After charting a new all-time high at 9756.1 points, the tech-heavy NASDAQ Composite benchmark retraced, erasing almost all of the previous week’s gains. Technically speaking, analysts have been waiting for a healthy correction as trends cannot move in one direction all the time. So the main question, for now, is to assess a possible depth of the retracement and find potentially attractive levels to start buying the index again as the long-term technical sentiment is still bullish.
The Ichimoku Cloud trend indicator proved its efficiency of showing possible correction depth several times during the recent long-term uptrend. The best part of the multi-purpose indicator for that purpose is the Baseline, which acted as the support curve several times before. It is important to mention that the line limited the bearish action by daily close rates but not downside whipsaws. So traders should be ready to stand against the wind for some time as it is almost impossible to forecast the exact reversal point. Nevertheless, the Ichimoku Baseline currently comes at 9338.4 points, showing a possible range to open fresh longs positions. If the bears were able to close a day below it, then a deeper retracement towards the upper band of the cloud could be in play.
Another powerful tool to find reversal points during a counter-trend price action is the Stochastic RSI oscillator. The indicator perfectly pointed to the end of the last two corrections when its lines crossed each other near the oversold zone. So far, the oscillator went off the overbought zone, rapidly falling to the middle of the range, and reflecting the selling pressure. Thus, further bearish action could be in place, while traders should keep an eye on the indicator if they want to catch the falling knife. A conservative trading strategy suggests at least one day in the green before concluding the bullish reversal, so traders might need patience in the week ahead as the volatility is growing.
The single European currency retraced versus the US dollar to 1.0847 last Friday. Before that, EUR/USD charted the lowest daily close rate in almost 2 years (1.0784). Despite the weekly candlestick in the green, the pair remains under the selling pressure in the medium-term perspective. From a technical analysis point of view, the retracement is required to reload oversold oscillators and regain the bearish momentum. The daily chart setup below shows how far EUR/USD can go in its attempt to recover part of the recent losses.
Williams Alligator is still in the eating mode, promising further selling pressure. What the bulls managed to achieve was just a rebound towards the lowest line of the indicator, which represents the initial resistance curve. The last retracement was limited by the middle line of the Alligator, and the current correction might repeat the history. On top of that, the descending blue median line represents the middle of the range where the bullish momentum could get exhausted and the selling pressure renewed. Thus, a range of 1.0879/95 would be attractive to open fresh shorts.
Williams %R oscillator went off the oversold territory for the first time since the beginning of the month. This could also signal a deeper correction towards the resistance range mentioned above. However, the Average Directional Index reflected the bullish bounce by only narrowing the negative surplus between the -DI and +DI lines, while the mainline kept rising in the positive zone, signalling that the bearish momentum is still strong enough to push the rate lower. Given all that, the sell-highs trading strategy looks more attractive rather than opening long positions against the recent strong downtrend.
The exchange rate of the Swiss Franc traditionally acts as a leading indicator for the US dollar in the foreign exchange market. The USD/CHF currency pair had an attempt to continue the recent rally towards the parity, however, the past trading week bought a U-turn on the daily chart. Such a bearish performance could signal a long-term reversal of the trend, and the upcoming week is going to be crucial in terms of indicating real intentions the market regarding the world’s reserve currency.
The squeezed daily chart setup below has only one technical indicator - the long-term exponential moving average with a period of 233 days. Despite the recent uptrend started on February 3, USD/CHF remained below the resistance curve, which means that the bearish sentiment is still in place. Besides, the bullish rally was limited by exactly the bottom of the consolidation range, which took place in September - November 2019 (see the bold blue horizontal line). On top of that, the pair remained in a wide descending channel with an intermediate support trendline coming at around the past week’s low. Therefore, the uptrend from 0.9633 to 0.9843 is nothing but a technical retracement from the general decline that started after the rate peaked on November 29. In other words, USD/CHF could plunge next week.
An initial target for the bears is the horizontal static support representing the bottom on August 12, 2019. There's less than 100 pips left to get there, so the bears would not miss a chance to test long-term support. The only visible obstacle on that path is the range between 0.9776 and 0.9743. The bulls had several failed attempts to break the rate through that former resistance range, and now it should act as the support. Therefore, additional selling pressure is expected for USD/CHF next week with a possible consolidative sideways action in that range. Short-sellers should consider taking profits around there, obtaining a wait-and-see position.
The Australian dollar kept showing one of the weakest performance among major currencies versus the U.S. dollar in the foreign exchange market this past week. The AUD/USD currency pair registered the lowest exchange rate since April 2009, falling to 0.6586 last Friday. Although the price action reversed in the American trading session, and the rate recovered part of its recent losses, bouncing to 0.6627, the general technical sentiment remained extremely bearish.
The daily chart setup below has several technical signs of a bearish continuation. First, AUD/USD is below the 21-days simple moving average since the breakout on January 7. There were two attempts to retrace towards the curve, but both of them failed to breach the resistance. Second, the MACD trend indicator turned bearish again as the histogram dropped to the negative territory, while the lines performed the bearish crossover. Third, the Average Directional Index increased the negative surplus between the -DI (red) and +DI (green) lines, pointing to the domination of sellers. The main line of the indicator bounced back up, signalling that the bearish momentum started rising again. Given all that, AUD/USD has nothing to do but keep declining in the week ahead. Traders should consider using any bullish whipsaw as a chance to renew short entries or increase the overall trading volume of shorts in their portfolio.
WTI Crude Oil: Neutral
The price of oil continued recovering this past week, but the bullish trade was limited by 34-days exponential moving average. Although there was a whipsaw above it with a weekly high price of $54.45 per barrel, that cannot be considered as a breakout. Thus the recent downtrend is not over yet. On the other hand, other technical indicators point to a bullish continuation rather than a bearish reversal in the short-term perspective. The MACD trend indicator has a solid growth of the histogram, while its lines performed the bullish crossover but remained in the negative territory. The most essential technical sign for the bulls is that the Relative Strength Index with a period of 13 days closed the day above the 50% level for the first time since the bearish rally started. This should mean at least another test of the resistance curve or even further bullish recovery towards $60.00 per barrel.
Conservative traders should wait for the technical outlook to confirm the complete reversal of the recent plunge before buying oil. The past week’s volatility points to the fact that the bears are still strong and the growth is not sustainable yet. Aggressive traders should use bearish whipsaws and bounces to open long positions, placing tight stop-loss orders and running out of the market with a limited profit. Shorting oil looks too dangerous, given the two-weeks bullish recovery, but this strategy might also bring profits as the uptrend is only gathering the momentum and short-sellers use any opportunity to limit the bullish activity.