Welcome to Culley Charts. Every week I will cover bonds, stocks, commodities and currencies in order to better understand the overall market environment, and where I should direct my focus in the coming week. I imagine the weekly report will evolve as I begin to post more throughout the week.
Bonds
My view on US treasuries is that interest rates are bottoming and bond prices are beginning to roll over.
US 10 Year Yield
Below is a chart of the US 10 year yield going back to 1985. The 10 year yield has been declining within a downward trend channel for the past 35 years, and just recently hit all time lows. Interestingly, when the 14 period RSI on the weekly scale reaches extreme oversold readings of <20, those readings usually precede a thrust in momentum that is accompanied by a rebound in rates. After extremely oversold readings in late 2019 and in early 2020, RSI readings have struggled to stay above 50 and we have yet to see a bounce in yields. Will momentum pick up and rates begin to rise, or do we have another leg lower into negative territory? I think its the former.
10yr T-Note
One of the reasons I believe rates will begin to rise is that prices of US treasuries have struggled since March to absorb overhead supply without success. Below is the 10yr. T-Note that appears to be breaking out of a tight consolidation and rolling over to the downside. I am short with low expectations. I doubt trading treasuries toward year's end will be anything like the lay-up they were at the beginning of the year.
30yr T-Bond
I'm watching the 171'00 level in the 30yr. T-Bond. Price could hold above that level and consolidate, providing an asymmetric risk/reward opportunity, or it could blow right through it.
Stocks
Equities as a whole, remain range bound. Yes, they have dramatically recovered from the March lows, but the indexes (in general) can be categorized as:
Stuck below 2018 highs
Stuck below February 2020 highs and above 2018 highs
Stuck below more recent highs and above February 2020 highs
Global Dow
First, let's look at the Global Dow. This is an equally weighted index of a 150, blue chip stocks from around the world. It contains companies from a variety of sectors and levels of capitalization. I think of the the Global Dow as a diverse index of the best stocks in the world. Like much of the world, it peaked in 2018.
Russell 2000
US Small Caps look a lot like the rest of the world too. The Russell 2000 is still trying to get above its 2018 highs.
DJIA
The Dow Jones Industrial Average has broken back above resistance around 26,500, and has recently found support at those levels. However, the index has been unable to break above the ATH's posted earlier this year in February.
S&P 500
The S&P 500 has managed to get above the 3400.00 level that was tested earlier in the year, but hasn't gone far. Price appears to be consolidating around those ATH's posted in February.
Nasdaq 100
The tech heavy Nasdaq 100 has been one of the strongest and most resilient markets in the world this year. It is presently chopping sideways, well above its highs prior to the February- March sell-off.
Though the current environment is choppy, and I lack any conviction to trade the indexes, my overall outlook on equities is positive. In the future I will devote more time and separate posts to cover equities and individual names. At this point my main focus is on commodities.
Commodities
The overall theme in commodities is big bases and wide open spaces. First let's focus on precious metals. Typically precious metals, specifically gold, tend to lead commodities into bull market cycles, and that is exactly what gold has done over the past 16 months.
What a summer for precious metals, especially silver. I want to be long, but right now its a waiting game. Below are just a couple of charts highlighting where gold and silver stand right now and where they could be headed.
Gold
First we have the weekly chart of gold. There is something extremely gratifying when price swings repeatedly respect Fibonacci levels. Price most recently found resistance at the 261.8% extension level from the 6+ year base completed in mid-2019. I believe once price breaks above 2,050 level, the next stop for gold will be 2,550.
The daily chart lacks any actionable set-up, but I will closely monitor the market for a well- defined horizontal boundary.
Silver
There are lots of similarities to draw between the past and present base building and breakouts. However, the current rally must contend with price memory that was nonexistent in the '10-'11 rally. It will be interesting. I really want to make contact with silver, but its going to take patience, and most likely a lighter bat.
I would love to see silver get back down around 20. We shall see.
Grains
The grain markets have really caught a bid over the last few months.
Chicago Wheat
Chicago wheat recently completed a rounding bottom pattern on the weekly chart. There is quite a bit of price memory around 640^0 - 660^0. Price could consolidate at current levels or blow right thru on its way to 720^0.
A double bottom on the daily chart launched the completion of the rounding bottom seen on the weekly. A possible flag is forming below recent highs. I would consider taking a swing if price breaks back above 636^0.
KC Wheat
The bases in grains on the weekly charts are absolutely massive. Below is a chart of KC Wheat. A weekly close above 590^0 would signal a breakout for me.
I really missed the boat on the failed breakdown, turned gap and go in August. I believe the saying goes, "from failed moves, come fast moves." This is a prime example.
Mpls. Wheat
Minneapolis Wheat is definitely the laggard of the bunch, but due to its higher protein content often demands a premium to both Chicago and Kansas City varietals. I am long with an initial target of 650^0.
A completed textbook H&S Bottom on the daily chart.
Bean Complex
Soybeans
Soybeans are on a tear, and appear to be breaking above an area of resistance on its way to 1775-1200.
A pennant was recently completed on the daily chart of the November contract. I will roll my position to January '21 contract later this week.
Soybean Meal
Another big base, with price approaching the 61.8% retracement level. This would be a logical place for price to digest gains and consolidate.
Price could be drawn to the next Fibonacci extension level around 414^0 on the daily chart. I'm looking for a short and tight consolidation pattern in the form of a flag or pennant.
Soybean Oil
I really like this soybean oil chart. I started trading in 2016, and soybean oil was one of my first trades. The breakout failed, and I remember Peter Brandt pointing out at the time that the bottoming process in grains can be a long and arduous affair...and here we are over 4 years later.
I hope a well defined risk opportunity presents itself below 36.00. Right now the daily chart is a mess.
Corn
Like soybeans and many of the other grain markets, corn has recently tested areas of historical support dating back to the mid-2000's, and is now poised to break above overhead supply. On the weekly chart below the blue and red lines are Anchored VWAPs. I normally do not use many indicators or moving averages. I prefer to focus on price and horizontal areas of support and resistance . However, whenever price action respects levels like the one represented by the red line, it demands attention. I plan to add AVWAPs to my toolbox. To learn more about Anchored VWAPs check out Brian Shannon's work by clicking here.
Could we get a successful retest around the $4 level? I would be a buyer if we do.
Currencies
DXY
The Dollar is one of the most important charts out there. It impacts all other asset classes...bonds, stocks, commodities...all of it! There's no hiding from the Dollar. So the possibility of DXY nearing the completion of a developing, 5 year double top should be front and center.
DXY is currently holding above an area of support around 92.00, but when and if it's broken, I believe price will quickly test the 2018 lows around 88.30. If that is the case the 88.00 level will act as major support, as well as the pattern boundary of a possible double top.
A note about the 14 period RSI on the weekly chart below. Momentum was strong coming into the topping pattern, hitting extreme overbought readings. After that, momentum failed to reach overbought conditions for 5 years. That indicates a market struggling to absorb overhead supply, and is more likely putting in a top than a bottom.
On the daily chart we have a successful retest of prior support, turned resistance, while remaining in a bearish momentum regime. Path of least resistance is to the downside.
EUR/USD
This is why I'm not trading any USD crosses at the moment. Price is still chopping sideways. I gave it a go and it didn't work out. That in itself is information.
But, if I were to short the USD...it would be against the CHF.
USD/CHF
The USD has been in a downtrend against the Swiss Franc since 2002. Price action since 2012 might just be a long intermission of the primary downtrend. The way I learned it, the trend persists until a reversal in trend is signaled. No reversal signals here.
Looks more inviting than the Euro. A solid close below .9028 on the daily chart would be a sell signal for me.
USD/JPY
I like triangles with horizontal boundaries. The descending triangles on both the weekly and daily charts are tempting, but I will have to pass for two reasons:
Large spindles can make it difficult to properly identify areas confirming a breakout.
I was violently whipsawed trading the Yen on election night 2016, only to watch price eventually rip in my direction. I like to think I learned my lesson.
On a separate note, there is a fractal nature to price action. Similar behaviors in price can be seen across all timeframes, from monthly charts to intraday charts. USD/JPY is developing a descending triangle on the daily chart within a larger descending triangle on the weekly chart.
EUR/GBP
Does the EUR/GBP cross break out to the upside on its way to parity? That would be interesting.
AUD/NZD
I have no plans of trading this cross anytime soon, but I am keeping it on my radar. It appears the AUD/NZD could be bottoming in the shape of a 5 year coil. The hope is that a well defined, asymmetric risk/reward opportunity presents itself on the daily chart.
Crypto
I do not trade any of the crypto markets, but I enjoy charting the more established coins. I imagine it is only a matter of time before I get involved.
Bitcoin
Below is Bitcoin going back to 2011. We can see a pattern of base formations below recent highs, followed by explosive, parabolic advances. It seems Bitcoin is poised for another run up.
Below is price action in Bitcoin over the last 18 months. Price repeatedly tested the 10,000 level until it broke out in late July. Once the resistance level at 10,000 was broken, it became support when price successfully retested the level in September. It now appears the rally in Bitcoin is just getting started.
Ethereum
Ethereum has a similar set-up. A base formed below an area of overhead supply. Let's call it 300.00. It tested the area numerous times, and finally broke out in late July. It also pulled back to its former area of resistance, but former overhead supply has now become underlying demand, supporting higher prices. The path of least resistance points to the upside.
Litecoin
I don't know anything about Litecoin, but this is a massive, well-defined, symmetrical triangle. I think Litecoin could get interesting above 100.00. Below 25.00 and lights out.
Conclusion:
Bonds look to be rolling over
Equities remain buoyant
Commodities are just getting started
Dollar weakness lies ahead
It appears a traditional intermarket picture could be developing. So, where do we want to focus our attention in an environment of rising interest rates against the backdrop of a weakening Dollar? I'll hit on this in the coming weeks.
Thanks for reading! If you have any questions or comments, please feel free to contact me at ianculley@culleycharts.com
DISCLAIMER: All information and opinions expressed by Culley Charts are strictly for educational purposes and should not be construed as investment advice. Market participation comes with inherent risk, and the responsibility of managing this risk lies solely with each individual investor.
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