The Aussie stock market index XJO 200 & AUD/USD currency pair has followed the US markets bouncing off the lows hit in late March, rising roughly 1,200 points & 7c from trough to peak. With many on fintwit suggesting the lows in stocks are in & the markets are now starting to price in the reopening of the global economy.

However the price action of both markets suggests this bounce is just a counter rally within a bear market for a number of reasons. Firstly, discussing the XJO 200 recovery so far off the lows are much weaker than the sell off trajectory. The long term 52 day moving average (green line) is sloping down, as well as the price action is currently below the MA which means the index is still in bearish mode.

In addition, the volume during the sell off was much more significant than, the volume average in the counter rally so far (see chart), suggesting caution & hesitation is still present which is a red flag.

Currently the price action in the XJO 200 is still forming higher lows & is also sitting above the 10 day moving average (black line). So I’m not suggesting we will see a roll over this coming week as of yet. But instead I’m watching for signs of a reversal pattern & the start of a roll over emerging.
 
The AUD/USD pair below has similar characteristics to the XJO 200 price action set up overall. However the counter rally in the AUDUSD off the lows has been much stronger than the move soon in the XJO 200. This is evident as the pair has recovered to the 52 day MA rising slightly above it before falling just below it again recently.

Similar to the XJO 200 more recently the AUDUSD has been forming higher lows, however as seen in the chart below, has run into resistance of the downtrend line that started back in Dec19. For the AUDUSD pair to begin to turn bullish, we would need to see a breakout out of the downtrend line, as well as the most recent high formed last week as it moves towards 0.65c, with the price to remain above the 52 day MA line.

Given the overall setup presently with the downtrend & the 52 day MA sloping lower, I’m expecting most likely another retest of the downtrend line towards the red box shown, for a lower high formed. If this occurred this week with a breakout to the downside closing below 0.6320 support this would confirm a reversal of the counter rally seen.

In the meantime we need to wait and see how the price action plays out to determine future direction, including whether the bullish run is maintained on the XJO 200 & AUDUSD, or whether the momentum begins to fade & we see a rollover / reversal pattern follow through in the next few weeks.

The bullish thesis with Aussie stocks & AUDUSD many are suggesting may not be warranted, based on the overall price action setup of the charts, with the probabilities of a roll over to either form a higher low or a retest of the low quite high based on technical evidence. But like all trading we need to allow the charts to dictate the required actions first.

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The Aussie Dollar appears to of made another breakout attempt out of its long term downtrend on the weekly chart. Despite a rate cut by the RBA last week sending the cash rate to a historic low of 1.00%, with more expected for the remainder of the year, the AUDUSD actually rose on the rate cut day. It proceeded to move higher during the week, only to fall strongly on Friday on the US jobs number, which created only a small pullback for the weekly chart after the prior breakout of the downtrend.
 
The important question going forward though is whether this breakout move is the start of a bigger move higher, or its just another false breakout signal for traders. Looking at the technicals for the weekly chart, you will notice the 52 week moving average is sloping lower, whilst the price action is trading below the 52 week moving average.
 
In addition the price action for now has not traded back above the 70.30 resistance area, which would signal a confirmed move out of the downtrend if it was to move above 70.30. This means, similar to the false breakout we saw back in March 2019, we have to wait & see what the price action does over the next few weeks to gain a clearer understanding on what’s happening for the AUDUSD.

To even consider being bullish on the Aussie dollar on a medium to long term basis on the weekly chart, we need to see clear higher lows, that consolidate above both 70.30 & 71.70 resistance areas in the coming weeks and months. If we this was to occur it would allow the 52 week moving average to begin to swing around eventually, providing positive momentum signal for a sustained move higher.
 
Since none of the confirming technical’s for a sustained move higher has occurred for now, the odds are in the favor of the bears. So its possible this could be another false breakout, however we would need to see a move back below the downtrend line to confirm this, with an initial target of 68.30 support if this was to occur.

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Guest Article Written By  - Trader, Pete Armstrong - Twitter: @PeteArmstrong

2018 is drawing to a close although the markets show no sign of going into holiday mode until the
machines are switched off and forced to take a break for a few days.

As a trader in the southern hemisphere it’s our annual summer holiday period for at least 2 weeks.
I always use this time to reflect back on the last 12months, draw a line in the sand and consider
the new game starting in January……It can be a satisfying time or very depressing period.

A traders life is not anything close to what society deems as “normal”, and as such no one but us
traders can really relate to what we actually go through.
This isn’t a story about how lonely trading is because I’m one of the weird ones who trades best
in total isolation. It’s just a fact we can go through things that no other career can throw at you
and a lot of the time we bring it upon ourselves due to the nature of this business and how us
humans are wired……I brought it all upon myself this year. Here is a story of a period I went
through.

It is amazing how easily you can lead yourself off course, down a path you know isn’t going to
end well, but at the time, in the moment, you honestly think you are making intelligent decisions.

The last few years have been hard in this game.
• Volatility contraction but now expanding dramatically forced me to alter my approach and
mindset towards the market (I struggled with the mindset aspect),
• Algo’s exacerbating “chop” in price action due to a number of factors made tight entries harder
than previous years,
• Politicians ramping up their desire to have public feuds,
• Geopolitical issues seem to be piling up, adding another risk to manage daily,
• Fake headlines from “Sources” that Algos react to with sudden bursts of price action that will
fade sometimes and not other times.

The list could go on, but markets are always evolving and we have to evolve with them, however I
found myself fighting these factors when in-fact I thought I was just working hard to adjust and
get on top of them.

This year I found myself so determined and focused on getting on top of this market that I worked
around the clock; sleep was optional and only when the body forced me or on weekends.

Down the Rabbit Hole I Go.

In my mind it was a case of; “Yes I know this isn’t sustainable or smart but if I can push through
this period, get on top of it, then I can rest, do all the right things and get back to a sustainable
balanced approach/lifestyle of making returns”

I would tell myself daily - “It’s just a phase the market is going through, this isn’t your first rodeo
you have been here before, you just need to grit your teeth and work through it.”

Telling myself to back off a little, ride it out with lower performance expectations whilst working
through fine tuning my approach would have been the intelligent thing, but with pressures of
performance and life etc, I was always feeling like my back was against the wall and I needed to
go harder at it not back off. Cue the Anxiety.
That last paragraph I think was the root cause of this stupid behaviour

Obviously my day to day trading thought process are extremely clouded in this exhausted state,
more errors were being made than normal, frustration builds and everything is second guessed.
Confidence evaporates.

The harder I tried the worse it become!

[ Side Story - I used to be a golf pro, and pros will play their best when they let themselves be free
of pressure and they believe in their ability to execute. The harder a golfer tries to “ steer” a shot
under pressure down the fairway the more they spray the ball all over the course. I was trying to
steer every trade instead of letting it just happen]

All this leads to crippling depression periods and constant anxiety.
The dark times are dark. Very Dark!

It takes rock bottom to snap me out of it.

Tired, exhausted, mentally drained, angry at myself, constantly sick, no confidence and for the
first time I truly can’t wait to step away from the markets.

I knew better, I made it all harder than it needed to be and I’m feeling to consequences of it.

I think I got stuck down the rabbit hole due to the pressures that I have on me. Some your typical
life pressure we all have, and likely some others all manifested in my head. Thats something to
explore during the time off.

When I return it will be fresh, back to basics, structure and discipline. Focus hard on not losing my
way again.

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The US election results overnight stunned the mainstream media, wall street, world markets and millions of people around the globe. After initially falling sharply on the news, the markets eventually recovered and moved to finish higher as the mood turned from fear to bullishness.

Once the markets saw that Donald Trump moved to the lead early in the election results, the markets around the globe began to panic as the DOW futures was down over 800 points, the S&P 500 futures was down 5%, Gold jumped up over $50 and currencies moved violently as the odds turned to Trump becoming the new President.

Markets 180 Degree Reversal.

Once the S&P 500 futures fell by 5% the index automatically went to limit down, and temporarily stopped trading. Once trading resumed the S&P 500 futures began to slowly climb as the limit down measures meant the index could no longer fall more than the 5% level for the trading day.

Once the S&P 500 began to climb with the DOW, the massive fear that was gripping the markets slowly moved to cautioned optimism as the markets slowly crawled back the losses. By the time Trump was giving his President elect speech early in the morning US time, the DOW had recovered to be down 300 points. By the end of the trading day in the US with the results in for the new President the equity markets swung to a strong gain for the day.

S&P 500

The chart below shows that initially when the markets opened that the S&P 500 fell to the support level of 2125 before slowly climbing during the day for a big swing towards an up day closing at 2163.

Since momentum is now back into the positive and the S&P 500 closed above the 2157 resistance level the next target is 2190 which is back to it's all time highs for the broad US equity index.

US 10 Yr Govt Bond

One of the interesting swings in the markets overnight was in the bond markets. During the initial fear stages of the market the US 10 yr Govt bond yields fell all the way down to 1.70 level as investors moved into bonds bidding up bonds as the selling accelerated out of stock futures.

Like the equities market the bond market began to turn around and swing from a 1.70% yield on the 10 year to as high as 2.09% jumping by 20 basis points by the end of trade. Currently the 10 yr is sitting at 2.005 level.

The previous resistance level which is now support is around the 1.97/98 level, with the next resistance level for the US 10 yr Govt bond at 2.13%.

Lastly you can see that since June of this year that bond yields have been climbing since reaching the low 1.30's level and have broken its downtrend on a daily chart.

Crude Oil

Crude oil had a crazy day after having been down considerably to as low as $43 and change which was also a key support level, to a swing to the green rising to 45.25. Currently in the next day of trading crude is sitting at just over $45.

Crude is currently in a middle ground with no clear direction at the moment. Having said that crude recently broke its long term uptrend which is displayed on the chart by the blue line which is a bearish signal for crude moving forward.

The key areas to look out for in the medium term are $46.25 to the high side and $43.05 on the low side. We would need to see a break out in either direction to determine its next move.

USD/JPY

Currencies around the globe experienced violent moves overnight as the market tried to digest the news that many did not expect to occur within the US election.

The USD/JPY pair fell sharply initially to a low of 101.18, before climbing sharply during yesterday's trade to also climb into the green reaching a high 105.88.

The technical's for this pair has recently turned bullish, after reversing it's long term down trend and clearing the previous resistance level now turned support of 103.88.

Momentum has now moved positive and with the strong reversal intra day the next resistance level for the pair is 106.83. Currently it's sitting at 105.57 at the time of writing this.

EUR/USD

The EUR/USD pair had a similar outcome to the USD/JPY but in the opposite direction. After climbing strongly when news first came out that Trump was in the lead and looking likely to win the election. The EUR/USD pair jumped as high as the 1.13 level which also market the high end of the down trend level for this pair (see chart for trend line).

The currency also reversed course during the day and swung from a strong gain for the day giving up all the gains and falling for the day to reach a low of 1.090 level.

Momentum is only just positive and looks likely to swing back to the negative. The likely next stop for the EUR/USD is down to the next support level of 1.088 as shown in the chart below.

Gold

One thing that the gold bugs had expected was that if Trump would win that Gold would jumped sharply higher.

Unfortunately for Gold investors their prediction did not remain true as the trading day continued. Gold initially jumped spectacularly higher to a high of $1,336 for the day, before giving up practically all the gains to finish around $1,277 level.

Currently in the next day of trading Gold is slightly higher sitting at $1,286 at the time of writing.

Looking ahead for Gold it has 2 key levels to clear before it could regain it's uptrend. Its first resistance level is around the $1,305 - 08 level which it breached intra day but could not close above that level. If it clears this level the next level to close above is its downtrend line shown in the chart. During the highs reached Gold hit its downtrend at around $1,336.

XJO - Aussie Stock Market

Australia was one of the stock markets that was trading as the results were unfolding for the election yesterday. The Aussie market index the XJO was initially up in the morning when the market believed Clinton was winning. It quickly swung to the downside sharply following the US futures market, hitting a low of 5,052 which was around it's strong support level reached back in late June, before recovering considerably by the end of trade yesterday.

Today the XJO has risen sharply on the back of the swing in the US markets to around 5,300 level at the time of writing.

Since the XJO is currently sitting comfortably above its previous support level of 5,190, its next target is around 5,390 - 5395.

Keep in mind though that Momentum is still well in the negative at -142 as well as the current price is sitting below its 50 day moving average. The XJO would need to see buying to continue in the US markets to help lift the XJO out of its current slump.

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Disclaimer: This post was for educational purposes only, and all the information contained within this post is not to be considered as advice or a recommendation of any kind. If you require advice or assistance please seek a licensed professional who can provide these services.