Macro Morning

By Chris Becker 

Some stability returned to risk markets overnight with the inevitable bounceback after so much selling, mainly due to the Chinese Yuan finally stabilising, lifting the USD and dragging equities with it. Wall Street lead the rise after European markets remained in the doldrums, while the oil price fell as other commodities struggled to gain traction.

Looking at the action on Asian markets yesterday, where the Shanghai Composite continued its free fall, closing 1.5% lower at 2777 points while the Hang Seng Index eventually fell only 0.7%, recovering somewhat later in the session to be at 25976 points. This keeps it just above the January lows at 25000 points and in an obviously extremely oversold position that still has the potential to overshoot to the September 2018 lows at 23000:

Japanese share markets had a similar late recovery, helped by a weaker Yen finally, with the Nikkei 225 off by 0.6% to 20585 points. Futures are indicating a big fightback today, even though the daily chart shows how the 21000 point support level is now a distant memory, wiping out the May bottom and heading to new lows. The December 2018 low at 19000 points could still be the most likely target here if this turns into a dead cat bounce:

The ASX200 was the biggest casualty however, walloped by a 2.5% loss down to 6478 points as everything sold off although strangely Fortescue rallied even as the iron ore price continued to fall SPI futures are up nearly 50 points, so it’s going to be short covering de jeure today:

European stocks started off poorly but got some traction later in the session, but its still a case of fear and panic and that’s even before Brexit!  The German DAX was the worst this time, eventually closing 0.8% lower to 11567 points, remaining well below the 12000 point level, but rallying a little in post-close futures as Wall Street picked up. The daily chart shows price hovering just above the May lows at 11600 which must hold or this will turn into a rout:

Wall Street came back as expected from the vastly oversold readings with the inevitable BTFD crowd stepping in. The S&P500 lifted nearly 40 points or 1.3% to claw back less than half of the previous losses to close at 2881 points, as it tries to get back to key psychological support at 3000 points. I’m watching this turn into a probable dead cat bounce, with a terminus just above the 2900 point level, but the BTFD crowd may alleviate those fears and a return to the May low at 2750 points:

Currency markets saw a lot of activity as well, although Pound Sterling was relatively quiet again as the Euro came back from its too fast surge to finish this morning just above the 1.12 handle. From here its important to watch the high moving average on the four hourly chart for signs of another breakout, as price remains bunched up and momentum poised for another leg higher:

The USDJPY pair had decelerated somewhat into a temporary bottom, hitting just below the 106 handle but was unable to translate this pause into any upside action overnight, finishing above the 106.40 level and still below trailing resistance at the 107 handle. This keeps the pair well below the July lows and makes a new yearly low with the longer term chart suggesting a bottom nearer the 104 handle. This isn’t over quite yet:

The Australian dollar is still falling as commodities remain under pressure with the Pacific Peso failing to breakout above the 68 handle that broke on Friday night and now ready to test the Monday lows. While momentum remains well oversold there is still the chance of a small fightback as this trade continues to be way too crowded. I’m watching the high moving average as signs of a possible swing higher, but for now all the signs point down:

Oil and other commodities remain very weak as the trade war continues with the WTI contract slumping overnight to finish well below the $54USD per barrel level. Momentum has turned sharply negative and as I’ve been warning, there is a greater possibility of a selloff down to $50 as no new daily highs see the bulls abandon this trade:

Finally to gold, which after catching the safe haven bid and then some, is still remaining above the long term downtrend line, finishing higher again at the $USD1474 per ounce overnight to another new yearly high. The rally was a clear bullish engulfing candle move, reversing the previous, albeit weak selloff on the recent Fed cut. This is no longer just interesting, but a new trend:

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!

Comments are hidden for Membership Subscribers only.