By Chris Becker
Hilarity ensued last night on risk markets as traders finally worked out the second wave of COVID-19 in the US is coming faster than the first, as new cases and ICU bed use balloon outside of NY. The Fed helped things along with the release of some very gloomy economic figures which will have earnings revisions scrambling, and sent Wall Street down sharply overnight, losing more than 6% on the Dow. All other risk assets followed in a macabre dance, with the Aussie tumbling and oil prices off by nearly 10%
Looking at share markets in Asia from yesterday’s session where the Shanghai Composite is off by more than 0.8% to 2920 points, while the Hang Seng Index fell over 2% to 24480 points. Price was poised here above the previous sideways highs from April but this breakout has failed to make a new high for the week as momentum rolls over with futures indicating a big inversion today back down to the midpoint below 24000:
Japanese share markets continued to lose steam with the Nikkei 225 finally putting in a decent selloff, down by nearly 3% to 22472 points. I have been saying for quite some time now that the daily price pattern requires some heat to be let out soon, but it got to far so we get a violent inversion as shown here by futures suggesting an oversold retracement below the 22000 point level:
The ASX200 had a fantastic day for short sellers – off by 1% at the open, a mild bounceback and then a strong downtrend into the close – finishing 3% lower at 5960 points. SPI futures are down nearly 3% or close to 200 points, so yet another market that got way ahead of itself as amateurs feel the pain. How far can it falls? WTF knows – it should never have got over 5000 in the first place!
European markets had a very bad night, but again all their fault by heating up the market to red hot levels, with the German DAX down by nearly 5% to 11970 points, immediately taking price back to a more sustainable trendline. This could obviously overshoot and hit the previous resistance, now support level at 11200 points:
Wall Street finally had the rug pulled out from under them with only a smidgen of bad news sending the whole edifice down sharply, setting up for another BTFD crowd to step in. The headline Dow lost nearly 7% while the S&P500 fell just below 6% to 3002 points. This market was determined to head back to 3400 points and damn the torpedoes, but it really shows how fragile risk sentiment is – but is this is a bear market rally capitulation or a just a short term blip as US stocks head to greatness? Stay tuned…
Onto currency markets which had the lowest volatility, but still providing ample opportunity with Euro breaking through short term buying support and down below the 1.13 level in the process. Four hourly ATR support level remains just intact with momentum rolling over, so watch for a break below the 1.1250 level as signs USD is back in business:
The USDJPY pair is slowly decelerating in its falls although it still got pushed down again overnight, now below the 107 handle as Yen safe haven buying continues. This straight line inversion trade back down to the May lows may (sic) continue for a little longer here with momentum not that oversold:
The Australian dollar however has inverted in full, with the mild pullback below the 69 handle turning into a rout down to the 68.30 level as risk goes off. As I said yesterday, momentum was poised here – not quite overbought but price action suggesting weakness around the former highs (black horizontal line) so watch out below:
Oil prices signalled the greatest selloff signal by instantly falling nearly 10% in a single session, with Brent futures flogged down to just above the $38USD per barrel level, taking out over a week of price increases. Price was overbought but not overly on the daily charts and it still remains above the pre-virus breakdown level – but a further consolidation here and show of buying support could signal the wider risk off move is not sustainable:
And, finally to gold which had a relatively stable session, finishing the night at the $1730USD per ounce level. The bounce off daily ATR support has stalled however and still requires a push up to the $1750 level for a proper breakout to a new monthly/yearly high, so watch momentum readings here:
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!