Last night saw the good start to the trading week in Asia translate into big gains across Wall Street and in particular Europe, with optimism surrounding the potential new fiscal stimulus in the US. Actual reality like the second wave of COVID-19 across the continent and in the ‘States as the northern hemisphere leans into the colder seasons was swept aside as the USD went into retreat and bond yields stayed relatively steady. Commodities bounced back across the board in response, with gold particularly looking a bit more healthy but still not out of trouble.
Looking at share markets in Asia from yesterday’s session where the Shanghai Composite put in a scratch session to close at 3217 points while in Hong Kong the Hang Seng Index surged after a poor finish last week, closing 1% higher at 23476 points. This arrests a fairly sharp decline that still keeps it well below the August lows at 24000 points but momentum is ready to swing back here after being substantially oversold so we wait and see a second positive session to confirm a swing play:
Japanese stock markets also clawed back some confidence, with the Nikkei 225 closing 1.3% higher at 23511 points despite a small drop in the USDJPY pair. The whipsaw pattern on the daily chart is now morphing into a bullish breakout with strong resistance at the 23300 level support slowly pushed aside as futures suggest another push higher this morning:
The ASX200 was the odd one out, unable to gain any direction from the start to the close, finishing a handful of points or around 0.2% lower at 5952 points. SPI futures however are about 40 points on the back of the steady risk complex, so we should see a break above the 6000 point level and the start of a swing play back to the previous highs above 6100 points potentially:
European markets were the strongest overnight, even though domestic currencies lifted against USD, with the FTSE finishing 1.5% higher while the German DAX put in a very solid session to close 3.2% higher at 12870 points. Daily price action is a clear bullish engulfing candle, wiping out most of last week’s losses as price bounces off ATR daily support at the 12400 level – looks like a breakdown has been averted for now, but this remains a swing play as momentum reverts:
Wall Street’s rebound has firmed substantially following the bottom action on Friday, but remember its all on the back of another potential fiscal stimulus package from Congress. The Dow lifted over 1.5% while the NASDAQ surged nearly 2% and the S&P500 finished 1.6% higher at 3351 points, decisively above the key psychological 3300 point level. The four hourly chart shows the buying support at the end of last week that translated into a near vertical rise of futures early yesterday in Asian trade that continued overnight. The next level to beat here is the former weekly highs (solid upper black horizontal line) at the 3400 point level:
Currency markets are being eased off by a slightly weaker USD with Euro bouncing off its recent weekly low, although its quite anemic, only getting back to the Friday session high just above the 1.1660 level. The medium term picture continues to firm downwards here as currency risk properly weighs the return of the second wave of the pandemic in the European sphere, with the slight chance of a long swing trade still on the cards, but requiring a firm move to the 1.17 handle:
The USDJPY pair stalled out after a small dip in the weekend gap open yesterday morning, finishing where it started Friday at the the mid 105.50 and only a whiff above the former August lows (solid black horizontal line). Momentum as inverted from its slightly overbought so watch the high moving average for a potential attempt at the 106 handle next:
The Australian dollar is looking to find a bottom after a turgid trading week previously, with a small bounce from an extremely oversold position, again mimicking the Euro in direction as it finished near the 70.70 level this morning. As I said yesterday, I expect a small rebound here – perhaps up to trailing ATR resistance just above the 71 handle – before another leg down:
Oil futures pushed slightly higher overnight, trying to get out of their holding pattern with the Brent markers up 0.7% to be just below the $43USD level. The daily chart still hasn’t shown a break above trailing ATR resistance yet so this remains a swing play only, with the low moving average a good uncle point to switch positions in case of a risk inversion:
Gold and silver moved in lockstep with each other overnight, both putting on a short covering bounce with the former heading back up to the $1881USD per ounce level as it found a temporary bottom at the $1850 support level. Now, will that be supported today and will we see a breach above ATR trailing resistance or do thee weekly and daily charts still exhibit a classic breakdown pattern that outweighs this move:
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!