2016 won’t stop being interesting all that soon, is what my guess is. This last week was yet another volatile one, not just in some markets, but in most of them. The best ones of the majors to make money in are covered in this week’s recap. Enjoy.
Starting out with the World Indices, the Dow Jones will again serve as a representative example for what most of these markets around the world look like at the end of the 6th trading week of the year. The black horizontal lines in the attached chart mark important support areas on this weekly timeframe. It helps to pull up a chart on such a high timeframe to get a clear overview of what markets are doing. It’s not helpful to get caught up in minor market movements, forgetting about the big picture. That shows us that the World Indices have so far not been able to clear the strong support area as indicated, instead this was yet another week that retraced from the 15500 level to close higher. Still, looking at the last five price candles here, there is no motivation for prices to soar higher, instead they come back to the mentioned support zone again and again. The Fractal Trading System has gotten you in this trend a while ago already, but right now the market has been taking a break. Nobody knows which direction the next breakout will occur, despite the fact that e.g. the SP500 already broke out to the downside this week, only to retrace to the upside towards the end of the week. Therefore the only chance to make money in this market is to keep trading the system, no matter if a new trend to the downside will unfold – eventually turning the World Indice to be bearmarkets, or if back and forth price action will stop the current short positions out soon.
There is one european indice that hasn’t found a bottom at any support area yet, it is just falling from the sky. It keeps falling more, too. The FTSE MIB (Italian Market Index) has lost almost 70% since the year 2000, coming from above 50000 making a new yearly low at 15773. The Momentum indicator also shows the insane pressure that keeps putting prices down. The long-term analysis of this underlying can be viewed here, it wouldn’t be a surprise to see this index drop another couple of thousand points.
A good trend in a Forex Pair also needs be mentioned for this weekly recap. The GbpJpy is in focus here today, but there are other pairs involving the yen that perform very well. Most of them have hit breakouts to the downside on the high timeframes. This of course means that important support areas have been broken, the danger of price keeping going down is definitely a real one. The trader who has a system, will go in and profit from the given setups these forex markets are providing in early 2016. The GbpJpy has just hit another sell fractal while already giving entry signals weeks ago (early Dec 2015). A continuous downtrend seems to be occurring right now, there is nothing to do while this market does whatever it needs to do, until there is a signal to exit this market. Hopefully, the trend keeps going for a while to bank ample profits down the road.
The precious metal Gold is finally worth mentioning again, too. Just a short while ago I was pointing to the fact that this underlying was in a very much weakening downtrend, showing many divergences and not being able to build up any downside pressure anymore. Even though breakouts kept being hit, the profit potential to the downside had gotten smaller and smaller. At various points valid buy signals started to occur, and being hit, which is never a good sign for the stability of the current trend. Three weeks ago Gold traded through the upper fractal at $1114, giving a buy signal for the trader interested in following a possibly new trend. This fractal breakout marked by the red circle in the chart, had failed the trendfollower four times already as price kept heading down more and more to extend its divergences.
Closing out the week at just under $1240, this long position has gained around $125 already – and of course, I have no idea where price is moving next. There are quite a few possibilities, as usual:
Hitting the mentioned breakout at $1114 and now soaring to the upside, this metal has definitely put in its bottom and should be continuing up now, making new highs above $1920 (current ATH) in the long term! That’s my opinion at least… going from here, I could imagine this market heading straight further out to the upside before correcting and ending the first impulse move of the new uptrend. On the other hand such a strong shootout right after triggering the long position is often a sign for immediate retracement, stopping the trendfollower out, because there is no stable and ongoing trend yet. Instead price starts a sideways movement for many weeks, creating a consolidation area with upper and lower borders (marked by fractals). Some day then, it will break out of this area – either to the up or down side, providing a new opportunity to trade this market. A combination of these two scenarios is also possible, of course.
Which one it will be, again, not even God knows.
So let’s trade the system, control the risk and not get emotionally out of balance as this year’s markets keep being as crazy as they have been!