of traders are net-long with the ratio of traders short to long at 1.62 to 1. In fact, traders have remained net-short since Sep 05 when GBPUSD traded near 1.29615; price has moved 3.4% higher since then. The number of traders net-long is 0.1% higher than yesterday and 13.4% higher from last week, while the number of traders net-short is 10.6% lower than yesterday and 18.3% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests GBPUSD prices may continue to rise. Yet traders are less net-short than yesterday and compared with last week. Recent changes in sentiment warn that the current GBPUSD price trend may soon reverse lower despite the fact traders remain net-short.
— Written by Christopher Vecchio, CFA, Senior Currency Strategist
To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com
Follow him on Twitter at @CVecchioFX
To be added to Christopher’s e-mail distribution list, please fill out this form
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