Macro Morning

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MB Radio: Irresponsibility becomes the new black

By Chris Becker 

The end of the trading year was marked by a lot of profit taking and squaring up as the month end and quarterly end triple witching saw major rebalances in equity portfolios, although Wall Street was largely immune from any downside volatility. Gold finished on a high while the USD came back ever so slightly, with the new start to the year most likely a continuation of the old as risk markets look forward to the mid-January signing of a trade deal between China and the US.

Looking at Asian share markets from New Years eve where the Shanghai Composite closed 0.3% higher to 3050 points to consolidate above the long held 3000 point resistance level, while the Hang Seng Index took back its previous gains to close half a percent lower at 28189 points as it remains above the previous October highs. The daily chart shows hesitation here below the 28500 point level with momentum still poised but not overbought, so watch for any retracement towards the high moving average:

Japanese share markets are closed and have a big holiday over the New Year break, but will likely react unfavourably to events in particulary because of a big safe haven bid in Yen. The daily chart of the Nikkei 225 shows how the breakout above the previously strong resistance level at 23500 points has proven too hard to sustain during the Santa Claus rally with 24000 points – the 2018 high – the real resistance level to beat:

The ASX200 had a shocker to finish the year – mainly due to end of year window dressing – falling by nearly 2% to close out at 6684 points.  I’m watching for a continued taper into the new year anchored around the 6700 point level, particularly if the Aussie dollar continues its ascent:

European markets continue to pushed lower in sync with other risk assets, with the FTSE off by 0.7% as the German DAX closed the session before at 13249 points. Futures are indicating a further retracement below the 13200 point resistance level on the open, with this market still held back by an advancing domestic currency, as Euro remains elevated above the 1.12 handle, but daily support at 13000 or so should hold here:

Wall Street was the standout and extended this ridiculous rally even further, making the best year since 2013! The S&P500 gained nearly 0.3% to close the year out at 3230 points. The daily chart shows how mild this dip has been, has per usual for the many dips in this nearly unbreakable rally. Support at 3200 points should remain very firm going into the new year:

Currency markets were calm as expected with some pushback on USD as Pound Sterling lifted sharply while a false breakout in Euro still saw the union currency finish the year above the 1.12 handle. Looking ahead, while momentum has retraced on the four hourly chart, price should be supported at the 1.1180 to the 1.12 level in the medium term:

The USDJPY pair continued its downtrend with a small pickup late in the session still seeing finish up below the 109 handle. This is extremely oversold and likely the result of poor trading volume so don’t expect much weight place on in the medium term:

The Australian dollar also finished above the 70 handle but only just as resistance at the 70.30 level rebuffed any further advance. With daily and weekly momentum is nearly off the charts, this trend is only being supported by a strong iron ore price which could revert after the usual January stock building rally is over:

Oil prices also consolidated with the WTI pausing above the $61 per barrel level, not making a new high for the year but still recovering most of the year’s losses. The daily chart shows how momentum has flatlined, getting back to a more sustainable path:

Finally to gold, which continues its breakout above the $1500USD per ounce level, advancing again to close out the year at $1520. This looks like a melt up rally at best and could result in a pullback to the $1500 former resistance level that should become support in the new year:

 

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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