Macro Morning

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MB Radio: Irresponsibility becomes the new black

By Chris Becker 

The start of the trading year was much better in the Northern Hemisphere overnight, with Wall Street rallying as tech stocks pushed the risk complex higher, despite a reversal in strength in USD which saw Euro and Pound Sterling fall. Gold prices continued their uptrend while Bitcoin remains depressed below the $7000 level.

Looking at Asian share markets from yesterday where the Shanghai Composite advanced over 1% to 3083 points, helping consolidate well above the previously long held 3000 point resistance level, while the Hang Seng Index gapped higher and did even better, up 1.2% to close at 28543 points, remaining well above the previous October 2019 highs. The daily chart shows hesitation has been completely swept aside as new highs above the previous resistance level at 28000 points and the high moving average indicate a very strong bull run here:

Japanese share markets remain closed for the big holiday over the New Year break, but could react poorly despite the risk-on mood in other stock markets, mainly due to the rise 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 when it reopens next week:

The ASX200 had a very quiet start to the year, lifting only 0.1% to close at 6690 points as concerns over the ongoing fires plus the wait until February for direction from the RBA weighed on the market. SPI futures are indicating a much better session this morning, up over 60 points currently for a 1% gain in line with Wall Street. This should translate into a return above 6700 points:

European markets finally found some life, helped by a much lower Euro and Pound Sterling and better risk spirits with the German DAX returning to advance exactly 1% higher to 13385 points. Daily support at 13000 or so is likely to be the uncle point from here on in as this new daily and monthly high gets all the short positions out of the way:

Wall Street was again the standout and started the new year with a bang, led by the NASDAQ which lifted over 1.% higher, dragging the S&P500 up 0.8% or so to 3257 points. The four hourly chart shows how the pre-NY dip has been filled and then some with this nearly unbreakable rally. Support at 3220 points should remain very firm going into the new year:

Currency markets woke up from their calm mood as the PBOC fix on the USD plus the usual PMIs prints lifted spirits and the USD in kind as Pound Sterling fell sharply by over 100 pips, pulling Euro down with it. The union currency was pushed straight down to trailing ATR support on the four hourly chart, well below the 1.12 handle and now in a oversold condition. This could spell further moves below to the December lows at 1.1060:

Even more volatility in the USDJPY pair overnight as it tested the weekly lows at the 108.30 level (lower black horizontal line) but then recovered to almost make a new session low. This is not a good indicator for domestic Japanese stocks nor continued risk assets overall, but must be countered by the lack of volume and trading intent by absent domestic currency buyers:

The Australian dollar fell below the 70 handle but only just as resistance at the 70.30 level firmed overnight in the wake of a strong USD. This is a welcome reversion to mean trade given the overbought status in recent weeks, so watch for potential further falls if momentum switches to negative levels on the short term charts:

Oil prices continued their consolidation with some buying support flattened by the stronger USD as the WTI retraced slightly but maintained itself just over the $61 per barrel level. The daily chart shows how momentum has flatlined, getting back to a more sustainable path, but watch that low moving average at $60 proper for signs of an inversion:

Finally to gold, which continued its breakout overnight, shooting up towards the $1530USD per ounce level, advancing further still despite its considerably overbought status. A melt up rally if there ever was one, but the ability to advance despite a much a stronger USD overnight means something else is at play here. So while I still expect a possible pullback to the $1500 former resistance level, we could be seeing the start of a medium term rally 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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