By Chris Becker
The latest US employment figures on Friday night – aka non-farm payrolls – caused an up-swell of algo trading as the nominally positive result saw risk zoom to new monthly highs across the board, which should encourage even more risk taking here in Asia on the open. Equity markets have now fully priced in a V-shaped recovery and are edging to return to their pre-COVID19 highs, convinced that the huge distortion within a single job report overrides the economic and macro reality of a worldwide recession and a continuing first wave of a pandemic.
Looking at share markets in Asia from Friday’s session where in mainland China, the Shanghai Composite has finished the week with a flourish, up 0.4% to 2940 points, while the Hang Seng Index surged more than 1.6% to 24771 points. This puts price almost above the previous sideways highs from April as this market gets ready to breakout, with futures indicating a similar alongside other risk markets:
Japanese share markets just keep going with the Nikkei 225 gaining 0.7% to 22863 points, still continuing its extremely overbought uptrend. The daily price pattern remains an obvious blowout with all the rules of probability still pointing to a retracement, but those rules are being pushed aside in the frenzy to buy up big as quickly as possible. So we wait for an inversion that may never come:
The ASX200 still couldn’t crack the 6000 point level and finished the week with the expected profit taking, finishing up a few points to 5998. SPI futures however are up over a 100 points so we should be looking at a substantial crossover the 6000 point barrier when the market reopens tomorrow after the long weekend. Momentum remains well overbought here but there’s no short positions left as FOMO takes hold:
European markets are going nuts as well, screaming higher as risk wants to square up to the pre-virus levels, with the German DAX soaring over 3% to 12847 points after its excessive prior sessions. Extremely overbought and extremely over-extended and a clear KC signal even after the NFP won’t stop the buyers here:
Wall Street loved the NFP print as traders almost crushed their screens pressing the buy buttons with the S&P500 finishing 2.6% higher to 3193 points. This market is determined to head back to its previous level at the start of the year at 3400 points with momentum remaining at well overbought levels with price action on all the charts indicating a strong uptrend that can’t be beat:
Onto currency markets where the dominant weak USD meme abated on the jobs report on Friday night with Euro retracing slightly to just below the 1.13 handle, but still finishing the week with another monthly high. Price action continues to defy gravity and I’m still watching for a potential swing below, but ATR support at the 1.12 level should hold here:
The USDJPY pair continued its big move higher following the failed bearish rising wedge pattern, making a new weekly high above the 109 level and matching the April highs. Another risk asset moving far too fast but you can’t hold the algos back here as they buy off each other – normally I would posit an inversion back to the 109.20 level or even to ATR support to take some heat out:
The Australian dollar tried again to breakout from its already extremely overbought condition, breaching the pre pandemic level (upper black horizontal line) before easing off and stabilizing once more above the 69 handle. Momentum is signalling a potential rollover, but price action is not yet ready to rollover:
Oil prices are joining into the buying frenzy, zooming past there pre-breakdown price fallout levels, with Brent futures bursting through the $40USD per barrel level and almost cracking $42 on Friday. I had expected this blowout to continue up towards the $40 level but as we know, oil loves to move violently either way so it could even try for another move higher back to the start of year price as all short positions are unwound:
And, finally to gold which after some temporary amount of buying support, has now failed to live up to its inflation hedge, although this is clearly fake inflationary pressures, not real ones, as it finished the week below the $1700USD per ounce level. Key support at the $1690 level has been broken, so the next level to watch is daily and weekly support, just below:
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!