By Chris Becker
Global risk sentiment soured again overnight in response to more coronavirus fears, with Brazil’s autocratic Bolsanoro now infected, while US deaths spiked to a new daily high, almost reaching a thousand (although likely a lag from long weekend of little reporting). Wall Street slipped, pulling European stocks with them, while bond yields fell as other safe havens like gold continued to rise.
Looking at share markets in Asia from yesterday where the Shanghai Composite was up over 1% at one stage, but slowed down to close only 0.4% higher at 3345 points. Meanwhile in occupied Hong Kong the Hang Seng Index reversed course after gapping higher at the open, down 1.4% to 25959 points. The daily chart shows half a reversal of the previous big breakout that could be quite ominous if not supported in today’s trade. As I said yesterday, such a big outsize move was unsustainable but if support firms at the 25000 point level above that trendline, still sets up for a return to the pre-pandemic highs at nearly 30000 points:
Japanese stocks put in poor sessions too, with the Nikkei 225 falling nearly 0.7% to 22558 points. Futures are indicating a small retracement alongside other stocks today following the Wall Street lead with the daily chart showing another possible false breakout, so watch the low moving average at 22000 points to remain firm:
The ASX200 eventually closed with a scratch session, losing only a handful of points after being up at the open but sold off due to the Victorian viral outbreak, closing 0.1% lower at 6012 points. SPI futures are down more than 30 points, with the daily chart showing a series of lower daily highs that could spell the end of this nascent breakout with support at the low moving average at 5900 points which must hold today:
European markets also put in their shake of false moves, with a big reversal overnight on the German DAX, closing 1% lower to 12616 points and more in futures. Momentum had been picking up here but not sharply enough as its so far failed to retest the May highs at just below the 13000 point level:
Wall Street was also weak, with the S&P500 falling over 1% to finish at 3145 points, getting back to just above previously strong resistance at the 3130 point level. The four hourly chart since the Monday open has shown an inability to get back above the 3170 point level and a deflation back to the previous weekly highs here, with momentum crossing over and setting up for a swing short position in the short term:
Onto currency markets where strength in USD is mixed with Pound Sterling having a breakout above the 1.25 handle while Euro was pushed down below its recent two week high to fall below the 1.13 handle. This retracement is likely short term as ATR trailing support at the mid 1.12 level remains firm, but watch for lack of action around the high moving average as a sign more shorts are developing:
The USDJPY pair had another fake breakout overnight, then declined on each hourly/four hourly session finishing exactly where it started on Monday morning just above the 107 handle. This puts it close to trailing ATR support as momentum inverts and Yen buyers step in reluctantly with yet another tight rectangle pattern forming here with resistance to clear at 107.70:
The Australian dollar had a rollercoaster ride overnight in response to the RBA meeting and other factors, threatening to take out its recent rally before bouncing off mild support at the 69 handle proper. The four hourly chart shows a lot of weakness here with not much upside buying to keep it above its own low moving average with the trendline from the June lows still broken:
Oil prices were flat in yet another lacklustre session with Brent futures staying just below the $43USD per barrel level, still matching the previous price highs from this rebound rally. Daily momentum remains positive for now, with a breakout above the high moving average at $43 or so required before another legup:
Gold put in another new daily high, with a solid session to continue the great start to the week, finishing at the $1794USD per ounce level. Momentum remains in a solid overbought mood here, , with a view to keeping the low moving average as a good uncle point or place to add to longs as the $1800 level looms in sight:
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!