This week’s guest post comes from Adam Beaty over at TheBullogic.com (definitely worth book-marking). This week, as he has done in week’s past, we have his weekly forecast which I find very helpful in getting the trading energies flowing after a nice long weekend. You can also follow Adam on Twitter too.
Well last week mixed up the markets so what can we expect from this week?
We are starting to see some in decision in the markets with the formation of two doji candles back to back. Both the bulls and the bears are fighting to have their way and neither are getting it right now. The bulls showed a lot of strength when they closed above 1276 level on Thursday. Unfortunately they were unable to push that move into Friday as the bears made sure this market wasn’t going to run away. Bulls are still fighting for the 1296 and bears seem determined for the 1276 level. With the piercing of support at 1276 I think ultimately the bears will be able to take the market down to 1262. However, when they do get it down to that level they will also be fighting the upward trendline. A break below the 1262 level will be a major shift in this market as a signifigant lower-low will be in place. If bulls manage to break 1296 they are looking at 1302 being the next major level of resistance.
The /ES on a 60min view was showing a nice head and shoulders forming at the 1273 level. On Thursday they were able to break below the neckline but unfortunately they were quickly bought back up. We could still be in the process of forming a head and shoulders pattern even though it is no longer a clean textbook pattern. We are now trading below our tight channel but we are still in the wider rising channel. Watch the price level of 1273 and a break of the rising channel for a major market shift.
The EUR/USD has been on a major market move come this last week as the continue to mix it up economic wise. This push in the EUR/USD has filled and passed the gap it created on 11/23/10. As you can see this move has also pushed it above several key resistance areas. The next line or resistance is at 1.373 but I would assume we will get a slight pullback perhaps to 1.352 before moving higher.
The GBP/USD appears to be consolidating between resistance and support as it struggles to find a direction. It did close above the 1.599 resistance yesterday so we will have to see if it holds in the upcoming week. The next level of resistance is at 1.61 and then 1.63. It will look to continue to hold the 1.58 level this week. The break of this level will be a sign of weakness and could ultimately complete the head and shoulders pattern currently forming.
Over the past couple of weeks the USD/JPY had been forming a textbook bull flag and broke out of its pattern last Thursday. Unfortunately the breakout was not strong enough to push it above the 50 day moving average. As we continue to see the 50 day moving average plays a major support and resistance level in this currency pair. Again on Friday we saw a sell off at the 50 day. Continue to watch for a break in the moving average for a sign of a market direction change. A break of the 50 day puts the resistance back at the Fibonacci Retracement 23.6% ($83.67). Another move lower would put support at 81.99 which has been another strong price level.
The NYSI Reversal Indicator has always been a strong indicator to show market shifts. As you can see we have moved through the extreme levels and now looking for a cross and a move back down. This is not a good location to enter more long positions and should tighten up any stops on any longs you have out there. Now is a good time to pick up a couple of short positions to ride the market lower.
Economic Reports Due This Week:
Monday: Nothing major
Tuesday: Case-Shiller HPI (800am cst), Consumer Confidence (900am cst)
Wednesday: New Home Sales (900am cst), FOMC Meeting Announcement (115pm cst)
Thursday: Durable Goods Orders (730am cst), Jobless Claims (730am cst), Pending Home Sales (900am cst)
Friday: GDP (730am cst), Employment Cost Index (730am cst), Consumer Sentiment (855am cst)
As you can see we have a busy week of economic reports and we will report on each of those every morning in the Morning Madness.
The markets look like they are prime for a shift downward as the market will begin to correct itself. Major levels in the S&P 500 that need to be taken for the bears are 1276 and 1262. The bulls will continue to look to drive this market up by taking 1296 and heading for 1302. We are still in the heart of earnings season so be sure to know when your company releases earnings if you plan to long or short anyone. I wouldn’t look to take any new long positions at least until the bulls pour some strength into this market. Dip buying has been a bit light in the last week so I would continue to be cautious of it moving forward.
