Short-term breakouts might lead to longer-term selloffs.

• The West Texas Intermediate Crude Oil market has fallen rather hard during the trading session on Monday but then turned around to show signs of life.
• The market ended up forming a bit of a hammer, and the hammer sits just above the $90 level.
• The downtrend line just above is part of a “falling wedge”, and therefore breaking above there could kick off a move to the upside.

If we were to break out to the upside, it’s likely that we will test the 200 Day EMA, which is the blue line on the chart, which is also being tested by the 50 Day EMA as we are slowly lower. At this point, I think that might be your first target, but I also recognize that scenario that could cause quite a bit of trouble. Signs of exhaustion in that area could be jumped on, but if we break above it, then one would have to assume that the market is going to go looking to the $100 level.

Demand causes concern

If we break down below the bottom of the hammer from the candlestick on Monday, then it should open up quite a bit of fresh selling, perhaps sending this market down to the $80 level after we break through the $85 level. Keep in mind that a lot of people are worried about the potential slow down globally, which of course would have a lot of negativity attached to the oil market as demand should drop. More likely than not, that will probably be an ongoing theme in this market, as signs of exhaustion will almost certainly be jumped on. If we do get those signs of exhaustion, it’s likely that the market then will jump on it and start shorting again.

If we were to break above the $100 level, then it’s likely that the market could change its overall attitude, perhaps opening up a move to the $110 level. I don’t expect to see that, but it is something worth paying close attention to, and therefore it’s something to keep in the back of your mind. All things being equal, this is a market that I think will continue to see more noise than anything else, but clearly, there is a serious concern out there when it comes to the overall demand. Short-term breakouts might lead to longer-term selloffs.

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In general, I think this is a market that will continue to be more of a range-bound type of situation.

• The AUD/USD currency pair fell a bit Wednesday to break down below the lows of the previous candle, showing that perhaps there is still plenty of downward pressure.
• However, we have turned around in the middle of the day and have seen the market try to recover completely.
• The 50-day EMA sits just above, and of course, causes a certain amount of noise.

Keep an Eye on Commodity Markets and 10-Year Yield

The candlestick for the day is forming a bit of a hammer, and that is a bullish sign, but we are simply testing the bottom of the recent consolidation area. The market will almost certainly continue to come back into the picture and look at this through the prism of risk appetite and consolidation at the same time. After all, the Australian dollar is considered to be highly levered to commodity markets, which are highly levered to world growth. If the economy starts to enter a very rough patch, it does make a certain amount of sense that the Australian dollar could suffer as a result. Alternatively, if we start to see growth return and perhaps even stimulus, that will help the Aussie as well.

Looking at the 10-year yield helps because it tells you where the US dollar may or may not end up, which is something worth paying close attention to. Another thing worth keeping in the back of your head is the fact that the jobs report comes out on Friday, so it’s more likely than not we go sideways over the next couple of sessions until we get that vital piece of information. The fact that we could not take off in one direction or the other should not be a huge surprise at this point. That being said, I anticipate that we will grind back and forth and essentially chop it up in this tight range. I do favor the downside overall, but I also recognize that we need a catalyst to get moving.

In general, I think this is a market that will continue to be more of a range-bound type of situation, so if you are going to trade it, you need to approach it from the idea of a range-bound short-term setup until we get a break above the 0.750 level or breakdown below the lows of the session on Wednesday.

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The US dollar will continue to strengthen due to the Federal Reserve tightening, and be the biggest part of my portfolio.

The British pound got hammered Friday as the interest rate announcement in the United States was much stronger than anticipated, sending the GBP/USD pair below the 1.24 handle and leaning toward the 1.23 level. Ultimately, this is a market that I think is stuck in a downtrend and has a couple of areas that we are about to burst through to go to much lower levels.

The size of the candlestick is rather bad, so that tells me that we will more than likely have a bit of follow-through and I don’t have any interest in trying to buy this market as the 1.26 level above looks to be a bit of a ceiling in the market. If we break down below the 1.22 handle, it’s likely that we go down to the 1.20 handle given enough time. In fact, that’s my target for the moment, and it’s interesting to see that the 1.20 level is an area that historically has been important.

The 50-day EMA sits above the recent rally, and I think you need to pay close attention to it as it has been a bit of dynamic resistance all the way down from the 1.35 handle and has been rather reliable. This does not mean that I expect the market to reach the 50-day EMA anytime soon, just that it’s something worth guiding your trading. Ultimately, I like the idea of shorting every time we rally and showing the slightest sense of exhaustion. If we can break down below the 1.20 handle, then things could get rather ugly.

The market turning around would have to overtake the recent high from a couple of weeks ago to look remotely bullish. At this point, then the market is likely to go looking to the 1.30 handle. The 1.30 handle is an area where we have seen a lot of support in the past, so it should be a significant amount of resistance due to “market memory.” If we were to break above there, then I would anticipate that the trend could change, but at this point, it’s obvious to me that we are not quite ready to see any serious attempt at that. The US dollar will continue to strengthen due to the Federal Reserve tightening, and be the biggest part of my portfolio.

Any rally at this point in time will more than likely offer a selling opportunity. 

The S&P 500 initially fell rather hard on Monday, breaking down below the 4100 level. That being said, at the very end of the day there was a suspicious surge much higher. This is widely attributed to the so-called “plunge protection team.” (Whether or not that is a real thing is still open for debate, but I am looking at you, New York Fed.)

By forming a hammer, it does suggest that we may get a little bit of a bounce, but it is difficult to imagine a scenario in which we are suddenly going to turn around and take off to the upside. Most traders are probably focusing on the Federal Reserve and what the statement will say on Wednesday, as although people are expecting a 50-basis point hike, the real question is going to be whether or not the Federal Reserve looks as if it is ready to go even more aggressive when it comes to tightening. At this point, I think that the market is reading a bit of a fever pitch, but obviously, we will have to wait to see what happens at the press conference and press statement after the announcement.

If we break down below the bottom of the candlestick for the session on Monday, then it is likely that we will threaten the 4000 level. Breaking down below the 4000 level will open up the possibility of a massive selloff. At that point, I think that we would get a massive unwind in the long positions. At this juncture, you should pay attention to the fact that the “death cross” has just formed. Ultimately, a lot of longer-term traders will pay close attention to this, perhaps starting to get aggressive again. Nonetheless, the Federal Reserve and the inflation concerns out there will continue to weigh upon the S&P 500, so I do think that any rally at this point in time will more than likely offer a selling opportunity. In fact, it is not until we break above the 4300 level that I would be impressed enough to get long of this market. After the FOMC statement and press conference, we may have a different set out but right now you still have to assume that things are pretty pessimistic.

I will be looking for “cheap dollars”, and every time we get an opportunity to get involved, I will be more than willing to short this pair. 

The Australian dollar was sold off quite drastically on Monday as the US dollar continues to act as a wrecking ball against almost everything else. The US dollar continues to attract a lot of inflows due to higher interest rates, and of course, the fact that it represents safety. You should also keep in mind that the Australian dollar is highly sensitive to commodities, which are starting to look a little bit soft. If that is going to be the case, that sets up a perfect scenario in which this market should continue to fall.

That being said, we are a little oversold at this point, so it does make sense that we could get a little bit of a bounce. A bounce at this point in time should continue to offer a selling opportunity at the first signs of exhaustion. The 0.73 level above should be resistance, right along with the 200-day EMA which is at the 0.7323 level. Above there, then you have the 50-day EMA breaking lower, perhaps getting ready to kick off the so-called “death cross.”

Keep in mind that the US dollar is going to continue to see a lot of inflow due to investors looking for some type of safety, especially as the interest rates rising in the United States kicks off a bit of a feedback loop as it would almost certainly cause major debt issues in other parts of the world. As long as the US dollar continues to strengthen, I just do not see a scenario in which the Australian dollar continues to go higher. However, there are some inflation numbers coming out of Australia that could have a bit of an effect on the market. That being said, I will be looking for “cheap dollars”, and every time we get an opportunity to get involved, I will be more than willing to short this pair. We had previously been trading between the 0.70 level and the 0.75 level, and it looks that at the very least we are going to see a return to that consolidation, but if we were to break down below the 0.70 level, things could get quite ugly rather rapidly. I believe that you would see the US dollar strengthen against almost everything at that point.

The size of the selloff is quite drastic, and it does suggest that we are starting to see even more panic enter the market.

The S&P 500 got hammered on Friday to break down below the $4400 level and even broke down below the 4300 level. At this point, the market looks as if it is going to continue to go much lower, so you need to be very cautious about the overall attitude of the market, as it looks like it is threatening a serious breakdown. Short-term rallies at this point will more likely than not continue to see plenty of selling, and I think at this point it is likely that we would see multiple opportunities going forward.

Above current trading, we have the 200-day EMA sitting near the 4400 level, so I think that does have a major influence on any type of rally. Beyond that, we also have the 50-day EMA above there, and I think there is a huge “resistance zone” waiting just above for any type of rally. It is also worth noting that the Federal Reserve continues to reiterate the idea that they are in fact going to remain very aggressive and hawkish, and that works against the value of the stock market as interest rates continue to climb. As long as the 10-year note continues to sell off, it is likely that we will continue to see pressure on the stock markets.

We look like a market that has further downward pressure just waiting to happen, so it is likely that we will continue to see that the 4500 level above will offer a massive resistance barrier. A move above the 4500 level would be extraordinarily bullish, opening up the possibility of a move to the 4600 level, and perhaps even building a bit of an inverted head and shoulders. However, the likelihood of that has dropped quite significantly over the last 48 hours. The size of the selloff is quite drastic, and it does suggest that we are starting to see even more panic enter the market. Because of this, and the fact that the US dollar has been like a wrecking ball for risk assets, it makes sense that we continue to see pressure. From a fundamental driver situation, I do not know anything other than the Federal Reserve changing its attitude could push this market back around to the upside.

We will find plenty of “buy on the dip” type of opportunities over the next several weeks.

Gold markets fell rather hard during the trading session on Wednesday to show signs of negativity, but we have turned around to show signs of life. In fact, we are trying to form a bit of a hammer on the daily chart, which generally means good things. The market recently had fallen hard over the last couple of sessions, but I think part of this would have simply been the fact that gold might have been short-term overbought.

The $1970 level above was previous resistance, so it will be interesting to see if it does offer resistance again. If we can break above there, then the market is likely to go looking to the $2000 level. The $2000 level course has a certain amount of psychological importance attached to it, so we could get a little bit of a pullback like we had seen the last time we get there. If we can break above the $2000 level, it is not only a psychological victory due to the large, round, psychologically significant number, but also the fact that we had formed a shooting star there.

Alternately, if we break down below the lows of the trading session on Wednesday, then it is likely that we could go to the 50 Day EMA underneath. It is currently rising from the $1925 level and should offer a certain amount of dynamic support. The market has support all the way down to the $1900 level, so as long as we can stay above there, you can still make an argument that we are still bullish. Breaking below the $1900 level would then open up the possibility of a move down to the 200 Day EMA, and then perhaps the $1800 level. I do not think that is likely to happen though, because there are so many problems when it comes to inflation and fear out there that gold will continue to attract quite a bit of attention.

I do believe that given enough time, gold markets will continue to find plenty of buyers, so therefore I think it is a situation where you will find plenty of “buy on the dip” type of opportunities over the next several weeks. At this juncture, it has been a nice pullback but it is essentially a 50% Fibonacci retracement from the latest pulse higher.