Macro Morning (Trading Week)

By Chris Becker 

Looking at Chinese stocks first, where last week saw the Shanghai Composite returned after being close for most of the previous week due to Chinese New Year holiday. The result was a solid breakout above the high moving average and key resistance on the weekly chart at the 2600 point level, closing just shy of 2700 points.  This was mainly due to more optimism over the US/China trade talks plus the possibility of more internal stimulus, as confidence continues to build the upside target is at least 3000 points if this breakout sticks:

Japanese stocks have been buoyed by a weaker Yen all week, but really its about other risk market correlations with the daily chart of the Nikkei 225 showing price tentatively breaking out above former support, but firm resistance at the 21000 point level. Momentum is now really behind the market, but the inversion of the USDJPY pair on Friday night may push stocks lower on the open here this week for another sliding sideways action:

After all cylinders firing on the ASX200 the previous week following the end of the banking Royal Commission, last week saw the local market tread water, unable to build on its impressive close above the psychologically important 6000 point level. Price remains well above the 200 day moving average and weekly momentum is also positive, but the next level to beat is ca. 6200 points and the mid 2018 highs before calling this relief rally into anything substantive:

European stocks were looking in dire trouble but a late week rally saw them close to a new monthly high, helped by a lower Euro. Despite the looming Brexit saga and growing poor macro situation on the continent, the German DAX weekly chart shows a breakout above previous support, now resistance level at 11100 points last week. If this week sees no session lows below that level, it sets up for a test of the next resistance at ca. 12000 points:

Wall Street had a brilliant finish on Friday night as the market loves the Fed’s dovish “change” and averting another government shutdown. The daily chart of the S&P500 shows a very solid trendline from the bounce off previous resistance/support level at 2620 points and the clearing of the downtrend line at the 2700 point level with momentum not overcooked but right in the zone to continue:

The US bond market continues to firm with the US 10 year Treasury yield pushing lower again, about to breach the 2.6% level that had been staunch resistance throughout 2017 and gave us the false bear market breakout last year. Everyone is watching that level closely with a run to 2% quite possible, signalling a slowdown in the US economy:

On to currencies, with the US Dollar Index (DXY) firming through the week to then falter on Friday night as FOMC commentary caused a dovish inversion again. Price remains above the 200 day moving average line and was setting up for a breakout above the high moving average on the weekly chart but is still being anchored at this area, mainly by a Euro that is not willing to rollover just yet:

The daily chart of the Euro shows how a significant selloff in the union currency throughout January has not yet translated into further falls below the 1.12 handle in February, despite a multitude of macro factors going against it. Friday night saw a late rally to fill the latest falls, getting it almost back above the 1.13 level  but this may be short lived as momentum remains well oversold and negative:

Yen wants to selloff with a significant breakout mid week on the USDJPY pair, but this too was more dependent on USD strength which is withering, seeing the pair go back to the low 110s.  The daily chart still shows a solid ascending triangle pattern that is nominally bullish, but I’m watching the lower trendline level and the low moving average at the mid 109’s to possibly come under pressure if there’s more weakness in domestic Japanese stocks:

The weekly chart of the Aussie dollar continues to show the potential for a bottoming action at the 70 handle but this is again more due to USD weakness than any resurgence in the Pacific Peso. The market is still poise to crack here and awaits any further bad news to get it back to the flash crash low at 69 cents if the macro situation deteriorates:

Oil is having a good time here, with Brent surging to a three month high while WTI pays catch up and making a very solid bullish engulfing candle to finish the week above the $56USD per barrel level. The wiping out of the shorts after setting up what looked like a bearish rising wedge pattern on both the daily and weekly charts is behind this move and could have legs up to the $60 level:

Finally to gold, where the weekly chart shows how the latest mild selloff was filled and then some, with a new weekly high as the shiny metal closed above the $1320USD per ounce level, getting back to the messy early 2018 price levels. The next target is still intact at  the former highs at $1350 or so but I’m always wary about the last one third of a rally, so watch for another possible reversion on USD strength:

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!

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