Is the Well-Known Christmas Rally Going to Occur This Year As Well?

The last couple of days have been very positive for US equities – indices have advanced for six straight days and the SP500 index is now nearly 7 percent higher than last week’s lows. This is, indeed, a very strong move to the upside.

Stocks surged on Wednesday after the Federal Reserve chair Jerome Powell changed his stance regarding the neutral rate, stating that current rates are ‘just below’ the range of estimates for a ‘neutral rate.’ This is a sharply different tone than seen previously when he suggested that a ‘neutral rate was still a long way off.’ His words imply that the Fed might pause with the rate hikes in 2019 or stop them entirely as the rates above neutral could be viewed as restrictive for the economy, which seems to be slowing.

Moreover, stocks soared across the globe on Monday as Trump and Xi managed to calm the markets at their weekend meeting with a 90 days truce in their trade conflict. The White House said on Saturday that Trump had agreed to leave tariffs on US products at a 10 percent rate after January 1, as China agreed to buy a substantial number of products from the US. However, if the new trade deal is not completed within the next 90 days, the tariffs may be upped to 25 percent as previously ’promised’. Traders took this news very positively and equities rocketed higher, with US yields also pushing up.

These two fundamental pieces of news sent a strong bullish signal to investors, with the famous Christmas rally probably starting, as December is usually a very positive month for US stocks.

Technically speaking, the index is now testing a major resistance near 2,815 USD, where two tops are previously located, along with the 100-day moving average. The RSI indicator is suggesting a much-overbought market in the four-hour time frame and therefore, the presence of the mentioned resistance, combined with the overbought stocks, could lead to some correction. The key support is at 2,760 USD, where the 200-day moving average is located and while the index trades above, the Christmas rally theme could still go on.

So, to conclude, we could see some correction toward the 200DMA to clear the overbought conditions, but it seems like the bullish trend is back on track and if the price jumps beyond 2,815 USD, the Christmas rally could continue, targeting the 2,900 USD level.

Disclaimer:

Analysis and opinions provided herein are intended solely for informational and educational purposes and don’t represent a recommendation or an investment advice by TeleTrade. Indiscriminate reliance on illustrative or informational materials may lead to losses.

Gold Consolidates, Volatility Expected to Pick Up

The bullion has managed to stay above the key bullish trend line and also above the 100-day moving average for some days now, but it looks like gold lacks further momentum to push above the key resistance zone at around 1,240 USD.

This week the preliminary GDP report for the third quarter will be released and the market expects a 3.5 percent yearly reading, which is still a very strong report. The GDP price index is stable at 1.4 percent year-on-year. Moreover, the core PCE index will also be reported and is forecasted to slow marginally to 1.9 percent, slightly down from 2.0 percent previously. This is the favorite tool that the Fed uses to track inflation and if it drops back below the 2.0 percent target rate, it might spur the Fed to sound dovish over the next few months.

More importantly, On Wednesday the Fed’s chair Jerome Powell is due to deliver a speech titled “The Federal Reserve’s Framework for Monitoring Financial Stability” at The Economic Club of New York. The market will look for any clues in his remarks that point to a possible pause in the rate hikes, due to deteriorating economic numbers recently. The falling stock market might also be debated and the Fed usually helped to prop up stocks, thus, investors are secretly hoping for the Fed to stop hiking rates to send stocks higher again. Any dovishness in his speech might be very positive for gold, bonds, stocks and, of course, negative for the greenback.

Technically speaking, the main support is now at around 1,210 USD, where both the 100-day moving average and the mentioned bullish trend line are converged. If the price drops below, the current upward trend could be canceled, with the next target at 1,200 USD or possibly at 1,180 USD.

On the upside, the main zone remains between 1,230 and 1,240 USD and if this week’s Powell sounds dovish, we could see a strong breakout above this level, possibly targeting the 200-day moving average near 1,260 USD.

Volatility is expected to pick up during this week due to many Fed speakers and some major macro data.

Disclaimer:

Analysis and opinions provided herein are intended solely for informational and educational purposes and don’t represent a recommendation or an investment advice by TeleTrade. Indiscriminate reliance on illustrative or informational materials may lead to losses.

Is Oil’s Decline Finally Over?

Many investors were stunned by the recent slump in oil prices. The price of this very important commodity dropped more than 25 percent over a couple of weeks and declined from 76 USD a barrel to 56 USD a barrel. At this point, oil finally found some buyers and we are now seeing a consolidation, with some traders already exiting their short positions, which could help drive oil a bit higher.

Technically speaking, oil is now extremely oversold, according to technical indicators, such as the RSI, and oil has not been this oversold since 2015 when two rallies occurred (but still within a long-term bearish trend). This could suggest that we may also see a short-covering relief rally, but oil could remain in the bearish trend.

The support at around 56.00 USD is holding for now, but if it cracks, a further decline to new swing lows below 54.00 USD seems likely, with bears possibly targeting the psychological level of 50 USD. On the upside, the price needs to jump back above the 60 USD handle to negate the immediate bearish trend.

Fundamentally, investors are now waiting for the December OPEC meeting in Vienna amid speculation that OPEC could cut supply again, in order to stabilize the market. Should this happen, oil could stop the current steep decline, but it is hard to tell if bulls would be able to start another bullish trend soon. Oil remains under pressure due to concerns over falling demand and rising production, which are negative factors for oil in general.

Moreover, the US rig count now stands at 888, which is the highest level since March 2015.

On the upside for oil, it seems that the US Dollar has topped out as the Dollar index failed to remain above the 97.00 handles, which could help commodities to advance over the next few days or weeks.

WTI Crude Oil Daily Chart
WTI Crude Oil Daily Chart

To conclude, bearish fundamentals may prevail in the near future, which could imply that oil could decline further, however, sentiment might shift after the December OPEC meeting.

Disclaimer:

Analysis and opinions provided herein are intended solely for informational and educational purposes and don’t represent a recommendation or an investment advice by TeleTrade. Indiscriminate reliance on illustrative or informational materials may lead to losses.

EURUSD: The 1.13 Level is Crucial for the Pair

On Monday, the EURUSD pair declined below the previous swing lows of 1.13 and created new lows, which according to the technical analysis definition, confirmed the long-term downward trend and set the 1.10 level as the new target for bears. Again, according to technical analysis theory, the next rally might be found at 1.13 as the 1.13 support has now turned into a resistance.

However, the pair rose back above the 1.13 level, closed the week at 1.1414 and therefore canceled the immediate bearish momentum, with what seems to be only a bearish trap and a false breakdown to new lows. So what is going to happen now?

Another resistance is at the bearish trend line near 1.1360 and as the Euro rose above this line, the bullish scenario could be confirmed, targeting 1.1435 again. On the other hand, should the pair decline back below the 1.13 level, bears might still be stronger, targeting the mentioned 1.10 level.

On Wednesday, the German GDP slowed sharply for the third quarter and came out at 1.1 percent year-on-year, down from 2.3 percent in the second quarter. The quarterly change is now negative at -0.2 percent (from 0.5 percent previously) and if the fourth quarter ends below zero, the biggest economy in the eurozone will effectively enter into a recession.

Moreover, the eurozone GDP stayed at 1.7 percent on the yearly basis in the third quarter, while the q-o-q print remained at 0.2 percent.

Fundamentally it appears that the Euro may weaken further as the spread between US and EU GDP growth is huge, favoring the greenback against the single currency.

Therefore, the battle for the 1.13 level could start again and this zone could be a major milestone for traders as staying above still gives hope for a return toward the 1.15 mark, but trading below is a signal for another leg lower.

Disclaimer:

Analysis and opinions provided herein are intended solely for informational and educational purposes and don’t represent a recommendation or an investment advice by TeleTrade. Indiscriminate reliance on illustrative or informational materials may lead to losses.

What is Copper Telling Us About the World Economy?

Many people consider copper to be the leading indicator when it comes to the world’s economy. It makes sense because when the economy booms, construction tends to accelerate as well and therefore, global demand for industrial commodities, such as copper, silver, iron, ore, etc., usually rises. However, if the global economy slows down, construction does too, and the price of these commodities starts to head lower.

If we take a quick glance at copper’s weekly chart, we cannot say anything positive about the world economy. The price created a big triangle pattern in late 2017, which was broken to the downside and shortly afterward copper plunged.

Copper Weekly Chart
Copper Weekly Chart

The very same thing is happening again as copper is now forming a triangle pattern and the price is now testing the lower line of this formation. Should the downside break occur again, the bearish trend could be confirmed, with the next target at the 200-week moving average at 2.60 USD and then at the current cycle lows near 2.55 USD. However, as this triangle is a continuation pattern, the price might decline deeper below the 2.55 USD.

The presence of such a bearish picture is probably not good news for the global economy and many economists and institutions already expect weaker economic growth over the next quarters.

Moreover, the US giant Caterpillar – that produces construction machinery – has also warned that the global economy will deteriorate in the near future and the company has slashed the outlook for 2019.

With falling copper, inflation expectations usually head lower and price pressure also tends to dissipate during weaker economic growth. This means that central banks could alter the current hawkish stance to support the economy.

So, what is copper telling us about the world economy? If the latest triangle pattern breaks to the downside, we might expect some downturn globally. On the other hand, should the metal stabilize and rise back above 2.87 USD and/or above 2.95 USD, we could see a brighter picture for the global economy.

Disclaimer:

Analysis and opinions provided herein are intended solely for informational and educational purposes and don’t represent a recommendation or an investment advice by TeleTrade. Indiscriminate reliance on illustrative or informational materials may lead to losses.

Is the Technology Sector Going to Drive the Market Down?

The technology sector has been driving the US stock market higher for a long period of time. Now it seems like the tide has turned and the sector could start doing the opposite.

Like all other major indices in the US, the Nasdaq 100 index, which is represented by the QQQ ETF, dropped below the key 200-day moving average in late October. The following short-covering rally brought the index back to this level, but bulls failed to push the QQQ index back above and the price declined instead. Moreover, the fundamental nature of this aggressive sector seems to be changing from the buy the dip mantra to sell the rally psychology.

Moreover, all the big names, known as the FAANG stocks (Facebook, Amazon, Apple, Netflix, Google) have been dropping sharply over the last couple of days, with Apple being the only stock still above the 200-day moving average. Since all the big names are falling, this decline appears to be structural and therefore it could continue over the next few weeks.

Investors are starting to wonder if the big companies can hold their margins and earnings if the US economy slows amid higher interest rates. Compared with other indices, the technology sector has seen the largest rise since 2008.  This suggests that it could be hit the worst should a notable correction start on the equity markets.

Last Friday’s US labor market data showed that wage growth has reached 3.1percentt year-on-year, which is the fastest pace since April 2009. This was a strong inflation signal and supported the Fed’s view to hike rates faster, rather than slower.

On the plus side, there is a bullish divergence on the daily chart between the RSI indicator and the price of the QQQ index, which could – at least from the short-term point of view – offer some support.

The main resistance remains at the 200DMA near 172.50 USD and if the index jumps beyond, bulls could be in charge again, with the next target probably at the 100DMA near 178.40 USD.

On the downside, the support could be at 165.00 and then it could move to current cycle lows at 160.00 USD. If bears push the price below this level, the downward trend would be confirmed, targeting the 150.00 USD mark.

This article was written by Peter Bukov, one of TeleTrade’s leading analysts. 

NZDUSD: Will Kiwi Stage a Comeback?

The NZDUSD pair has been dropping notably over previous months and it has reached levels unseen since January 2016. However, it is thought that bulls might soon re-appear as the bearish momentum is becoming exhausted and the pair has failed to drop to new lows, despite extreme short positions.

Judging from the recent CFTC report, the New Zealand Dollar is the most oversold currency ever, which may lead to a sharp move in the opposite direction when investors start closing their short positions. This might be expected to happen soon and, therefore we are turning slightly bullish on the antipodean currency.

Additionally, the same picture is repeated when it comes to US bonds, where extreme short positions have accumulated over previous months. These shorts will most likely be covered as well, which could lead to a notable decline in US yields, especially if US stocks continue to drop. This event might be negative for the US Dollar, which fails to rally, despite higher yields and records long positioning.

We therefore think that as the NZD short unwinds, so will the USD longs, which could lead to a strong rally when it comes to the NZDUSD pair.

Technically speaking, there is a bigger bullish divergence between the RSI indicator and the price, which could help the bulls push the price higher.

NZD/USD Daily Chart
NZD/USD Daily Chart

The NZDUSD pair is now trading in the bearish channel, but it looks ready to breach above the upper line. The first target for the long position could be at 0.67, although the pair will probably fight a bit at the 100-day moving average, slightly below this level. If this resistance is taken out, the Kiwi could appreciate further toward the 0.6850 level. This might occur over the next several weeks. Stop loss might be well placed below 0.64350.

This article was written by Peter Bukov, one of TeleTrade’s leading analysts. 

Why is the Dollar not Surging Against the Euro?

Wednesday’s Purchasing Managers’ Index (PMI) numbers confirmed what appears to be a bigger decoupling between US and EU economic momentum. The Euro zone’s PMIs for October were very weak, with the manufacturing sector slowing from 53.2 to 52.1 in October, while the services PMI also fell to 53.3 from 54.7. Therefore, the whole PMI index dropped to 52.7 from 54.1 in September, which is nearly two-year lows for this indicator.

On the other side of the Atlantic, the manufacturing activity rose to 55.9 in October, from 55.6 scored in September, and the services sector ticked higher to 54.7 from 53.5, putting the composite number at 54.8 from 53.9. Even though the EURUSD pair plummeted, it still remains stuck in a narrow 300 pips range between 1.1400 and 1.1700, with a couple of false breaks below or above this zone.

Additionally, the Fed pledged to raise rates and reduce its balance sheet, while the European Central Bank (ECB) is thought to end the QE programme and, also, it might be ready to deliver a 25 bps rate hike in late 2019. Also, the divergence between monetary policies is huge.

The spread between the US 10-year yield and the German 10-yield continues to drop and it is now trading at record lows near -270 bps. Meaning, the US bond yields are 2.7 percent more than the German bond. (The US one is at 3.1 percent, while the German one is at 0.4 percent). At the front end of the curve, the difference is even more drastic, considering that the German two-year bond is trading with a negative yield of -0.66 percent.

So why is the Dollar not moving higher against the Euro when everything suggests it should? The reason behind it is difficult to explain. One of the reasons could be Donald Trump’s recent statements that he doesn’t want a strong Dollar and neither does he want the Fed to raise rates.

Additionally, the net US Dollar’s long positions are at two-year highs and have been rising steadily since the summer, however, the US Dollar hasn’t moved at all. This could lead to some frustration for bulls and a possible correction lower. Another point of view could be that the US Dollar will start rallying, with an implied rally of around 8 percent for the Dollar index, according to the US Dollar longs.

Source: ZeroHedge
Source: ZeroHedge

There is also the Euro – traders have been hoping for an economic miracle, which would push the European Central Bank (ECB) out of monetary policy easing faster. While the Eurozone had picked up solid momentum in the summer of 2017, it has been notably slowing down since then. However, it seems that traders refuse to exit their long Euro positions and, therefore, the EURUSD pair has been stuck at around 1.15 for many months.

The mid-term elections in the US are nearing and this could be another volatile event for financial markets. The EURUSD pair needs to clear the 1.13 support to make a new leg lower, targeting the 1.10 level. Until then, the most traded pair in the world might consolidate further.

This article was written by Peter Bukov, one of TeleTrade’s leading analysts. 

What’s Going to Happen to US Yields from Now on?

US yields have rocketed higher in early October, with the whole yield curve pushing to new multi-year highs. The 10-year yield flew to fresh 7-year highs, while the 30-year yield was at levels last seen in September 2014.

The economic momentum in the US seems to be accelerating further, with the latest ISM surveys showing that managers are still overly optimistic about future economic prospects. Moreover, the Federal Reserve appears ready to hike rates in December and to continue to raise the rates at least three times in 2019.

The latest FOMC minutes show that some of the FOMC members want to bring the fed funds rate even higher than the projected neutral rate, which could mean that the Fed may want to have monetary policy slightly restrictive for some time. In addition, the central bank may continue to sell bonds and MBS from its balance sheet in the quantitative tightening process, with a monthly volume of around 50 bln. USD.

This may indicate that better times might be ahead of us, however, recent market development has two big issues.

Firstly, it’s the very oversold bond market, with aggregate treasury futures net speculative positions at record lows at around -1.84 million (although up from -2.0 million at the start of the month), which could be a big problem if bonds start to move higher (and yields lower). If the short squeeze does emerge, for example, when economic activity suddenly slows down, this could be a very big issue for all the people who are short US bonds, as prices might surge and yields may crash. Shorting bonds at current levels (and hoping for another leg higher in yields) might prove to be dangerous.

Moreover, the latest Fed dot plot projections imply that three more hikes could occur in the next year and therefore, the Fed funds rate could be at around 3.50 percent in a year from now. This is all very optimistic, once again, but the market – specifically the interest rate derivatives market – does not agree and it expects the Fed to not raise or cut rates in 2019.

Source: ZeroHedge
Source: ZeroHedge

Why? Well, the economic momentum is expected to slow down in 2019 – almost every economist has predicted this fact. The latest boost from tax cuts and fiscal stimulus may most likely fade and higher interest rates, along with the “running out of steam mantra” might lead to slower GDP growth, just like the situation the Eurozone is currently experiencing. Should this happen, US bonds could be once again the winning trade, especially after the unwinding of the record short positions.

One more thing – according to the latest inflation data from the US – inflation seems to be slowing down, which could be another signal that shows that bonds are promising at the current levels. Combined with the latest drop in industrial commodities, such as lumber, copper, and silver, the economic cycle might really be hitting its peak. That is, and always has been, very good for US bonds. Let’s wait and see how this situation will be resolved.

This article was written by Peter Bukov, one of TeleTrade’s leading analysts. 

Back to Safe Haven – Gold Ends Period of Low Volatility by Strong Bullish Move

Last week, gold soared, and it was trading notably higher on Monday as well, with the precious metal rising 1 percent to trade at fresh three-month highs above 1,230 USD per ounce. It also briefly jumped above the strong resistance of the 100-day moving average, which currently stands at around 1,227 USD.

As stock markets plummeted all around the globe, sentiment deteriorated sharply, and investors turned back to the well-known safe-haven – gold. Equity markets suffered the worst drop since February but remain above 200-day moving averages (for US stock market indices), which means the long-term bullish trend could remain intact. Nevertheless, gold surged and continued to strengthen this week as well.

The bullion remains heavily oversold and net short positions were sitting at multi-year highs before the mentioned rally. Some of them were closed during last week and, since gold is pushing higher, more of these short positions will also probably unwind this week. Should this trend continue, more and more short positions could be exited, meaning that the price could aggressively move higher.

In addition, the US Dollar has been losing steam over the last couple of days, as some of the macro data disappointed, with the Dollar index failing to remain above the key resistance of 95.50. The falling greenback also helped the precious metal to rise.

The bullion managed to break above from the triangle pattern and as long as the price remains above the 1,210-1,215 USD zone, the short-term outlook seems bullish. Another support could be at the mentioned 100-day moving average.

On the upside, the resistance could be seen at around 1,240 USD and if conquered, further rise toward 1,260 USD might occur.

This article was written by Peter Bukov, one of TeleTrade’s leading analysts. 

A Correction or Recession?

It has been a rough couple of days for equity investors as stock markets plummeted sharply in the recent days. As for the main catalyst for this rout, we can safely assume it was the rocketing US yields, along with the fears of a global economic slowdown.

According to the International Monetary Fund, global growth estimate has been lowered to 3.7% in 2018 and 2019, down from the 3.9% anticipated by the IMF in July. The group downgraded the outlook for almost all the major economies, citing the ongoing USA-China trade war as the main reason.

Moreover, luxury stocks were among the worst losers as the luxury company LVMH, owner of Louis Vuitton, Christian Dior and Dom Perignon warned of slowing demand for luxury goods in China. The price of LVMH crashed nearly 10% in Paris on Wednesday and dragged lower other stocks in this sector.

The same thing happened in the US on Wednesday as the company Trinseo became the second chemical manufacturer this earning season to downgrade the earnings outlook, when it warned of disappointing results because of pricier raw materials and slow sales in China. The stock dropped most on record and lost 18% after dropping 6% on Tuesday.

Additionally, the newly created communications sector, which contains some of the well-known FAANG stocks (Facebook, Apple, Amazon, Netflix and Google) hasn’t been met with much of an interest and FAANGs are dropping like a stone. On Wednesday, these stocks experienced the biggest decline since July and are down to their lowest since May. FAANGs are down 10% in the last 9 days.

To conclude, equity indices have been poised for a correction for some time. It would appear that sharply rising US yield curve, still hawkish Fed and higher oil prices are causing some repricing of future economic growth, which has become a very negative thing for stocks worldwide.


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However, to sound a bit more optimistic, all the major US indices remain above their respective 200-day moving averages, meaning the long-term bullish trend is still intact for US benchmarks. These averages could be soon tested and that will be the crucial moment for equity investors as breaking below could cause a larger correction worldwide.

The upcoming week will be a significant one to the markets. The FOMC meeting minutes on Wednesday can shed light on the Fed’s rate hike projection and China’s Growth Domestic Product on Thursday can be a game changer.

Analysis and opinions provided herein are intended solely for informational and educational purposes and don’t represent a recommendation or an investment advice by TeleTrade. Indiscriminate reliance on illustrative or informational materials may lead to losses.

This article was written by Peter Bukov, one of TeleTrade’s leading analysts. 

SP500 Index Changing Drastically

The beginning of October brings with it the biggest changes to the SP500 index since 1999. Some sectors and industries will most likely emerge, and some may disappear, with their respective weight in the index changing as well. Additionally, some stocks may move to other sectors. These changes may mostly affect the IT, telecommunications and consumer goods sectors.

Consequently, the weight of the information technology sector may fall from the current 25 percent to 20 percent. A new sector is likely to be created, specifically the communication services sector, which may have a weight of 10 percent in the SP500 index. This new sector will be created by moving all titles from the telecommunications industry, which previously had a weight of 2 percent in the SP500 index. After this, the telecommunication sector will probably cease to exist. In addition, several IT and consumer goods companies will most likely be transferred to this new communications services sector.

Among the stock titles that should complete the emerging communications services industry by moving from the IT sector are Alphabet (Google), the dominant social networking player Facebook, as well as EA, Activision and Take-Two Interactive games. Verizon and AT&T will most likely move from the telecommunications sector. From the consumer discretionary sector, Netflix, Disney, 21st Century Fox, and a number of more companies may join the new communications sector in the near future.

What might be the impacts of changes on investors? There are many of them, and in the long run, many of them are crucial. They relate, for example, to the nature of the sectors, including impacts on growth outlooks, dividend yield, exposure to the cloud or AI trends, automatic or forced the rebalancing of portfolios of hundreds of ETF funds and other aspects.

These changes may have a major impact on the IT sector, which has grown to a quarter of its weight in the SP500 index and, has begun to dominate the index. The two major companies which might be affected by this are Facebook and Alphabet, the two main growth drivers with a very high market capitalization. The ‘new’ technology sector may, therefore, have lower expected future revenue growth, earnings per share and a lower margin than the current or future new communications services sector. The largest companies in the technology sector after this change will probably be Apple (19 percent) and Microsoft (16 percent), followed by Intel (5 percent). These are companies with lower valuations, measured for example by the P/E or P/S multiples, and which also have a lower regulatory risk. On the other hand, these companies have a significantly lower growth outlook and weaker exposure to growing cloud services and artificial intelligence. The nature of the IT sector is changing significantly, so investors focusing on growth titles may be able to assess current changes by rebalancing out their portfolios.

On the contrary, new money can be moved to the newly emerging communications sector. This will probably provide an appealing vision of future growth, as Alphabet, Facebook and Netflix will most likely move here. However, this growth dynamics should be moderated by the AT&T and Verizon telecoms companies, which are growing in the same way as the whole economy (for example, they are defensive stocks). In return, they may provide higher revenue stability and higher dividend yields.

Analysis and opinions provided herein are intended solely for informational and educational purposes and don’t represent a recommendation or an investment advice by TeleTrade. Indiscriminate reliance on illustrative or informational materials may lead to losses.

This article was written by Peter Bukov, one of TeleTrade’s leading analysts. 

US Yields Accelerate Extremely Higher, Dollar Rises Sharply to Six-Week Highs

The 10-year benchmark yield was trading at the current cycle highs near 3.1% on Wednesday, while the 30-year yield rose to fresh highs at 3.26%. The short-end of the yield curve has risen as well, although at a slower pace and, therefore, the yield curve has steepened over the last couple of days.

Last week, the Federal Reserve again raised rates and upgraded the economic outlook for upcoming quarters, while inflation remained the same, but still above the 2% target. This could mean that the Federal Open Market Committee expects the US economy to continue with a strong momentum but without any significant inflation pressures. Therefore, the tightening of the monetary policy may maintain its pace and 2019 could bring with it another four-rate hike, unless the economic momentum drastically deteriorates.

More positive information came to light on Wednesday. This included the publication of the latest ADP employment report, which showed that employment increased by 230,000 in September, well above 185,000 that analysts predicted. Another piece of good news came in the form of the non-manufacturing ISM survey which soared to 61.6 for the month of September, against forecasts of a drop to 58.0 from 58.5 scored in August. The greenback rose afterward, but more importantly, US yields surged sharply.

Investors expect another strong labor market report on Friday, as the unemployment rate expecting to drop further to 3.8%, while the Nonfarm payroll could create around 200,000 jobs. Wage growth could tick higher to 3.0% annually, which might be another signal for yields to rise.

There is only one problem with rising yields – stock markets might get spooked by them. Rising yields and quantitative tightening may effectively reduce the amount of money circulating in the economy and therefore stock buybacks, which are supporting the stock markets on every dip, might eventually get more expensive. Should the current pace of monetary tightening and rising yields continue, we could see a bigger correction of the stock markets sometime in 2019, as one of the biggest stock buyers – companies performing buybacks – could be absent the next time the market drops.

Analysis and opinions provided herein are intended solely for informational and educational purposes and don’t represent a recommendation or an investment advice by TeleTrade. Indiscriminate reliance on illustrative or informational materials may lead to losses

Will Bitcoin Fall Further?

Everybody who has been following and trading Bitcoin recently, are likely to be disappointed. For eight months now, since February 2018, the price of Bitcoin hasn’t budged. The cryptocurrency’s last move in February saw it drop to a low point of 6,000 USD and, since then, there has been decreasing volatility and lower highs, while the lows remain at the same point. These factors are typical of a bearish trend. It is also interesting to add that the Bitcoin daily chart resembles a very big descending triangle pattern, which is a bearish formation.

Also, the king of cryptos has already lost around 70% of its value since its December peak, while other, smaller coins – known as Altcoins – have lost more than 70% of their value. Therefore, this huge decline is on a larger scale than what occurred in 2000, when the dotcom bubble burst.

Meanwhile, the market cap of Bitcoin has decreased from 330 billion USD to the current market cap of 115 billion USD, while the entire market capitalization of the crypto world, has dropped from 813 billion USD to around 225 billion USD recently. We may see a further drop.

The volatility of Bitcoin has been minimal over the past couple of days and weeks which suggests we may be in either an accumulation or distribution phase – which means a huge move might be around the corner.

Bitcoin Daily Chart
Bitcoin Daily Chart

Should Bitcoin drop further below the support of 6,000 USD, a quick drop toward 5,000 USD, or even lower, could be in the cards. Another major support, where stronger bids could be located, is at 3,000 USD, which coincides with the triangle pattern potential.

However, if bulls manage to turn the triangle around, we could see a relief rally, targeting 7,400 USD and potentially 8,400 USD.

Therefore, it is crucial that we keep an eye on how the price will behave over the next few days or weeks and, observe on which side of this triangle Bitcoin will break. This could be the major moment for the upcoming future.

Analysis and opinions provided herein are intended solely for informational and educational purposes and don’t represent a recommendation or an investment advice by TeleTrade. Indiscriminate reliance on illustrative or informational materials may lead to losses.

This article was written by Peter Bukov, one of TeleTrade’s leading analysts. 

Fed Hikes Rates, Dollar Pops, Yields Drop; US Stocks Open Higher

As widely expected, the Federal Reserve raised rates at Wednesday’s meeting by 0.25%, with federal funds now at 2.25%. It has been an eight-rate hike since the central bank started to tighten monetary policy in 2015. The Fed also maintained the current pace of quantitative tightening, which includes the selling of bonds from its balance sheet, with a monthly amount of 40-50 billion USD. All this had been expected and therefore priced in.

Market participants, therefore, paid more attention to the new economic and inflation projections and to the so-called dot plot.

The near-term dots remain unchanged, except for the longer-run dot, which rose from 2.875% to 3.000%. The new Fed vice chair, Richard Clarida, may place the dot at 3.375% for the next year, which is above the 3.125% median. He may place the dot in 2020 at 3.625%, also above the 3.375% median. This could suggest Mr. Clarida is more hawkish than the median FOMC member.

Regarding the economic projections, the GDP forecast for this year was upgraded notably to 3.1% from 2.8% in June. For 2019, the estimate has also been upgraded marginally, from 2.4% to 2.5%.

Inflation expectations show that the Fed anticipates inflation above the 2.0% target for the next couple of years, suggesting the current pace of tightening could continue well into 2019, or possibly 2020.

Another major change on Wednesday was the removal of the sentence on maintaining “accommodative” policy. This suggests that the Fed might be closer to a neutral policy rate setting, which might lead to the Fed pausing rate hikes when the “neutral rate” will be reached. However, the dot-plot does not support this theory for 2019. Seven FOMC members favor 2 hikes or fewer, 4 favors 3 hikes, and 5 favors 4 or more.

The greenback strengthened after this meeting and continued to trade stronger on Thursday as well, while bond yields dropped after the initial reaction but managed to retrace some of the losses. Stock markets declined, but dip buyers re-emerged and the SP500 index managed to also eliminate losses. US dollar index gained 0.51% at the time of writing.

Overall, it was not a game-changing meeting, but it confirmed that the Fed is poised to raise rates further, despite the recent trade war jitters.

Analysis and opinions provided herein are intended solely for informational and educational purposes and don’t represent a recommendation or an investment advice by TeleTrade. Indiscriminate reliance on illustrative or informational materials may lead to losses.

This article was written by Peter Bukov, one of TeleTrade’s leading analysts. 

Is This the Best Time to Take an Advantage on Facebook?

Facebook stock has dropped some 25% from the record highs scored in late July. It appears buyers are hard to find as the price is continuing to drop and we are witnessing lower lows and lower highs, which is a definition of a declining trend. Moreover, since the stock is now down more than 20% from its peak, the company is officially trading in a bearish trend.

Back in July, Facebook announced earnings and revenues which were below market estimates, and more importantly, Mark Zuckerberg lowered guidance for the upcoming quarters. Investors usually give the majority of their attention to guidance and, since the company notably lowered it, the quarterly results reflected negatively on the company and the stock plunged 20% in one day.

Let’s refrain from the fundamentals for now – although the company’s operating margin is at an all-time high at 49.70%, and both revenues and profits are rising at a fast pace. Investors think this solid growth might slow down in the next quarters.

The technical picture seems more interesting at the moment. The latest drop has brought the price to the 5-year long bullish trend line, which is currently being tested and the price appears to be bouncing off this line. The bullish trend line is currently around 160 USD and has been held constant in recent years. Every time the stock dropped to this trend line, bulls immediately re-emerged and pushed it higher.

Facebook Daily Chart
Facebook Daily Chart

The same could occur nowadays – the price has been consolidating since the big drop and we might see a rally very soon. Moreover, the RSI indicator is very close to 30, which indicates oversold conditions. Each time the indicator was this close to 30 in the past, a rally occurred.

The combination of the strong technical picture and the possible solid earnings report on October 24th indicates that the bullish trend may be revived.

On the other hand, if the price declines below the mentioned trend line, we could see a quick drop compared to April’s low near 150 USD and the next target for bears could be in the 132 USD region.

This article was written by Peter Bukov, one of TeleTrade’s leading analysts. 

Core Inflation in the EU: Is It Ever Going to Happen?

Mario Draghi, President of the European Central Bank (ECB) has long recognized the significance of rising inflation. Ever since monetary policy easing – through cutting rates and buying bonds in the quantitative easing programme – he believed that cheap money – and lots of it – can somehow trigger rising inflation. Theoretically, yes, it’s possible. Printing money always leads to monetary inflation – the more Euros printed, the smaller the value of the currency.

However, for underlying inflation – known as core inflation – tends to lag as it’s not influenced as much by the cheap money printed by central banks, or, in this case, by the ECB. The normal CPI measure contains prices of energies, food, and alcohol. These prices are driven mainly by the supply of money as they are hard assets. If there is an accommodative monetary policy, investors – and people – will buy hard assets such as commodities to protect themselves from inflation and these prices will go up. This gauge of inflation therefore usually rises much faster than the core inflation, when stripped of food, alcohol, and energies.

Monday’s inflation data for the month of August confirmed this theory – the Eurozone’s CPI inflation rose to 2.0%, but the core CPI stayed at 1.0%, well below the ECB’s target of 2.0%. The CPI rate has been rising steadily since the start of QE in 2015 and recently reached 2%. However, the core inflation has been stuck between 0.8% – 1.0% in the same period.

Nevertheless, in his most recent speech this week, Mario Draghi reiterated to everybody that he expects the underlying inflation to rise steadily in the next months to reach the goal of 2%. How exactly is this going to happen? Nobody knows, especially when the QE programme is about to end and the ECB could start lifting rates a year from now. Moreover, it would appear that the economic momentum in the Eurozone has reached its peak and – heading into 2019 – it may slow. One wonders how the Eurozone will achieve higher core inflation if monetary policy slowly tightens and the economic activity slows. Should the Euro appreciate and get back above, say, the 1.20 mark against the greenback, it will be even harder for inflation to accelerate.

Draghi is something of a dreamer, and we can’t take that away from him. However, the current reality doesn’t correspond to his dreams, so it appears it will be up to his successor to live up to them and make them happen.

This article was written by Peter Bukov, one of TeleTrade’s leading analysts. 

The Collapse of Lehman Brothers – Ten Years Later

Lehman Brothers collapsed ten years ago. The event had historical, seismic repercussions on other institutions and triggered the markets spiraling into one of the worst financial crises. Now, a decade later, predictions start to appear as when the next crisis will hit again.

JPMorgan Chase & Co, one of the most well-known U.S. global banking institutions, is saying it’s going to be relatively soon – in fact, two years from now. According to their strategists, investors and other market participants should get ready to see another financial downturn in 2020.

The JPMorgan model calculates outcomes based on the length of the economic expansion, the potential duration of the next recession, the degree of leverage, asset-price valuations and other inputs. This time, the financial crisis could be less painful, says the model.

The bank predicts US stock markets will lose about 20%, which would bring the SP500 index to 2,300 USD. These are levels seen in February 2017. It doesn’t sound like a big deal as the stock market has been moving higher for many years without a significant correction.

JPMorgan also predicts a 35% decline in energy prices, along with a 30% drop of base metals. Moreover, U.S. corporate-bond yield premiums could jump about 1.15 percentage points.

What could be the biggest issue in the next downturn are the emerging markets. Strategists at JPMorgan said that emerging markets stocks could lose nearly half of their value, should another financial crisis happen. Not least, emerging markets bonds are due for a 15% correction, which would push their yields sharply higher.

The bank outlines one of the main reasons for the next crisis: the Fed’s tightening cycle, which is absorbing liquidity from the markets. This cycle has led to a shift from active to passive investing, across all the asset classes. Therefore, a quick scramble for liquidity could lead to severe repricing on the markets, which usually occurs when there are more sellers than buyers, i.e. in times of panic.


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The emerging markets are already feeling the pain of rising U.S. rates: their currencies are losing value nearly every day, prompting central banks to raise rates. However, sharply rising interest rates will cause damage to the economic health of the touched countries, leading to another round of selling of currencies, stocks, and bonds in these regions. Should the Fed continue to raise rates, and it appears it will, we could see another financial crisis sooner than in 2020, and it will probably begin in the emerging markets.

This article was written by Peter Bukov, one of TeleTrade’s leading analysts. 

United States’ SEC Wants to Monitor Social Media Platforms

The U.S. Securities and Exchange Commission (SEC) is exploring options for a new software to detect and track market moving posts on social media platforms. The platforms would include Twitter, Facebook as well as others, and the purpose would be for the posts to be reported directly to the SEC.

Companies around the world use social media on a daily basis as an integral part of their marketing and communications strategies. However, the US regulator has only recently started to look into social media’s influence over companies’ stock prices, in light of the growing number of cases of whereby some companies have apparently misused social media posts to manipulate stock prices.

Most recently, Elon Musk, the “erratic” (as many call him) CEO of the electric car maker Tesla tweeted he wants to take the company private at 420 USD and that he had secured funding for this move to happen. Tesla’s shares rose by around 12% afterward from 340 USD to 380 USD. At the time of writing, the stock was trading at 279 USD.

Elon Musk came under a lot of scrutiny after this tweet and investors wanted him to reveal the organization he implied would fund the company, as it would have been the largest delisting in the US history. Shortly after, Elon Musk said (this time in a blog post) that Tesla would remain a public company. The stock price dropped back below 300 USD in a couple of days.

Moreover, the SEC is now investigating Elon Musk as to whether his information was misleading at the time of his first tweet regarding his claim of funding having been “secured”. If found guilty of stock fraud, he could lose billions in lawsuits or potentially end up in prison.

In light of such actions, the SEC has decided to try to “regulate” social media posts of influential business leaders and to determine, whether they are market moving. The US regulator is willing to pay 27.5 million USD for the desired software, but the SEC wants a finished product (ready to use) as they don’t have time for developing it from a scratch.

The SEC made a brief description of what they are looking for: “a complete, web-based tool to scrape the major sites for keywords on relevant topics. When a keyword pops, the tool should send an email alerting the appropriate SEC staff.”

It seems that manipulating stock prices will be a bit tougher in the near future.

This article was written by Peter Bukov, one of TeleTrade’s leading analysts.