The bounce is in as tech stocks lead Wall Street to a recovery, staving off a very bad January while European markets also put in a mild bounces to stabilise the nerves across the continent, despite a higher than expected German inflation print. Currency markets saw a mild reversal in USD strength due to the change in risk sentiment, with Euro and the Aussie both gaining, while Yen remained somewhat firm which could prove a headwind for Japanese stocks today. Gold had a very minor lift higher but is still below the key $1800USD per ounce former support level as other commodity markets remain robust as both Brent and WTI crude held on to their near decade highs as US Treasuries also range traded around the 1.8% yield for the 10 year.
Bitcoin is slowly moving into recovery mode following its previous big selloff after remaining stuck at below the $38K level with a small breakout overnight that matched last week’s intrasession high. The four hourly chart shows a potential bottom at the $32K level but this is very early days yet and could be swept aside very quickly:
Looking at share markets in Asia from yesterday’s session, where mainland Chinese shares were closed for Chinese New Year and won’t be back until next week, but the Hang Seng Index was open only for Monday, finishing 1% higher to take back its Friday losses at 23802 points. This barely makes a dint in the sharp retracement from the previous breakout above the 24000 point level with daily momentum remaining negative as price has failed to remain supported at all the key short term levels here. A return to the previous monthly lows below 23000 points is firming but we’ll have to wait until next week when trading resumes:
Japanese markets also came back with the Nikkei 225 closing 1.3% higher at 27076 points. Futures are suggesting more upside on the open despite a lower Yen overnight, with the downtrend from the 29000 point high now under threat as a swing play gathers momentum. As I said yesterday, volatility is not yet over but short positions may begin to unwind here quickly so watch for a breakthough above the high moving average on the daily chart:
Australian stocks however pushed lower, having lost confidence over the weekend with the ASX200 closing down 0.2% to remain below the 7000 point level at 6971 points. SPI futures are up about 0.3% so we could see that level taken out again in response to the big rise on Wall Street. The daily chart is still exhibiting a classic deceleration pattern but momentum remains extremely oversold without all the elements required to turn this into a swing trade with price remaining contained on the shorter time charts:
European shares did a little better in their bounceback although the FTSE remains under pressure, as the Eurostoxx 50 index finished 0.9% higher at 4174 points. Futures saw further gains following the surge on Wall Street as confidence returned as those long tails of daily intrasession buying suggest a bottom is forming here. Momentum is switching from being very oversold to negative only, but we need see a lift above the 4200 point level before getting excited:
Wall Street zoomed higher, again lead by tech stocks with the the NASDAQ putting in another 3% gain while the S&P500 finished 1.9% higher at 4515 points. The daily chart showed price bouncing along at key support at the 4260 point level before this rally but I’m looking for a proper breakout above the 4540 line instead, treating this as a swing position only so far even though its cleared that rectangle of support and resistance that formed last week:
Currency markets went into reverse mode following consolidation of USD strength on Friday night, finally catching up to the change in risk sentiment with all majors lifting against King dollar. Euro was able to launch off its previous bottom just above the 1.11 handle, pushing through to the low 1.12s and taking out trailing overhead ATR resistance on the four hourly chart. A nice swing play but maybe not enough to get out of trouble here with momentum not yet overbought:
The USDJPY pair was showing signs of topping out here after a bearish rising wedge pattern and last night saw more Yen buying occur with the pair briefly pushing below the 115 handle where it sits precariously this morning. Momentum has crossed over from its very high reading so watch for any further selling below the 115 level at the low moving average on the four hourly chart :
The Australian dollar was one of several risk currencies under the most pressure and after its slump on Friday night, a bounceback was expected as the Pacific Peso pushed back above the 70 handle but nowhere near positive momentum or trailing ATR resistance overhead. This still sets up the right hand shoulder of a huge head and shoulders pattern on the weekly chart but as I warned yesterday in the short term this could be more oversold than at first glance so watch for a potential breakout above the 70.40 area:
Oil markets remain strong but somewhat directionless with Brent again contained just below the $90USD per barrel level overnight. Daily price action via candle analysis is still suggesting a potential top as momentum readings pullback from what was overbought territory even as price remains supported above the previous highs at the highest horizontal black line. The next target at $100USD per barrel maybe a step to far, so watch for any profit taking below the $85 level:
Gold firmed ever so slightly as other undollars bounced back against the still strong USD, with the shiny metal remaining just below the key $1800USD per ounce level as it finally made a new daily high, having shed more than $50 since the Fed meeting. This still keeps it well below the daily trendline from the December lows where there still could be a full retracement down to $1760 or so after a small amount of consolidation here due to oversold momentum:
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!