Macro Morning

Advertisement

Wall Street caught its breath last night, reversing sentiment after truly absorbing the Friday night inflation prints with a slump across major equity markets in Europe as a run to safety in USD and Treasuries gathered pace. The bond market firmed sharply, with the 10 year Treasury yield pulling back from 1.5% to just above the 1.4% level while the USD regained strength against Euro and other risk currencies. Commodity markets where not confused like shares and continued their consolidation with oil prices pulling back 0.5% or so while gold lifted slightly and iron ore lept higher on Chinese stimulus speculation.

Bitcoin continues to deflate further with the failure to get out of last week’s starting slump putting further pressure on all crypto currencies. The four hourly chart clearly shows a return and indeed a break below that gap low, falling below the $47K level with the next support levels quite far away at the September lows around $43K, with daylight below to $30K next:

Looking at share markets in Asia from yesterday’s session, where mainland Chinese shares were putting in a strong session with the Shanghai Composite finishing 0.4% higher at 3681 points while the Hang Seng Index was up more than 1% going into the close before it slumped below the 24000 point level to finish nearly 0.2% lower at 23954 points. This dead cat bounce is coming to fruition, as daily momentum never got to a positive setting, with price action overall remaining in a long term downtrend channel with heavy resistance overhead at the 24500 point level so expect a further retracement:

Advertisement

Japanese markets were also quite boisterous with the Nikkei 225 closing 0.7% higher at 28640 points. Futures are indicating a pullback of this result given the volatility overnight, so while there is some potential for this move to continue up towards former support, now resistance at the 29000 point level, daily momentum can’t translate to positive settings, so remain cautious. I’m watching for a return to the 28000 point level at the low moving average line here:

Advertisement

Australian stocks had the weakest result relatively speaking with the ASX200 lifting just over 0.3% to almost get back above the 7400 point levels. SPI futures are down more than 40 points or 0.5% so this lift will be taken back as resistance turns heavy at the previous highs around the 7400 point level, continuing to weigh on sentiment. The daily chart is just not broadcasting any upside potential here for a Santa rally:

European markets continued to stall with 0.5% plus losses across the continent, although the German DAX stood out again by finishing just 0.1% lower at 15621 points. This looks like turning into a proper dead cat bounce with the another market unable to turn daily momentum into a true positive setting, with the DAX unable to close out above the trailing ATR resistance level. Watch the low moving average here which must firm as short term support

Advertisement

Wall Street reversed its easy she’ll be right sentiment from Friday night and slumped across the board, with the NASDAQ falling more than 1.4% while the S&P500 retraced nearly 0.7% lower to get back below the 4700 point level, closing at 4675 points. The four hourly chart showed price action bunching up and briefly breaking above this key level, with a daily inverted head and shoulders pattern almost fully formed, but short term resistance is proving a little too strong here. Watch ATR support the 4660 level which must hold:

Advertisement

Currency market volatility pulled back slightly but remains in the USD favour with Euro starting the week with a wobble, retracing most of the Friday night blip higher to finish just below the 1.13 handle overnight. The key level to watch this week is true support the 1.1250 level (basically ATR support) that has held more or less for two weeks after two failed breakouts. Don’t confuse another breakout above the 1.13 level as complete:

The USDJPY pair remained flat overnight as it starts the trading week where it finished on Friday, anchored around the mid 113 level. Notice the descending triangle pattern on the four hourly chart has not come to fruition with lower prices, but weak momentum readings and the inability to clear overhead resistance at the 114 handle is still broadcasting a probable downturn here in line with longer term charts:

Advertisement

The Australian dollar failed to breakout overnight after a keen setup was made last last week with the 72 handle ready to be broken. Instead the Aussie fell back rather sharply to the low 71’s after forming a lovely V bottom pattern on the four hourly chart last week. That resistance overhead remains the area to watch as we start a new trading week, with short term ATR support at the 71 handle already under pressure:

Advertisement

Oil prices are failing to bounce back properly from their recent setup with the Brent crude marker still looking a little weak here, starting the week lower and retracing below the $75USD level. The former monthly resistance level at $77 is still the target to reach in this bounceback, but daily momentum is still not yet positive with a lot of upside resistance to get through, so this could quickly turn into a dead cat bounce. Watch for firmer consolidation around the psychologically important $70 level:

Gold is still depressed but was able to eke out a small new daily high overnight, continuing to firm support at the $1780USD per ounce level, closing at $1786. Short term momentum is still flatlining, but not going lower but the failure to punch through overhead resistance or create a new significant daily high means the $1800 level could remain out of reach for sometime:

Advertisement

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

Advertisement

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)

Advertisement

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!