By Chris Becker
A poor start to the trading week for overnight markets with US stocks selling off sharply on the back of tech giant Apple and confounded by falling oil prices that are hurting energy stocks. Brexit negotiations are also fouling up the roost in Europe while the USD is soaring against the major currencies as Euro takes a new yearly low.
Recapping Asia’s session yesterday where the Shanghai Composite closed 1.2% higher to 2630 points, still hanging on to key support at the 2600 level as it has been unable to translate the recent swing gains into a proper recovery last week. The daily chart was starting to show signs of a real bottom , but price must maintain itself above 2600 here to translate that into a recovery rally:
Japanese stocks went nowhere with the positive correlation with the USDJPY not helping, as the Nikkei 225 closed only a handful of points higher to 22269 points. The very poor session on Wall Street plus a small gain of Yen overnight will translate into further falls today as the daily chart shows this small recovery rally maybe turning into a dead cat bounce:
The ASX200 was a solid performer with a small rise of 0.3% to finish the day at 5941 points. SPI futures however are suggesting a pullback to 5900 points or lower today, despite a lower Aussie dollar as the correlated risk markets lose their confidence going into the final trading weeks of the year:
European stocks started off well enough but faded and then sold off in the afternoon session with significant losses across the board, with only the FTSE losing less than 1% and all this despite a much lower Euro. The German DAX closed 1.7% lower to 11327 points, a harbinger of a dead cat bounce here as well as it looks set to return to the former lows just above 11000 points:
US stocks just sold off from the get go with the NASDAQ the worst, off nearly 3% while the S&P500 closed 2% lower to 2726 points. The daily chart was showing a substantial recovery that was set to get back to former support, now firm resistance at 2870 points. I was expecting a small retracement on the back of a too steep recovery trajectory, but this selloff shows a complete lack of confidence in stocks. There’s daylight below to 2630 or so:
On to currencies, where it’s pretty much one direction at the moment – down if you’re paired with USD. The Euro continued its smackdown, falling straight through the 1.13 handle and making a new low for the year. This is considerably oversold but on the back of continued breakdowns in Brexit negotiations, to be expected. This is also way past my target so a new one needs calculating: 1.05 basically!
The USDJPY pair however took a breather after failing to beat last week’s intrasession high at the 114 handle overnight. If the risk off mood persists we could see a Yen safe haven run and a break below the lower trendline to the low 113s:
The Aussie dollar is also retracing as expected, now below the 72 handle and making a two weekly low in the process. this has the potential to break back down to the monthly trendline somewhere around 71.10 or so:
Oil continues its successful short run with another selloff overnight as the WTI contract closed below the $59USD per barrel level. While it’s looking well oversold, there is absolutely no buying support as evidenced so far. I would normally expect a small swing rally before a possible flip down to $54 at the terminal target:
Gold is no longer holding on and fell straight back down to its previous resistance,now support level at $1200USD per ounce. This is clear evidence of a dead cat bounce and we’re likely to just meander around here like in August/September before another break:
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)
NFP: non-farm payrolls, or US unemployment, the most important event on the economic calendar
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!