Consolidation and Looking For Breakouts

US Markets

My observations below should be viewed as general advice and may not be right for you.

US Indices began the session lower due to weakness in offshore trading. However, the major averages made their lows during the opening minutes and set off on a day-long climb towards the unchanged line. This is healthy price action and clearly it appears traders were happy to buy the dip in the short term. My key support zone at 1450 in the S&P500 held in. 

As I said yesterday, I believe the market remains in a strong uptrend and a period of consolidation is more than likely after a strong run up. I see a number of short term consolidation patterns forming and this implies potential breakouts higher into month end.

To reiterate, there are no topping or distribution patterns currently in place in US indices. It takes time for markets to transition and there will be plenty of warning signs ahead of time. The major Indices have all broken above their respective April 2012 highs with momentum and this is a sign of genuine strength. Thus, I continue to believe that following this uptrend and looking for low risk long setups into the trend is the play. Only a break back below 1420 would be a major waning sign to me. Traders love to try and pick the tops but in this environment with a strong trend and central banking easing, it is a tough one to fight.  

Tonight on the economic calendar we have the S&P/Case-Shiller Home Price data, Consumer Confidence and a speech from the Treasury’s Tim Geithner.

S&P500 Daily:

The Market remains in a strong uptrend having broken out above the recent April highs. Only a close back below the low of these strong candles would imply a trend change and warning flags.

Emini S&P500 60mins:

Yesterday I said traders could look to buy pullbacks into 1450/1440. This worked well and we are seeing follow through in Asia today. Breakouts are needed above this downtrend line to confirm further strength. 

Emini S&P500 Dec Key Levels:

Support Levels: 1445, 1430

Resistance Levels: 1465/1470, 1515

Europe

Europe's main stock markets were lower on Monday as investors reacted to news of sliding business confidence in eurozone economic engine Germany and continued nervousness surrounding a Spanish bailout.

London's FTSE 100 ended the day off 0.24 percent at 5,838.84 points, while in Frankfurt the Dax gave up 0.54%  to finish at 7,413.16 points. In Paris the CAC fell by 0.94% to 3,497.22 points whilst Madrid's IBEX 35 lost 1.12%

From a technical standpoint, the Eurostoxx does appear overextended on the Daily chart and is struggling at the key 2600 level. I think a period of consolidation may be needed in the bigger picture before a strong breakout can occur above 2600/2625. In the short term, price is consolidating and not selling off which implies potential gains in coming days. 

On the economic calendar tonight we have a German Consumer Confidence Survey and a Draghi-Merkel meeting.

Eurostoxx Daily:

The market is retesting its previous highs. Note that this upward sloping trendline was hit and held yesterday. 

Eurostoxx 15mins:

These are the short term levels I am looking at. The market continues to hold the low end of the range and traders could look for breakouts above this downward trendline into the 2600/2625 zone. 

FX Majors

Australia’s dollar fell against its US peer yesterday as speculation slowing economic growth in China damped demand for higher-yielding assets. Indeed, China’s Economic Information Daily said downward pressure on the Asian nation’s economy was increasing. However, overnight the battler retested the key 1.038 support area and bounced. 

From a technical perspective, as long as the Australian Dollar can hold above the 1.0380/1.04 support zone in coming days, I believe there is potential for continued strength and a resumption of the uptrend. Confirmation will come on a breakout ABOVE 1.05 as I stated on Friday. The Kiwi also retested and held the key support zone at 0.8180/0.820 overnight which is a positive development.  

AUDUSD 60mins:

These are the key short term levels I am looking at. Traders could look to buy the low end of this range and this support zone at 1.040 with tight stops. A breakdown through this level could turn the trend to down. 

NZDUSD Daily:

Breakout above the downward trendline and a new swing high was made recently. This implies a trend change to up with higher highs and higher lows

NZDUSD 60mins:

Price continues to hold the low end of the range. Traders could use this zone for long setups. Only a break below 0.8180 would invalidate this setup.  

EURUSD 60mins:

1.29 is a key short term support level. Traders could look for buy setups into the low end of this range to join the strong Daily uptrend. A breakout above this downward trendline would act as confirmation. 

Commodities

I think a period of consolidation will be needed before the next major move higher in Gold.

Gold 30mins:

Attempted breakout that was sold into with genuine strength. A breakdown through this 1760/65 zone would open up increased selling into 1740. Traders could use bounces back into 1770s for potential aggressive short entries with tight stops. 

Gold Daily:

Bearish Daily reversal candle right out of my resistance zone.