By Chris Becker
US stocks tried to rally on the Trump “victorious” tax cuts which were passed last night, but failed to fire with European bourses falling sharply on the upcoming Catalan vote and a higher Euro. The real action was again in the bond market, with US 10 year Treasury yields spiking up through the 2.5% level. Futures are indicating a rough start today here in Asia, with all the upside of the tax cuts priced in.
Recapping action in Asia yesterday where in mainland China the Shanghai Composite gave back all of its previous gains to be down 0.3% at 3282 points, still keeping clear of former critical key support at the 3300 point level. This is still anchoring price action as resistance and any upside breakout point needs to be a solid close above the high moving average at 3020 or so:
Japanese stocks were the only positive in the region as they got a tailwind due to a weaker Yen, with the Nikkei 225 up 0.2% to 22891 points, still unable to close above overhead resistance at 23000 points. Stocks should find some support today, but all eyes will be on the BOJ and its hand on the stimulus button. Support remains firm here above the previous daily low at the 22200 mark, but resistance at 23000 proper is the key level to beat this somewhat bearish rising wedge pattern:
The scratch results extended out to Australia with the ASX200 slumping at the open before recovering to finish a bare 0.1% higher at 6075 points. While bank stocks inched higher, it was industrials that suffered, including embattled Retail Food Group. SPI futures have fallen again on the US scratch result overnight, so I’m still watching the 6000 point level for signs of support strength intraday:
On to Europe, where there are clear signs that Santa may bypass the entire continent with all major markets down overnight. The German DAX lost over 1% taking it back to the 13000 support zone, wiping out the previous breakout run and taking it back to the midpoint of the last month as the Euro surges higher:
US stocks love the Republican tax cut, but couldnt find any upside and sold off the near 0.5% rally to finish square for the session. The S&P500 fell 2 points and is now on the 2680 support level on the four hourly chart, looking ready to breakdown as momentum heads into the negative side of the ledger. Is the Trump rally over?
On to currencies where the Euro continues to surge higher on a weaker USD, briefly touching the 1.19 handle overnight. This is the key headwind for European stocks, which should be seeing relief on the bond selloff. This is looking overbought and should retrace to the high moving average band around the 1.1850 level, but if it breaches 1.19 again, which is the weekly downtrend intersection, that retracement will be a great buying opportunity:
The USDJPY chart is looking similar to the EURUSD above with another night above the 113 handle as Yen sells off. This maybe shortlived as Governor Kuroda and the BOJ meet today. I’m watching last week’s highs at the 113.50 to 113.75 level as potential resistance here:
The Aussie dollar continues to remain elevated against USD with firm support at the mid 76s with a series of higher lows as price tries again to get back above the 76.70 level. That’s the area to watch going forward for an upside breakout and below 76.30 if support collapses:
Oil prices came back last night on a better than expected inventory report but still nothing to get excited about with the WTI contract still remaining above daily ATR support and just above the $58USD per barrel level. ATR support at $55.50 is firm with a series of higher lows supporting a potential breakout soon:
And to gold which got another leg up in its so far unimpressive long swing play from the over-corrected downside, putting on a few dollars to finish at the $126USD per ounce level overnight. This is right on former support, now firm resistance at the $1265 level which it needs to solidly close the week above soon, or the next weekly support level is at $1200-1215, so watch out below:
Glossary of Acronyms and Technical Analysis Terms:
ATR: Average True Range – measures the degree of price volatility averaged over a time period
ATR Support/Resistance: a ratcheting mechanism that follows price below/above a trend, that if breached shows above average volatility
CCI: Commodity Channel Index: a momentum reading that calculates current price away from the statistical mean or “typical” price to indicate overbought (far above the mean) or oversold (far below the mean)
Low/High Moving Average: rolling mean of prices in this case, the low and high for the day/hour which creates a band around the actual price movement
FOMC: Federal Open Market Committee, monthly meeting of Federal Reserve regarding monetary policy (setting interest rates)
BOJ/Abenomics: Bank of Japan, economic policy/direction enacted by PM Shinzo Abe
DOE: US Department of Energy
Uncle Point: or stop loss point, a level at which you’ve clearly been wrong on your position, so cry uncle and get out!