By Chris Becker
The Fed rides to the rescue! After looking into a 1000 drop in the Dow overnight, the Federal Reserve stepped in and announced they were buying up all the corporate bonds, injecting $750 billion into the rotten, sucking “risk” edifice that lapped it up with glee. Another papering over of real macro concerns as the coronavirus returns to China, and the second non-NY wave spreads across the US, both forgotten by markets in an instant when handed another punch bowl. The USD was sold off against everything but gold, which remains a little depressed, while oil futures jumped nearly 3%
Looking at share markets in Asia from yesterday’s session where the Shanghai Composite was off by 1% to close at 2890 points, while the Hang Seng Index fell over 2% to 23875 points. Price was stuck within the previous wide channel that traded throughout April and May so with the reversal of risk sentiment, watch momentum here for signs off a bounceback towards the former high of that range:
Japanese share markets were the worst off with the Nikkei 225 losing nearly 3.5% in a swift selloff to 22305 points, having wiped out all its gains since late May. Even before the Fed fix, the daily price pattern had let out a lot of heat from an obviously unsustainable uptrend and now with price supported at daily ATR support at the 21500 point level this could provide the second wave (sic) of this bear market rally:
The ASX200 was doing relatively well before the afternoon session, off by a handful of points but then was dumped alongside everything else to finish 2% lower to 5719 points. SPI futures are up up 2% on the back of the Fed orgy of buying, so expect a breakout towards 5900 points here:
European markets started poorly, down 2% or more across the board after the weak Asian session, with new daily lows that enticed short sellers in until the Fed fix shored them all back up again. Eventually, the German DAX only lost about 0.3% to 11911 points with post close futures indicating a better fill as Wall Street ran off later in the session. Note how price has found solid support at the 12000 point level, or slightly lower short term support at 11800 points as a good uncle point in trying to catch this relief rally:
Wall Street provided enormous opportunity for swing traders overnight – look at that beautiful V-shaped recovery on the S&P futures chart! After looking done and dusted, the new and improved Fed punch bowl saw a tremendous bounce back that took price back to the Friday levels, with the S&P500 closing 0.8% higher to 3066 points. The next level to beat in the short term is ATR resistance at the 3100 point level and then whoosh – up to 3400 we go:
Onto currency markets which immediately swung away from USD strength to weakness, with the Euro bouncing off short term support and pushing back up above the 1.13 level in the process. Four hourly momentum is positive again and sets up for a return to last week’s high nearer the 1.1380 level, so watch for a follow through on the London open tonight:
The USDJPY pair however remained depressed below short term resistance at the 107.60 level, unable to gain any traction. The straight line inversion trade back down to the May lows may rejoin again soon if ATR resistance is not broken through, so watch for a rollover as momentum remains negative:
The Australian dollar had a breakout session in line with other undollars, following share price sentiment as it burst through the 69 handle again as it tries to get back to the previous weekly highs (black horizontal line). This was a very solid breakout but may find some headwinds on the release of the RBA minutes today:
Oil prices came back solidly with Brent futures almost lifting through the $40USD per barrel level, with previous resistance at $35 now providing very solid support. Price is ready to go back to overbought readings on the daily momentum chart so we could see a retest of the previous breakout highs above $42 shortly:
And, finally to gold which had a relatively stable session given the Fed interference, finishing the night just below the $1730USD per ounce level again. The bounce off daily ATR support has not quite stalled but isn’t inspiring any buying confidence yet either, note the series of lower daily highs that are weighing on the market. Any long position requires a confirmation of a push up through 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!