Wall Street is broadcasting correction mode as we head into the next stage of interest rate normalisation, combined with some disappointing earnings and mixed signals coming out of the US economy. The USD continued to firm against all the major currency pairs in a run to safety, while moves in bond markets are still expecting a surge in interest rate rises . Gold remains somewhat resilient to maintain itself above the $1830USD per ounce level while oil markets are heating up again with Brent and WTI both up as commodity prices continue to climb alongside USD.
Bitcoin did not miss out on the frivolity with a major selloff seeing it breakdown below key monthly support levels below $40000. As I warned all last week, this had been setting up as price hovered around that level without any upside breakouts. This correction has been underway since the historic high reached in November last year, having lost nearly 50% so far:
Looking at share markets in Asia from Friday’s session, where mainland Chinese shares felt the risk off move with the Shanghai Composite finishing down 0.9% to 3521 points while the Hang Seng Index also pulled back at first, down 0.7% at one stage before closing dead flat at 24965 points. The previous breakout above the 24000 point level remains in a holding pattern as all other equity markets fall over themselves selling off, so I’m cautious here of potential upside at the previous monthly highs near 26000 points:
Japanese markets flopped, taking back the previous bounce back with the Nikkei 225 closing 0.9% lower at 27520 points. Price action is likely to start lower again on the open this week on the Wall Street selloff with the inability to make a new daily high and breaking daily ATR support at the 28000 point level telling as safe haven Yen buying accelerated. The November lows have been taken out so expect lower soon:
Australian stocks had even worst falls as confidence evaporated with the ASX200 closing more than 2% lower to a new monthly low at 7176 points. SPI futures are ready to break below the 7000 point level on the open this morning, taking out the previous monthly lows reached in October last year (lower black line) as the complete lack of confidence on Wall Street combines with a local slowing economy. The daily chart shows momentum extremely oversold but with that support line broken, further falls are more than likely:
European shares started off badly and continued throughout the session with the Eurostoxx 50 index finishing as it definitively breaks short term support at the 4300 point level. Post close futures kept up with the Wall Street selloff to complete the rollover, sending price below the point area where its ready to breakdown completely:
Wall Street has had an extremely bad week, wiping out all of the last quarter’s gains with the NASDAQ leading the way on Friday night, falling some 2.7%, now nearly square for the last 12 months. The S&P500 lost nearly 2% to extend its falls through not just the 4500 point level, but below 4400 points, closing at 4397 and a new monthly low. The daily chart is extremely oversold and ripe for a potential bounceback here but you’d be pretty brave to jump in right now:
The USD continued to firm against everything on currency markets on Friday night, as volatility increased in the wake of the bond and stock market selloffs. Euro had briefly touched the 1.13 handle in the previous session and had a small bounce back but notably this did not create a new session high, failing to breach the mid 1.13 level. Momentum remains negative, if somewhat neutral so I expect another down-leg as we start the new trading week with the next target at the 1.1280 level:
The USDJPY pair continues to rollover here, with Yen safe haven buying offsetting the broader run to the USD. Price fell through trailing ATR support at the 114 handle after the start of week rally failed to clear resistance overhead. Momentum in the short term remains heavily oversold negative with the potential to breakdown further and make a new weekly low as the risk off move accelerates:
The Australian dollar continued to selloff as well, matching its intraweek low at the 71.70 level after briefly surging up through the 72 handle mid week. This is all part of a lower downtrend from a succession of lower weekly highs with the potential for more downside here below to get to the previous weekly low at the 71.20 level with daily momentum about to turn oversold:
Oil markets were taking some heat out of their current big surge, with futures pulling back slightly mid week but Friday night saw a small uptick as Brent markers finish just below the $88USD level. Daily price action was suggesting a potential top (note the failure to make a new daily high, then an intrasession new high that was sold off to the close) and this may still come to pass, but daily momentum remains in overbought territory with price above the previous highs at the highest horizontal black line:
Gold is proving remarkably resilient here in the wake of risk and bond market selloffs and runs to USD as it consolidates around the $1830USD per ounce level after clearing the key $1800USD per ounce level previously. The daily chart is looking somewhat promising with the potential for a run up to the November highs at $1875 possible:
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)
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!