Weekly Technical Overview 25 October 2015 · The 120 min chart posted a bearish three candle reversal pattern around that 2075.25 level earlier in the session and that chart continues

Andy Dodd – MSTA - +44 020 7031 4651 [email protected] Twitter : @louiscaptech

Weekly Technical Overview 25th October 2015

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Equity Technical Dashboard Market Long Term Short Term Key Support Key Resistance Notes

S&P 500

Approaching 2120

Bullish 2040 2019 1985 1905 2075 2094 2120 Reversal Pattern

Russell Top Pattern Bullish Reversal?

1152 *1083* 1038 1170 1183 1213 1243 1268 1279 1296

1170 Key Short Term

SX5E Downtrend Bullish

Reversal

3418 3325.5 3279 3177 3449 3513 3616 3643

Bull

VG1 Downtrend Bullish

Reversal

3418 3319 3216 3146 3107 3001

3481 3544 3650 Reversal Pattern

GX1 Downtrend Bullish

Reversal

10,592.5 10,524 10,390 10,034 *9802.5* 9504.5 8990

10,857.5 *11,164.5* 11,650

11,164.5 Key Resistance

FTSE Future Top Pattern Nearing Resistance

6346.5 6095 5933 5842 5763.5

6445.5 6669.5 6445.5 Key Resistance

N225 Failed Uptrend Island Reversal

18,300 16,320 *19,115* 19,436 19,778

19,115 key Resistance

The above table is designed to give a quick overview of trends and levels. Please see my comments on the individual charts below for a more detailed view.

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S&P 500 Long-Term

Augusts’ sell-off following Junes’ Bearish Engulfing candle left as similar candle whose Marabuzo level of 2038 served as a resistance to the attempt at a rally on the Fed announcement back in September. Junes’ candle proved

a good early indication of the rally coming to an end and I advised closing longs in this time frame as a result.

The rally from recent lows traded through that 2038 resistance last week and the index is now only around 2%

away from the 2120 level, which had held as a resistance for seven months before the move lower, and further upside from here will obviously be limited whilst that remains intact.

There is still another weeks or so of price action to be included before the current candle is complete but a close

above 1970.09 would leave a Bullish Engulfing candle. These are usually a good indication of an impending change in trend but, as there was no downtrend intact beforehand to be reversed, it will have less relevance. With MACD

having crossed below its signal line a number of months ago and RSI also coming down out of ‘overbought’ at the

same time the oscillators remain bearish and only a confirmed break above 2120 would suggest new highs to come in this time frame.

S&P Cash Monthly Chart



S&P Cash Medium Term

I said in my overviews of the last couple of weeks’ that the price action last week may prove decisive for the future

medium-term direction of the index, as a closing break above 2030 would suggest further upside but, for the time

being it made sense to trade the sideways channel between 1905 and 2030 whilst it remained intact.

The index had managed a close just above 2030 a couple of weeks ago but not by a convincing enough margin to

be seen as a clean break but the rally continued last week taking the index to a close near the weekly high around

the 2075 resistance. With MACD also crossing up, no bearish RSI divergence and a bullish candle from last weeks’ price action, there is no longer a reason to be short here. Remember also that the measured target for the

reversal pattern is up at 2170, but that key resistance at 2120 will obviously have to fail before that target is reached.

The pattern also applies on both the daily and 120 min chart, neither of which are showing any bearish signals as

yet, but I will be watching the price action on those charts for such signals should the 2120 level be tested.

S&P Cash Weekly Chart



S&P Short Term

As on the weekly chart the move above 2019.26 appeared to have confirmed a bullish Double Bottom but the index still had to break above the 2040 level just above there. It was the failure of 2040 as a support on 20th August

which confirmed a bearish top pattern and led to the sharp mover lower over the next couple of sessions.

I said in last weeks’ overview that ‘I would in fact be buying this break were it not for the resistances above’ and wanted to wait for 2040 to fail before becoming bullish. I said at the time that the measured target for the pattern

would be around 2175, allowing for plenty of time to buy such a move should 2040 fail. The price action in the sessions before Thursdays’ ECB comments suggested that the resistance would hold, with a Hanging Man candle in

Mondays’ session followed by a Bearish Engulfing on Wednesday.

However the rally following that news took the index to a close above 2040 in the very next session and, with a further bullish candle in Fridays’ session, there is now scope for further upside with 2120 the next major resistance

above current levels.

S&P Cash Daily Chart



S&P Future Trading View

Position Supports Resistances % Usual Position Size

Flat 2048.25 2033 2030.75 2011 1992.75 1985 1968 1945.25 1917.5 1898.5

2075.25 2088.75 2108.75 2120

0%

As with others in this report last week was a case of being short below key levels but long above, which made short-

term positioning difficult to say the least.

The key level on this chart was at 2030.75 and I had a stop on my short on a clean break above there which was

triggered in Thursdays’ session. I was then looking to buy a break above 2050 but decided against that in Fridays’

daily note as the future was at a short-term downtrend, which coincided with both the 200 day Moving Average and the 76.4% Fib retracement of the move lower from the July high.

Instead I wanted to watch the close in that session as a close near session lows would have left a bearish Shooting

Star candle and I was looking to re-open the short on such a candle. The 2075.25 resistance held during the session and the days’ price action left a rather indifferent candle as it was neither the Shooting Star nor a bullish Marabuzo

and I am therefore staying away for the time being until I have more conviction.

The 120 min chart posted a bearish three candle reversal pattern around that 2075.25 level earlier in the session

and that chart continues to look stretched here with RSI also having come down out of ‘overbought’. This would

suggest that a better long entry point than current levels may appear but are not enough on their own to warrant a new short.

ES1 Daily Chart



Russell Short Term

The rally from the bullish Hammer at the key 1083 support had reached the downtrend when I wrote last week’s overview and I said at the time that the move was looking stretched as it reached the 38.2% Fib retracement of the move lower from the June high. The index ended the week almost unchanged as it continues to trade around that Fib level but is now above that short-term downtrend and there is a potential bullish H&S bottom forming here. This requires a break above the neckline before it is confirmed but the measured target for the pattern on the medium term would be some way above the 1213 resistance. I would suggest using a break above the 1170 level as a long trigger but would be watching for reversal signals on the short-term charts around the key resistances at 1183.85 and 1213. As a reminder the former is also a key level on the longer-term weekly chart where there also a Marabuzo resistance at 1183.

Daily Log Chart



Dow Jones 30 The close above 16,970 on 8th October confirmed a bullish pattern on this daily chart but, unlike the S&P there was

still a little way to go until the next key resistance at 17,580 was reached.

The weekly chart was also showing some bullish signals as MACD completed its cross above the signal line and as a

result in last weeks’ overview is said that ‘there is as yet no real reason to be shorting this index as there are still

not enough confirming signals and there is still room for further upside towards that 17,580 level.’

The rally continued as expected last week, taking the index to a close above that level and its 200 day Moving

Average on a weekly basis and, with no reversal signals as yet on this daily chart, there is still no real reason to be a seller. There is also some way until the next major resistances at 18,104 and 18,829 are reached.

Daily Log Chart



DJ Transportation Index

The index remains in a short-term downtrend channel but I suggested a trading long in my overview of 2nd October due to the bullish Hammer candle at the lower end of the channel and, more importantly, at the key 7715 support. I suggested closing that a couple of weeks ago as the index had rallied almost 7% from the support and had reached the upper end of that channel and resistance at 8257 (which was my target). In last weeks’ overview I suggested that a short in line with the downtrend had a good risk/reward, especially following the Bearish Engulfing candle at that trend of October 16th, but Thursdays’ rally invalidated that trend and a break above 8349 next week would also confirm a bullish reversal.

The weekly chart also remains bullish as the rally following the Hammer at the key 660 support continued last week and the longer-term monthly chart also looks like leaving a Bullish Engulfing candle this month to followed the equally bullish Inverted Hammer of the previous month. All the evidence therefore points to a continuation of the recent rally in both the short and longer-term.

Daily Log Chart



SHCOMP

I added a couple of arrows to this chart a couple of weeks ago to show the likely price action following the Island Reversal (circled) which are so far proving relatively accurate.

The index continued its rally towards the 3478 resistance last week where last week and posted a Bearish Engulfing candle Wednesday which would suggest that the level will hold but bear in mind that the market was closed when China cut rates last week. The weekly also posted its own bullish Island Reversal a couple of weeks ago as the index caught up with other markets having been closed for the Golden Week holiday. Should 3478 fail as a resistance there is still every chance of a further rally towards the 200 day Moving Average, which incidentally coincides with the 38.2% Fib retracement of the move lower from the July high. Longer-term though the 2320 measured target from the top pattern is still relevant.

Daily Log Chart



Nikkei 225 Short-term positioning has been difficult recently due to the lack of trend and the large number of gaps, both up and down, over recent weeks.

I have been bearish in general following the break below 18,300 but the gap higher on 5th October had left a bullish Island reversal on both this and the weekly chart, which had already posted a bullish Hammer candle the previous week. This suggested further upside but, as I mentioned in last weeks’ note, there is still a huge resistance area just above current levels at 19,115.2. This where the neckline of a bearish top pattern coincides with both the 200 day Moving Average and the underside of the failed long-term uptrend.

I suggested selling rallies to that area in last weeks’ note and the index reached the 18,928 resistance in Fridays’

gap higher which held during the session. Note that this level is also the 50% Fib retracement of the move lower

from the August high and I see no reason to be a buyer here on a longer term view whilst that and the 19,115.2 level remains intact.

Daily Log Chart

European Equity Summaries Below



SX5E Medium Term

Not much had really changed from the previous week at the time of last weeks’ overview as the index was

approaching a key resistance area around 3300, which coincided with the 38.2% Fib retracement of the move lower from the April high. This weekly chart had yet to show any signs of a reversal to the downside but, as with the daily, needed to break above the 3279 resistance before further upside.

In last weeks’ note I was still wary of new longs whilst that resistance area around 3300 remained intact but said at the time that further upside towards 3449 is likely should it fail. Thursdays’ rally also confirmed a bullish pattern on the daily chart (See below) and the move continued as the index made a weekly high a point above that 3449 resistance to leave a bullish candle.

There is no real reason to be a seller here as yet based solely on this chart but the 3449 level still needs to be taken out before a further rally and there is still a downtrend intact around 4% above that resistance (3590) which will provide a good area to be looking to sell further rallies. Note that 3449 is a blended candle Marabuzo level which is arrived at by combining the two large down candles from the sell-off in the middle of August.

Weekly Log Chart



SX5E Cash Short Term The index had been consolidating below the 3279 resistance and, up until Thursdays’ rally, the signs were that this

level would hold as the index posted a bearish Shooting Star candle on 19th which was followed by a Bearish

Engulfing the next day.

I had remained bearish whilst 3279 remained intact as a resistance saying in last weeks’ overview that a break above 3225.5 would change this opinion. The ECB fueled rally took the index to a close above that level in

Thursdays’ session confirming a bullish reversal pattern, whose medium term measured target is around the same

level as the longer-term downtrend.

Fridays’ close above 3418 also left a bullish candle, despite failing to close at the session high, and there is no reason to be a seller as yet based solely on this chart. The rally will still need to clear resistances at 3484, also the

200 day MA, and then 3513 which is the neckline of an old bearish top pattern that coincides with the 61.8% Fib retracement of the move lower from the April high. Even the 120 min chart has yet to show bearish reversals

although is starting to look a little stretched here in the short-term.

Daily Log Chart



EU50 Future Trading View


Long 3418 3378 3319 3313 3253 3216 3206 3178

3441 3461 3481 3544 3650

25%

As with the cash chart I have remained bearish whilst 3319 remained intact as a resistance but pointed out that a break above there would confirm a bullish reversal pattern, which would allow for a further rally to the next

resistance at 3418 initially.

Below there 3280 had been working well as a short-term resistance and, up until the ECB meeting, the signs were that it would hold going forward. I had therefore been short, but with a closing stop on a break above 3319, which was triggered in Thursdays’ rally and the rally in that session left a bullish candle which suggested further upside.

This proved correct as the move continued through Friday but I wanted to see the close in that session as the 3418 resistance was not far away and a close near session lows would have left a bearish Shooting Star. The 120 min chart had also left a bearish Hanging Man earlier in the session but the future largely ignored that to close near

session highs.

With the measured target for the reversal pattern around the long-term downtrend, Fridays’ close above 3418 and no real bearish signals as yet on this daily chart there is no reason to be a seller here yet.

Daily Log Chart



DAX Future Trading View


Flat 10,592.5 10,524 10,390 10,316 10,034 9802.5 *9504.5* 8990 8561

10,857.5 10990 11,164.5 11,372 11,650

0%

The future had previously rejected moves above the 10,127 level but I had reduced my short from 100% to 50% as

there were a number of bullish signals on the 120 min chart which suggested that a break higher may be imminent.

I said that a break above 10,316 would suggest a move towards 10,592.5 which proved the case on the ECB rally as the level gave way and the future rallied to close at session highs. The move also confirmed a bullish reversal

pattern on the close above the 10,524 neckline and the rally continued through Friday to test the next key level at 10,857.5. This is also the 50% Fib retracement of the move lower from the April high and, whilst there are no

bearish reversal signals as yet on this daily chart, there is now less than 3% upside from Fridays’ close until the

downtrend is tested.

With that in mind I would suggest caution against committing too much capital to new longs here but however note

that the measured target for the reversal pattern is above the downtrend and just below the 11,650 resistance.

Daily Log Chart



FTSE Future Trading View Position Supports Resistances % Usual Position Size

Short 6346.5 6296 6234.5 6095 6048.5 6000 5933 5842

6396 6445.5 6492 6536 6603 6669.5

50%

The future has been consolidating below a downtrend and resistance at 6346.5 but the close in Thursdays’ session was above that level. Note however that this is not shown on this chart due to the ongoing Bloomberg data problem

which has once again taken the settle price as the close.

The move above 6296 had already confirmed a bullish pattern but the downtrend still had to fail before any further

move higher. With the Thursday close not by a large enough margin for me to class it as a clean break I am still using a break above 6445.5 (which held in Fridays’ session) as a trigger for a top/reverse on the balance of my

short. Such a move seems imminent looking at the price action on this chart although the 120 min is looking stretched here as RSI comes down out of ‘overbought’ showing the slowdown in momentum.

Should the break occur I would expect further upside with a test of 6669.5 the most likely scenario short-term.

Daily Log Chart

Sectors Quick Comments below



SXEP: Too soon to be long at these level as the index continues to trade below key resistance at 294.87 where it

posted another bearish candle in Fridays’ session. A short here with a stop/reverse on a clean break of that level would have a good risk reward.

SX7E: Closed above the key 140.55 resistance in Fridays’ session and the move seemed to have been confirming a

bullish H&SS reversal. However Fridays’ price action left a bearish Shooting Star candle which suggested that this

may be a false break and would therefore suggest caution against buying the break just yet.



SAN SM: A similar pattern to SX7E with a potential bullish H&S reversal forming but the neckline held in Fridays’

session where it opposed a bearish Shooting Star. I would be looking to open longs on a break above 5.4 but Fridays’ candle suggests that this is not yet imminent

INGA NA: remains in an uptrend and another close above 13.34 would confirm a bullish reversal. I will therefore be looking to open a long should that occur.



SXPP: Remains in a downtrend below the key 329.24 resistance and that trend held when tested in Fridays’ rally.

There is another potential H&S reversal forming here but that needs the neckline to fail before being confirmed and another short with a stop/reverse on such a break is therefore in order.

Note also that every other time Chine cut rates it turned out to be a selling opportunity and I have marked these on

the chart below.

Recommended reading list below



For a good understanding of the candlestick patterns mentioned in the report this book my good friend Clive

Lambert is perfect.

http://www.amazon.co.uk/CANDLESTICK-INTRODUCTION-Lambert-Jan-2009-Paperback/dp/B00KLO7O2C/ref=sr_1_4?ie=UTF8&qid=1415553028&sr=8-4&keywords=clive+candlestic

For an in depth study of technical analysis this book by John j. Murphy is widely recognized in TA circles as the

bible.

http://www.amazon.co.uk/Technical-Analysis-Financial-Markets-

Comprehensive/dp/0735200653/ref=sr_1_sc_1?ie=UTF8&qid=1415553189&sr=8-1-spell&keywords=tedchnical+analysis+of+the+financial+markets

For more information on any point and figure charts the Jeremy du Plessis book below gives an in depth tutorial.

http://www.amazon.co.uk/Definitive-Guide-Point-Figure-Comprehensive/dp/0857192450/ref=sr_1_1?ie=UTF8&qid=1415553347&sr=8-

1&keywords=point+and+figure+charting

Note that these are general comments about markets and the time frames may not

always match your investment criteria. As always position sizing is more important than the ideas and levels. I always encourage clients to ask for chart views and asset allocation ideas that have been written specifically for them and their individual time frames and risk tolerances. If you would like to play any of these ideas through derivatives our options desk will be happy to suggest strategies. Important notice / disclaimer This material was prepared by Louis Capital Markets UK LLP , which is authorised and regulated in the United Kingdom by the Financial Conduct Authority (FCA) under ref 225544. This document must be treated as a marketing communication for the purposes of Directive 2004/39/EC as it has not been prepared in accordance with legal requirements designed to promote the independence of research; and although Louis Capital Markets UK LLP is not subject to any prohibition on dealing ahead of the dissemination of investment research, Louis Capital Markets UK LLP applies this prohibition through its internal systems and controls. The analyst or analysts responsible for the content of this marketing communication certify that: (1) the views expressed and attributed to the research analyst or analysts in the report accurately reflect their personal opinion(s) about the subject securities and issuers and/or other subject matter as appropriate; and, (2) no part of their compensation will be directly or indirectly related to the specific recommendations or views contained in this research report. Louis Capital Markets UK LLP has effective organisational and administrative arrangements set up within the firm for the prevention and avoidance of conflicts of interest with respect to research Recommendations, including information barriers.This document is for the use of the addressees only and is not intended for nor should be disseminated to Retail Customers as defined in Directive 2004/39/EC. It may not be copied or distributed to any other person without the written consent of Louis Capital Markets UK LLP and may not be distributed or passed on, directly or indirectly, to any other class of persons. Louis Capital Markets UK LLP may at its discretion distribute this document to any other person to whom it could lawfully be distributed by an unauthorised person and without its content being approved by an authorised person.



http://www.amazon.co.uk/Technical-Analysis-Financial-Markets-Comprehensive/dp/0735200653/ref=sr_1_sc_1?ie=UTF8&qid=1415553189&sr=8-1-spell&keywords=tedchnical+analysis+of+the+financial+markets



http://www.amazon.co.uk/Definitive-Guide-Point-Figure-Comprehensive/dp/0857192450/ref=sr_1_1?ie=UTF8&qid=1415553347&sr=8-1&keywords=point+and+figure+charting





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Documents

Weekly Technical Overview 25 October 2015 · The 120 min chart posted a bearish three candle reversal pattern around that 2075.25 level earlier in the session and that chart continues