These commodities have been among the biggest rises in prices in the past few months, and coupled with the bond market, give an interesting inter-market view on the global financial markets.
Stock Market
The latest rally has been in a great part, lead by gold/oil groups. Interestingly, bonds have been falling for the past month (interest rates rising) after a climax top, which means there is going to be a shift from interest-rates driven stocks to inflation-driven stocks. Tech stocks, the former stock market leaders, are now laggards, with NASDAQ lagging behind S&P and Dow Jones. Financial stocks, which also lead much of the bull market, have also been weak, despite the stimulus from the Fed and ECB. Getting on defensive/commodity stocks, or staying on the sidelines altogether, it’s probably the best course of action to take at the moment.
Gold
After showing persistent demand between the $1050-$1100, and breaking the long-term down trendline, it didn’t stop until major supply hit the market again. It’s good to note that there is an important resistance at $1306, and the supply here might come from the fact that there are major traders taking profits before it gets there.
On the H4, we can see the current action more clearly – a trading range, with a slight uptrend. $1270 has been a key resistance in the last weeks, with significant supply showing every time the prices approach it. Last Wednesday on FOMC’s announcement, the prices got near this price again, and VSA showed another supply signal (purple dot), along with an high volume (red) later, with prices reversing afterwards. The key levels are therefore this resistance, and the up trendline below. In M15 there is a down trendline at $1260 right now, and as the background there is weak, this will be a good timeframe to look for shorts while prices are kept below $1270.
Brent Crude Oil
Brent Crude Oil uptrend didn’t pick up so fast as gold’s in the beginning, but it has been steadier. Looking at H4, it has been showing supply and down reversals at fresh 3 month highs, and it’s getting to the ‘overbought’ part of the trending channel, so I’d prefer to wait for the prices to reverse to the trendline first. If there are low volume down bars or a bullish test in this area, it’d be another long opportunity, because that would show the supply before was overcame.
Trend and Supply Brent Crude Oil
Like I wrote in last Monday’s post, it was likely for the uptrend to continue due to the major shakeout, in the first blue rectangle. After the rally on the Asian session, yesterday by the end of NY session, we have seen one good VSA setup which will often mark as Top Reversal, near a zone of previous supply.
The reason why we commonly should consider this as sign of weakness are:
1. Volumes were decreased on two up bars when this candle tried to break 1.1050 level.
2. On the second try, which is marked in the 2nd blue rectangle, confirmed this as Top Reversal. Combination of two bars give us insight that supply has swamped the demand. First bar is marked up with very high volume and closing on the highs. And the next bar rapidly reverses down on a wide spread and closing on the lows.
The market went down quickly after, which gave no opportunity for a confirmation, in the form of an upthrust or no-demand bars. But as there was an up trendline nearby, its break would be another confirmation (Trendline breakout), of course, if you happened to be watching the markets in the mid of Tokyo’s session! EURUSD kept on downtrending and only more weakness after a significant rally would give another opportunity for a short. Below the support at 1.09394 I expect more demand to show up, as the trades who bought at the shake-out earlier might still be interesting in buying more at those prices.
Distribution, Trend Changing in Eurusd
Due to the uptrend, the bias before NFP release was bullish. Already twice had the price tested the major support on 1.0825 level, and bounce back up. It shows that professional money isn’t interested in a down move so far. After testing, they markup the price and break 1.0925 level on Thursday.
EURUSD H1 Volumes
And finally by using NFP as catalyst which is showing us strength on USD, shakeout candle happen with significantly volume increase. If we keep following the price until it reach to 1.1000 level, we can see there is ultra high volume when the price tried break that level. Why the volume appears as ultra high? No other reason because smart money has to absorb all the sell orders on that level and keep pushing the price up. For this week, most likely the smart money will continue to keep the bullish trend.
Following the last update on GBPUSD, shortly after there was a breakout with a volume above average, with strong signals behind. This is seen in zone (1).
8 hours later, there was a churn down bar (2), which was an indication of more buying above the broken level. The long position was taken right after, with the stop-loss below the break-out bar’s low, and the take-profit below the next resistance. After a short correction on low volume, prices kept on rallying, until reaching a climax (red) bar, and VSA showing a supply signal next to it (3). This was a +148 pips move. There is where the trade was closed. Since the background is now weak, there is now a sell signal if the previous low is broken.
Update 7th March: After the low on the supply bar was broken, the prices went down on wide spread, but low volume, which should have been the warning sign to tighten the stoploss. The stoploss was hit above the nearby resistance at 1.42507. Total: 148 – 53 pips = 95 pips
Volumes and Reversals Trading GU
GBPUSD
After the confident 1.42450 and 1.40650 support breakout, prices haven’t managed to make the same thing with 1.38460 support, and now British Pound market tests the 1.40650 resistance level.
During previous 2 weeks bearish market confirmed its sentiment:
In point 1 prices tested 1.43890 resistance level which showed the interest from institutional players and was marked by VSA Indicator as W1 supply signal. Before that, in point 2, market showed, that there were no strong signs of the imbalance near 1.42450 support level which meant, that big players were not going to change its short positions to long ones.
There was a 1.42450 support level breakout on high volume which again showed initial sentiment of the market. As the result of that breakout, the 1.40650 support level went through as well, and the steady downfall of the market stopped at the level 1.3846.
Points 4 and 5 suggest that minor demand signals and low volatility on the bottom of the market is not the sign of the bearish trend finishing. The beginning of a sideways is possible, which is confirmed by neutral background.
Due to the absence of stronger demand signals on the bottom of the market, now it is too early to speak about the change in GBP market sentiment. In current situation it is important to see how the market will behave near the 1.4065 level and above it, if such situation happens. In case of a supply signal near the resistance, or no demand with a volatile down candle after it, it’s possible to take a short position, but only on weak background.
If there is 1.40650 breakout candle on high volume, it will be the time to start searching for long positions.
GBPUSD H4 – Downtrend and VSA
EURUSD
Having tested the 1.10050 short-term support in the point 1, the Euro went above 1.10440 level, and revealed, that there was no smart money interest near the 1.10684 long-term resistance, which was confirmed by low volumes in the point 2. The point 3 is the place where prices went beyond the 1.10440 level, and above average volume on down candle with the supply from VSA indicator showing the bearish sentiment of the market.
EURUSD – Downtrend and Volumes on market Bottom
In the point 4 there was the 1.10050 and 1.09590 support breakout on high volumes – the good sign of confident bearish trend. Next evidence of down sentiment of the market is the point 5, the place, where prices successfully tested 1.09590 level resistance – it remained unbroken. Moreover, it was the good place for big players to add to short positions – that’s what they did, as the high volume volatile down candle showed. After that the 1.09150 level was went through, and the market eventually paused its down motions by 1.08380 level.
The current market situation can’t be called the end of the bearish trend due to the absence of the strong demand VSA indicator signals and to weak background.
Undoubtedly, there are demand signals in the point 6 and 7, but the volumes are not too high to be stopping volume and the up candle volatility after it, is around average.
So in the current situation the full picture will be seen at the 1.09150 resistance level. In case of high volume breakout candle, previous short positions should be closed and possibly reversed for long positions. If there are supply signals at the 1.09150 resistance level or low volumes near it as no demand signal, it’s possible to open new short positions or to add to current shorts.
The 4-hour chart of the USD/CHF once again shows a minor supply signal, which, taking into account weak background of the market, may mean that the bearish trend will continue. Such amount of market supply may lead to the further down motion, due to which the price may fall to level of the previous support around the 0.966. On the chart there are three important zones, which shows the activity of large players. The first zone is the beginning of bearish trend. There are several supply signals both on the current and on the daily chart. Next, after few short candles with low volatility, comes another bearish signal (minor supply), which leads to the subsequent rapid fall of the price.
USDCHF – Accumulation, Demand and Tests
Then the price almost without any stops passed to the next, second zone, where we can see the highest volumes, which were present in the market in recent months. In the H1 there was a minor down reversal, marked by Major Supply signals, but after more demand seen from upper timeframes, the trend finally reversed.
In the 3rd zone the price reached the resistance level in the area of 0,999. Here we can see that volumes usually don’t exceed its average value, so we may define this situation as lack of demand. There is however one signal in favor of buyers (no-supply test near the 0,986 level), and the background is strong. However, higher amount of bearish signals, which were detected by VSA Indicator, and a successful no-demand test (pink bar), confirms that the market is still weak. In this case, if the background turns weak, the possible point to open the short position would be below 0,995 level and stoploss above the 1.000. Still we must remember that there were large volumes and strong demand signals in zone (2), so we should be alert and prepared to act quickly in case the big players keep accumulating and open new buy positions.
