Macro Morning

By Chris Becker 

The dead cat bounce had some kittens overnight with the US and China looking to return to the negotiating table before the trade war re-ignites again. Stocks recovered mildly on Wall Street while the USD came back from its slump, as Treasury yields nudged higher again. In economic news, the slump in German business confidence continued, while the US durable goods orders were up in July, but mostly waved away due to volatiles as the core bunch of orders fell again. Commodity prices have yet to recover, with oil off by 1% or so, while gold came back after hitting a six year high.

Looking at the action on Asian markets yesterday, where Chinese stocks lead the way down as the Shanghai Composite closed 1.2% lower to 2863 points while the Hang Seng Index is off almost  2% to 25680 points. Price gapped down well below the low moving average on the daily chart, and was looking set to return to the terminal low just below 25000 points, but futures are indicating another bounce back here. Still too much for any but the swing traders to handle – the upside breakout level is still well above 21600 before re-engaging longs:

Japanese share markets followed the poor lead with the Nikkei 225 closing 2.1% lower to 20261 points, not helped by a very volatile Yen. Futures are pointing to yet another big inversion this morning – upside this time – with a bounce off the recent terminal lows at the 20000 point level. This remains a classic bearish chart pattern with a lot of volatility – expect sellers or buyers to step in sharply once there’s a clear breakdown or breakout above the obvious support and resistance levels respectively:

The ASX200 didn’t fall as much as expected, clawing back a poor open to close only 1.3% lower at 6440 points. SPI futures are only indicating a mild comeback today, around 20 points or only 0.3% which is not that impressive given the 1% plus bounce on Wall Street overnight.  The daily chart  remains weak with strong resistance at 6530 still a long way away, with the high moving average still not under any threat of a potential breakout:

European stocks were mixed with the FTSE falling due to more Johnson nonsense while continential stocks had mild swings back after the previous selloff, with the German DAX finishing 0.4% higher at 11658 points, still holding on above recent support at the 11600 point level but only just. The daily chart is very weak still with price action unable to get anywhere near 12000 points as momentum remains negative:

Wall Street is flying higher on hope alone with a circa 1% bounce across the three bourses, only taking back about a third of what was lost on Friday night. The S&P500 finished 1.1% higherat 2878 points with the daily chart showing a bounce off the previous terminal lows at 2825 points, but it remains a big move back to the recent highs that have since rejected long held resistance at 2940 points:

Currency markets remain the biggest movers however, with a lot of downside volatility on USD majors with Pound Sterling drifting some 60 pips lower while Euro fell nearly the same after Friday’s surge higher. The poor German business survey brought things back to reality, but momentum is still clinging on to a positive reading even as price falls below the low moving average. I’m positioning for another breakdown here:

The USDJPY pair was a huge mover, this time the other way! A much easier swing trade as the huge gap down yesterday was far too much too fast, so traders stepped in and bought USD on any whiff of a trade concession from either side. This should support domestic Japanese stocks today, but note how momentum has flat lined once the 106 handle was reached. A series of lower session highs is indicating weakness settling in again – watch out below:

The Australian dollar had similar intrasession volatility with a bounceback above the 67 handle and almost through to the 68’s, but failed to match the previous weekly high and has settled here this morning at the 67.70 level. I’m still seeing weakness here, particularly on the daily charts, and with a busy economic event schedule this week, we could see a proper catalyst for a breakdown soon:

Oil prices continued to fall, with a volatile session eventually resulting in only a 1% loss for both major markers, the WTI contract closing just below the $54USD per barrel level. This keeps it below the low moving average on the daily chart and still suggests a return to the previous lows – solid black horizontal line – just above $50:

Finally to gold, which went a bit nuts in the post-Jackson Hole Trump/Winnie the Pooh catfight, and has clawed back a bit to finish where it started yesterday at $1526USD per ounce. This is definitely too much too fast, so be prepared for some profit taking here as a series of uncle points starting at just below the $1500 handle is prudent, or lower at $1450 or so for longer term positions:

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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