The Dow declined this week by 5.0% to end at 8,497.31 on Friday.
The Dow had a wild week especially on Thursday and Friday with all sorts of ups and downs for the two days.
The wild gyration on Thursday and Friday is shown on the chart of 15 Min Dow. Let us analyze through for the week.
The top blue straight line is the weekly pivot point (Pp), with the dark green the daily pivot point (Pp). The Dow opened on Monday at the weekly Pp and above the 200 period EMA (the red line). The overall market sentiment is however still bearish since the EMA is still in proper bearish position with the 200 period EMA is above the 60 period EMA (the blue line). One hour after the opening the price started coming down, crossing the Weekly Pp and the 200 period EMA. By lunch time it went below the daily Pp, rebounded and closed at this Pp level. The early morning upward shifting clearly is a bull trap that sucks the short- sellers and drew some buyers and than it reversed sharply on them.
Tuesday opened below daily Pp and almost pushed down to Support (S2 Pp), only to have it recovered that took the price to the confluence of 60 period EMA resistance after lunch. The Dow reversed southward with a close at S1 Pp. The second bull trap of the week.
The stock market by Wednesday showed a downward trend upon worse than anticipated data of jobless claim (a rise in the claim figures since December 1982) announced at 8.30 ET, until it hit a technical support on Thursday at S2 Pp. The price than reversed direction upward,pierced through the 20 period EMA, 60 period EMA and the 200 period EMA and close at Resistance (R2 Pp) level.
Friday, the focus was the US economic news at 8.30 am with the Advance retail sales index fell by the most since record keeping began in 1992 at a rate of 2.8% in October, which also marked the 4th straight month of decline, and the record low of consumer confidence. The market opened gap down, crossed the 200 period EMA and by the lunch time and find support at 60 period EMA.
After lunch, the market reversed upward and took out the 200 period EMA and stop at resistance level of the last swing high with a bearish formation of an evening doji star formed one hour before market closed. At this level the market is overbought as indicated by the RSI value of above 70.
Market than take-away all the gains it had after the lunch run-up and closed at the level of the day’s low.
Notice that, a short-term double top has formed.
Market than take-away all the gains it had after the lunch run-up and closed at the level of the day’s low.
Notice that, a short-term double top has formed.
Dow 15 min chart
Overall, the Thursday low did not take-out the October 10th low but judging on the volume the Dow at 8,000 point level indicated a good support. Every times Dow goes to that level, there is a heavy volume that signify support or buying opportunity as if that 8,000 level is a mental buy point. How long this level could be sustained…let the market decide….to forecast especially at current low confidence level in global financial environment is a high risk gambit. Trade small if needed with preservation of our capital as best as we can.
Let us see what the market sentiment reflected on the major currencies
EURJPY 30 min chart
EURUSD 30 min Chart
USDJPY 30 Min Chart
On Monday, the three currencies cross, THE EURUSD, USDJPY, EURJOY mimicked the DOW during the US session while during the Asian and European sessions it moved sideway around the weekly and daily Pivot Point (Pp).
By Tuesday, all there currencies cross indicated a bearish sentiment as the 60 period EMA cross 200 period EMA from above. The USDJPY glided sideway until closing, with the EURUSD and EURJPY, fall heavily after the opening of US stock market at 9.30 ET. A weaker Euro could be attributed to weak euro zone economic sentiment. At 17.30 GMT(10.30 ET) the two currencies cross almost went ranging sideway up to the closing below S1 Pp.
Wednesday, the Dow which closed lower the previous day dictated a lower opening of the three currencies cross. After half an hour open for the Asian session, the currencies cross reverse direction, a technical bear correction.
EURUSD and EURJPY with a bullish divergence of RSI and a hammer candlestick carried the prices over to the daily Pp and the negative sloping 60 period EMA. The USDJPY due to previous day strength managed to correct above the daily Pp and touched the 200 period EMA. All the three crosses moved downward at the beginning of the European session. An anticipated lower US stock market provides the impetus for the USDJPY and EURJPY to fall heavily in the morning US session. USDJPY performed badly among the three crosses. The EURUSD fall meekly and contained within the S1 Pp.. The Euro zone and the US dollar weakness against the yen could be an anticipation of a weak economic data that are to be announced the next day.
Thursday, as anticipated, an oversold position in USDJPY and EURJPY which showed a bullish divergence in RSI and opening well below the daily Pp pushed prices to the 60 period EMA. The strength of the moved lasted until the US session.
The EURUSD which went sideway within a narrow channel, break the channel lower support line during the European session to penetrate the S1 Pp, reversed at London open with a formation of candlestick morning star to recover back into the daily Pp. The early morning European session registered a slight fall in EURUSD and EURJPY after the German announced a lower than forecast GDP.
An announcement of continuing jobless claims in US than anticipated trigger a reversal in the three currencies crosses as the Dow crept downward. By lunch time in New York, the Dow made a complete reversal and the three currency crosses trailed the Dow up to the close. The EURUSD showed an impressive moved upward to touch the weekly Pp.
By Friday the grossly overbought currencies as anticipated corrected downwards. Right from the open. through the Asian session, European session and the American session. At around the 8.30 ET announcements of worst retail sales, the currencies inched upward but with the DOW open at 9.30 ET and moved south, the currencies crosses followed suit. By noon the Dow and three currencies crosses decide to reversed themselves upward before reversing downward again one hour before the Dow closed.
Before the close, the EURUSD reversed downward sharply and carried it to close at the lowest for the day. The weakness in euro zone also pulled the EURJPN cross.
For weeks, the market had been discussing how risk appetite, or the lack of it, has been the driving action of currencies against the dollar with the exception of the yen. The strength of the dollar has been amusing given the dismal status of US economy, but since the dollar has managed to hold on its status as “safe haven” asset, fundamental take a back seat. Since risk trends is the lead, it is best to watch the stock market’s reaction as pessimistic turn sentiment could lead equity lower and thus lead US dollar higher given their negative correlation.
EURUSD and EURJPY with a bullish divergence of RSI and a hammer candlestick carried the prices over to the daily Pp and the negative sloping 60 period EMA. The USDJPY due to previous day strength managed to correct above the daily Pp and touched the 200 period EMA. All the three crosses moved downward at the beginning of the European session. An anticipated lower US stock market provides the impetus for the USDJPY and EURJPY to fall heavily in the morning US session. USDJPY performed badly among the three crosses. The EURUSD fall meekly and contained within the S1 Pp.. The Euro zone and the US dollar weakness against the yen could be an anticipation of a weak economic data that are to be announced the next day.
Thursday, as anticipated, an oversold position in USDJPY and EURJPY which showed a bullish divergence in RSI and opening well below the daily Pp pushed prices to the 60 period EMA. The strength of the moved lasted until the US session.
The EURUSD which went sideway within a narrow channel, break the channel lower support line during the European session to penetrate the S1 Pp, reversed at London open with a formation of candlestick morning star to recover back into the daily Pp. The early morning European session registered a slight fall in EURUSD and EURJPY after the German announced a lower than forecast GDP.
An announcement of continuing jobless claims in US than anticipated trigger a reversal in the three currencies crosses as the Dow crept downward. By lunch time in New York, the Dow made a complete reversal and the three currency crosses trailed the Dow up to the close. The EURUSD showed an impressive moved upward to touch the weekly Pp.
By Friday the grossly overbought currencies as anticipated corrected downwards. Right from the open. through the Asian session, European session and the American session. At around the 8.30 ET announcements of worst retail sales, the currencies inched upward but with the DOW open at 9.30 ET and moved south, the currencies crosses followed suit. By noon the Dow and three currencies crosses decide to reversed themselves upward before reversing downward again one hour before the Dow closed.
Before the close, the EURUSD reversed downward sharply and carried it to close at the lowest for the day. The weakness in euro zone also pulled the EURJPN cross.
For weeks, the market had been discussing how risk appetite, or the lack of it, has been the driving action of currencies against the dollar with the exception of the yen. The strength of the dollar has been amusing given the dismal status of US economy, but since the dollar has managed to hold on its status as “safe haven” asset, fundamental take a back seat. Since risk trends is the lead, it is best to watch the stock market’s reaction as pessimistic turn sentiment could lead equity lower and thus lead US dollar higher given their negative correlation.
The yen another “safe haven” currency with a low yield has been choppily lately. The yen is sensitive to fear and greed in the currency market that leads to breakout and revived trends therefore could make yen as the barometer of the market. One of the key tools to gauge the consistency of the trend in yen is the US stock market, i.e. the inverse correlation between the Dow and the yen.
