S&P 500: Bearish
The S&P 500 benchmark extended the bearish technical retracement this past week. Although there were several attempts to recover from previous losses, they were nothing but technical rebounds, confirming the general tendency. First, the index breached an important technical support level of Ichimoku’s Baseline on Monday, promising further losses. Second, the bullish rally failed to breach the Conversion line, the former support now resistance curve. That signalled the weakness of the bulls, and the bears did not hesitate to take advantage of that, increasing the selling pressure on Friday. As a result, the S&P 500 index registered the worst weekly performance since August 2019, erasing all of the current year’s gains.
According to the daily chart below, the selling pressure is likely to continue weighing on the index with the nearest support level at the top of the Ichimoku cloud band around 3200.0 points. The long-term trend is still in place, but the bearish retracement is going to have a larger depth as the leading span has narrowed the positive surplus and the price appeared below both support curves. Additional technical indicators show that the bears might not stop the correction at the top of the Ichimoku cloud. The Awesome oscillator has almost eliminated the positive sentiment as its histogram is rapidly declining towards zero. Two similar occasions happened recently, and the index was plunging inside the cloud in both cases highlighted by red arrows.
All of the technical sings below tell forex traders that it is too early to resume buying stock indices in general and the S&P 500 in particular. What’s more, short positions could be profitable in the near-term perspective. The only requirement for traders to go against the long-term trend is to keep their stop-loss orders tight. If the bears were able to push the index below the nearest support of 3200 points, then the trading range would be expected down to 3140 points for the week ahead. However, a high level of volatility should remain, so traders should watch the intraday action carefully and avoid holding deals for too long.
The price of gold kept the bullish technical bias, edging higher by +1.16% and closing the past trading week at $1589.69, the highest level since March 2013. Although the peak price of $1611.34 noted on January 8 is still the target to rewrite for the bulls, the sequence of higher daily close rates points to a bullish continuation yet to come. The pace of growth was not stable, leaving questions doubts regarding the sustainability of the current uptrend though. Two daily candlesticks out of five were in the red, which underlined the high level of volatility with many reversals in the price action. Nevertheless, the technical sentiment remained bullish, according to the daily chart setup below.
Williams Alligator is still in the bullish eating mode after the price of gold accelerated the uptrend on December 23 (see the first green arrow on the chart). Since then, all three lines of the Williams Alligator indicator were placed in the correct order to proceed with the buying pressure. Two failed tests of the upper line indicated periods when the counter-trend price action was over. Therefore, a conservative trading approach suggests waiting for another rebound towards the support curve before buying gold. Traders who have gold in their mid-term portfolio should keep holding it as a re-test of the psychological round-figure level of $1600 per ounce looks imminent.
There is a concern about the MACD trend indicator. Both lines are far above zero, charting several crossovers with a tight distance between each other. That performance might remind a bearish divergence as the indicator does not print higher highs together with the price chart. However, the divergence is not in play as the MACD histogram is about to cross zero from below, coming back into bullish territory. Besides, the fact that RSI oscillator with a period of 13 days did not drop far from the overbought threshold indicates that the bullish momentum is still strong and the demand for gold is sustainable. Therefore, the bullish continuation could have the same pace of growth as per the previous week, while the short-term target could be limited by the range of $1600/04 in the upcoming week.
Although the greenback gained strength versus all of the high-risk and emerging market currencies, it weakened versus European majors and the Japanese yen. As a result, the volume-weighted basket of six major currencies pushed the dollar index lower by -0.53%, erasing half of the recent three-week gain. According to the daily chart setup below, the greenback’s weakness is likely to continue and here is why.
The bearish action pushed the dollar index below the Williams Alligator’s middle line, which suggests a deeper correction, if not a total reversal of the uptrend. MACD lines are headed south with a narrow distance between each other, threatening to perform the bearish crossover. The histogram lowered the positive surplus, declining towards zero. On top of that, fast and sensitive 13-days RSI oscillator dropped below the middle line that divides the bullish and bearish momentum. The local bottom charted on January 15 (97.21) represents the nearest target for the bears where consolidative sideways price action is possible. Buying the greenback among majors is too early, according to the mid-term technical and fundamental analysis. Shorts are possible but stop-loss orders should be tight.
WTI Crude Oil: Bearish
The black gold extended losses this past week amid traders’ and investors’ concerns for the global demand and a negative impact from coronavirus spread. WTI Crude price plunged -21.44% counting from the peak registered on January 8. On top of that, the daily close price breached the latest bottom since October 3, which used to act as the horizontal technical support level, extending losses towards the lowest price in 2019.
Technical indicators are extremely oversold. The recent price action is hovering around the Bollinger Bands’ bottom band, breaching it several times. Another breakout could signal a downtrend acceleration and lower price shortly. Commodity Channel Index kept charting extreme values, staying below the oversold threshold for quite a while. On the one hand, that shows that average prices are far above the current level and a healthy retracement is required. On the other, that performance shows the strong bearish momentum and the lack of buyers at any price level, so the freefall could continue.
The best trading strategy for the week ahead is to sell highs. The daily timeframe is full of short-term rebounds and even daily candlesticks in the green. Such corrections should be used to open new short positions for those traders who still do not have shorts for WTI Crude in their portfolios. Buying oil is a kind of suicide as standing against such a strong bearish wind is dangerous for the overall account balance. The psychological round-figure level of $50.00 per barrel could halt but not stop the bears in the week ahead, so consolidation is possible around there.
The Japanese yen kept strengthening versus every currency in the foreign exchange market, reflecting the general flow into safety and USD/JPY was not an exception. The pair lost another -0.86% of the exchange rate this past week, breaking through a significant technical support level of 108.80 yens per dollar. Although the Ichimoku’s leading span maintained the positive surplus, the recent uptrend is in danger of reversing and here is why.
The bottom band of the cloud did not hold the bears, as the rate breached the support with the third attempt. What’s more, both conversion and baseline curves entered into the cloud, signalling a much deeper retracement if not an entire reversal. The support trendline connecting two recent bottoms has been breached as well, leaving the only possible obstacle for the bears is a horizontal support level at 108.07. The daily Stochastic RSI oscillator dropped to the oversold zone with more room to go south before an extreme value is reached. All those technical signs point to further selling pressure on the USD/JPY currency pair in the week ahead.