Global Shares Routed as Investors Ditch Risky Assets on Fear of Worldwide Recession

The major European stock indexes are trading sharply lower on Friday after entering correction territory the previous session, after falling 10% below the record highs seen on February 19. This follows steep sell-offs in seven major Asia-Pacific markets and the United States, which have also reached correction territory.

It took just six days for the benchmark S&P 500 and NASDAQ Composite Indexes to fall from record highs into correction territory. On Thursday, the blue chip Dow Jones Industrial Average plunged 1,200 points, its biggest one-day drop ever.

In Europe, at 11:44 GMT, the UK’s FTSE 100 Index is trading 6602.33, down 194.07 or -2.86%. Germany’s DAX Index is at 11974.17, down 393.29 or -3.18% and France’s CAC is trading 5354.27, down 141.33 or -2.57%.

Global Stocks Set for Worst Week Since 2008 Financial Crisis

World share markets were headed for their worst week since the depths of the 2008 financial crisis as investors ditched risky assets on fears the coronavirus would become a pandemic and trigger a global recession, Reuters said.

Hope that Fed Comes to the Rescue

Hopes that that the epidemic that started in China would be over in a few months and economic activity would return to normal have been shattered, as new infections reported around the world now surpass those in China.

Hope remains, however, that the U.S. Federal Reserve would cut interest rates as soon as next month to support economic growth.

“We don’t even need to wait for economic data to wee how badly the economy is being hit. You can tell that the sales of airlines and hotels are already falling by a half or something like that,” said Tomoaki Shishido, senior economist at Nomura Securities.

“It is fair to say the impact of the coronavirus will be clearly much bigger than the U.S.-China trade war. So the Fed does not have a reason to take a wait-and-see stance next month,” Shishido said.

Expectations the Fed will cut interest rates to cushion the blow are rising in money markets. Analysts say Fed funds futures are now pricing in about a 75% chance of a 25-basis point cut at the central bank’s March 17-18 meeting.

Fear of Major Global Economic Slump

Fear of a major economic slump is driving commodity and equity prices lower.

Fear as measured by the CBOE volatility index or VIX, jumped to 39.16, the highest level in about two years, well out of the 11-20 range of recent months, according to Reuters.

The index, which measures expected swings in U.S. shares in the next 30 days, typically shoots up to around 50 when bear market selling hits is heaviest and approached almost 90 during the 2008-09 financial crisis, Reuters wrote.

“The coronavirus now looks like a pandemic. Markets can cope even if there is a big risk as long as we can see the end of the tunnel,” said Norihiro Fujito, chief investment strategist at Mitsubishi UFJ Morgan Stanley Securities. “But at the moment, no one can tell how long this will last and how severe it will get.”

Sweden Ends Its Experiment with Negative Interest Rates. Should Gold Be Worried?

In December, the Sveriges Riksbank, the world’s oldest central bank, has raised the main interest rate from -0.25 percent back to zero, ending its experiment with the negative interest rate policy, as the chart below shows.

Chart 1: Riksbank’s repo rate from January 2010 to January 2020.

This is a huge change. As a reminder, Riksbank was a pioneer of negative interest rates. As early as in 2009, it moved the overnight deposit rate below zero. Then, in 2015, the Swedish central bank cut its main interest rate, the repo rate, to -0.10, worried about the repercussions of the sovereign debt crisis in the euro zone. In 2016, Riksbank was forced to go further, setting the interest rates as low as -0.50 percent, to prevent a Japanese-style deflationary spiral in Sweden.

And now, after all these years, Riksbank abandons the negative interest rates, again being in the avant-garde of central banking, as policy interest rates are still negative in the euro zone, Japan, Denmark, Switzerland and Hungary.

Why Riksbank has ended the NIRP? One explanation is that Sweden’s inflation rate is close to the target, so the monetary tightening was necessary. In other words, the NIRP did its job and was not needed any longer. As we read in the Riksbank’s press release,

Inflation has been close to the Riksbank’s target of 2 per cent since the start of 2017, and the Riksbank assesses that conditions are good for inflation to remain close to the target going forward.

It sounds plausible, but the truth is that inflation has been hovering around the target for a few last years, as the chart below shows. So why did the Riksbank decide to hike interest rates only now – and in face of weaker economic activity?

Chart 2: Sweden’s annual CPI rate from January 2015 to December 2019.

The answer is that Sweden’s central bank has finally acknowledged what we were writing from the very beginning of the NIRP, i.e., that the costs of this policy outweigh the benefits, euphemistically speaking. Indeed, Riksbank admitted itself that concerns about the side-effects of the negative interest rates on the economy contributed to its decision. As we read in the minutes from the December meeting,

a long period of negative interest rates may have negative side effects on the economy, as the draft Monetary Policy Report commendably describes. This is a parameter that we should take into account.

In particular, the Sweden’s central bank is worried about the health of the housing market and households’ level of debt. As Governor Stefan Ingves noted,

Let me add, as I often do, that the long-term development of the Swedish housing market entails a risk to the Swedish economy in both the short and long term. There are a number of structural problems in the Swedish housing market. This creates both imbalances and risks, in the form of high indebtedness among households, and economic inefficiency, in that it will be more difficult for people to move in connection with finding a new job.

Indeed, the real estate price index has increased 33 percent since 2015 (from 180 points to 240) and doubled since the Great Recession, while the household debt-to-GDP ratio has risen from 65 percent in 2008 and 82 percent in 2015 to 88 percent in 2019. Please note that the whole Swedish private-sector debt has climbed to 285.7 percent of GDP, one of the highest rates in the OECD.

What does it all mean for the gold market? Well, the Riksbank’s recent hike confirms that the ultra loose monetary policy in general and the negative interest rates in particular do not support the real economy, but they rather zombify it instead. They also boost asset prices and debt, increasing the risk of a financial crisis.

Sweden is relatively small economy, but the ECB or the Bank of Japan are not likely to follow suit and also end their romance with the negative interest rates anytime soon. The Fed claims that it does not want to go below zero, but Trump supports this policy, so who knows…

So, the fact that Riksbank ended its NIRP should not upset the gold bulls. They still can count on other, more systematically important, central banks. One day, the unexpected negative shock arrives and it will expose the fragility of the current financial situation, so carefully cultivated under the strange world of negative interest rates. Investors would then also rediscover the safe-haven allure of gold.

If you enjoyed the above analysis and would you like to know more about the fundamentals of the gold market, we invite you to read the February Market Overview report. If you’re interested in the detailed price analysis and price projections with targets, we invite you to sign up for our Gold & Silver Trading Alerts. If you’re not ready to subscribe yet and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!

Arkadiusz Sieron, PhD
Sunshine Profits – Effective Investments Through Diligence and Care

Disclaimer: Please note that the aim of the above analysis is to discuss the likely long-term impact of the featured phenomenon on the price of gold and this analysis does not indicate (nor does it aim to do so) whether gold is likely to move higher or lower in the short- or medium term. In order to determine the latter, many additional factors need to be considered (i.e. sentiment, chart patterns, cycles, indicators, ratios, self-similar patterns and more) and we are taking them into account (and discussing the short- and medium-term outlook) in our Trading Alerts.

 

Crude Daily Forecast – Crude Slips Below $45 as Demand Slides

Crude prices continue to lose ground this week. Currently, U.S. crude oil is trading at $45.20, down $0.95 or 2.09% on the day. Brent crude oil is trading at $50.26, down $1.15 or 2.24%.

Crude Slips to 13-Month Low

As the coronavirus continues to spread, the economic fallout to the global economy is growing. This has been the catalyst behind a plunge in oil prices. Crude has declined by 14.7% this week and briefly fell below the $45 level earlier on Friday. This is its lowest level since January 2018. With analysts warning that things could worsen before they improve, oil prices will likely remain under downward pressure.

The bleak economic situation in China, with much of the industrial sector paralyzed, has led to a sharp reduction in demand for oil. China is the world’s second-largest oil producer, and the deteriorating situation is taking its toll on Saudi Arabia, which is China’s top supplier of oil. Starting in March, Saudi Arabia will sharply reduce its oil exports to China, which currently stands at about 2 million barrels per day (bpd). Analysts say that this amount could be cut significantly, perhaps as much as 300,000 bdp.  Chinese refineries have sharply cut refinery runs, leading to a growing oversupply of crude on global markets.

Technical Analysis

WTI/USD continues to fall and break below support levels this week. The pair tested support at 45.50 earlier on Friday and this line could break before the end of the trading week. The next support level is at 43.55.

On the upside, there is resistance at 47.50, followed by resistance at .$49.50, which is just below the symbolic $50 level.

Major Asia-Pacific Markets Tumble into Correction Territory; Investors Brace for Chinese PMI Reports

Asia-Pacific shares tumbled on Friday with China’s Shenzhen stocks diving nearly 5%, as investors feared the coronavirus might develop into a pandemic and trigger global recession. Investors continued to brace for an impact on economic growth with global shares heading for the worst week since the financial crisis in 2008.

On Friday, Japan’s Nikkei 225 Index settled at 21142.96, down 805.27 or -3.67%. Hong Kong’s Hang Seng Index closed at 26129.93, down 648.69 or -2.42% and South Korea’s KOSPI Index finished at 1987.01, down 67.88 or -3.30.

In China, the Shanghai Index settled at 2880.30, down 111.03 or -3.71% and in Australia, the S&P/ASX 200 Index closed at 6441.20, down 216.70 or -3.25%.

Coronavirus Update

New infections rapidly spread around the world with countries stockpiling medical supplies and preparing emergency responses, shattering hopes that the epidemic would be contained to China and economic activity would return to normal, Reuters said.

China to Release Key Economic Data This Weekend

While the markets are closed over the weekend, China will release reports on February Manufacturing and Non-Manufacturing PMI. The data is expected to show activity in in China’s manufacturing sector in February probably shrank at the fastest pace since the global financial crisis, a Reuters poll showed, as the epidemic took an excruciating economic toll on Chinese factories. Analysts estimate Manufacturing PMI at 45.1, down from 50.0 and Non-Manufacturing PMI at 51.4, down from 54.1.

Steep Losses in China after Stimulus Effect Wears Off

The global stock market rout knocked mainland Chinese shares lower, which have been relatively well supported this month, as new coronavirus cases in the country fell and Beijing doled out measures to shore up economic growth.

The CSI300 Index of Shanghai and Shenzhen shares dropped 2.9%, on track for its first weekly loss in three.

“Economic troubles outside China, especially in the U.S., could hurt the Chinese economy. Foreign investors, who were buying Chinese shares after the Lunar New Year holidays, have become a net seller since late last week,” said Wang Shenshen, senior equity strategist at Mizuho Securities. “Their selling might have intensified today.”

EUR/USD Bulls Steamroll Over 1.0950 Zone

Dear traders, the EUR/USD broke above the key resistance zone at 1.0950. The breakout and strong bullish impulse invalidated the bearish outlook. What is next for this pair?

4 hour chart

EUR/USD 4 hour chart

The EUR/USD made a close and reverse. The confirmation of the bullish reversal took place after price action was able to break above the channel resistance (dotted red) and long-term trend line (dotted red). Price could now be in a bullish wave C (green). The bearish swing has probably completed a wave C (purple). More upside is likely at the moment.

1 hour chart

EUR/USD 1 hour chart

The EUR/USD break seems to be a wave 3 (orange) pattern. After completing a sideways correction in wave 4 (orange), price broke again to the upside. The next target could be as high as 1.11. Eventually a bearish retracement is expected to take place. If pullback is mild, then more upside is expected.

EUR/USD

Good trading,

Chris Svorcik

The analysis has been done with the help of SWAT method (simple wave analysis and trading)

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Crude Oil Price Update – Major Buyer Could Be Lurking Between $45.92 and $43.55

U.S. West Texas Intermediate crude oil futures finished sharply lower on Thursday and in a position to challenge its December 24, 2018 main bottom at $45.92. The market is also poised to move lower for sixth straight session on Friday, while remaining on track to close the week more than 12% lower. This would mark its biggest weekly decline in more than four years.

On Thursday, April WTI crude oil settled at $47.09, down $1.64 or -3.37%.

Daily April WTI Crude Oil

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. A trade through $45.88 will reaffirm the downtrend.

The nearest resistance is the main top at $54.66. A trade through this price level will change the main trend to up. This is highly unlikely, however.

Today’s session begins with the market down six sessions from its last main top at $54.66. Typically, we start to look for potentially bullish closing price reversal bottom between 7 and 10 days from the last main top. So start looking for bottoming action next Monday through Thursday.

Short-Term Outlook

Lower tops and lower bottoms are the definition of a downtrend. Lower highs and lower lows define a downswing. Taking out Thursday’s low at $45.88 will confirm the current downswing. If this move is able to generate enough downside momentum then look for the selling to possibly extend into the January 20, 2016 main bottom at $43.55.

Although we typically look for closing price reversal bottoms in 7 to 10 days from a top, due to the huge loss in price on the current downswing, we’re not going to ignore a closing price reversal bottom on the sixth day down. So pay attention to yesterday’s close at $47.09. It’s going to begin Friday’s session as resistance, but overcoming this level on an intraday basis could spook some of the weaker short-sellers into covering their positions. This move would be an early indication of a short-term bottom.

E-mini S&P 500 Index (ES) Futures Technical Analysis – Nearing Major Retracement Zone at 2876.75 – 2753.75

March E-mini S&P 500 Index futures finished sharply lower on Thursday after taking out a number of swing bottoms. The sell-off was primarily fueled by a combination of profit-taking and protective sell stops being executed. Given the downside momentum, I’m sure some of the selling was driven by computer algorithms. For those who keep track of these sort of things, the index is down over 10% from its last major top, which puts it in correction territory.

On Thursday, March E-mini S&P 500 Index futures settled at 2957.00, down 153.25 or -5.18%.

Daily March E-mini S&P 500 Index

Daily Technical Analysis

The main trend is down according to the daily swing chart. The main trend will change to up on a move through 3397.50. This is highly unlikely, however.

The market is also down six days from its most recent top at 3397.50. Usually we start looking for closing price reversal bottoms after seven sessions especially when a market is testing a major 50% to 6.18% retracement zone. So we’re going to wait until Monday before we start fishing for a bottom especially with China expected to release its Manufacturing and Non-Manufacturing PMI reports at 01:00 GMT on Saturday. This report could make or break this market on Monday.

The main range is the contract low at 2356.00 from December 24, 2018 and the contract high at 3397.50 from February 20. Its retracement zone is 2876.75 to 2753.75. Trader reaction to this zone should determine the direction of the March E-mini S&P 500 Index into the close on Friday.

Daily March E-mini S&P 500 Index

Early Forecast

We’re seeing some relatively light selling pressure early Friday. If this is able to generate enough downside momentum then look for the selling to extend into the main 50% level at 2876.75. We could see a technical bounce on the first test of this level.

If 2876.75 fails as support then look for the selling to possibly extend into the series of main bottoms at 2855.00, 2818.75 and 2787.00. These are followed by the main Fibonacci level at 2753.75 and another main bottom at 2741.75. Watch for buying at these levels also.

The Fib level at 2753.75 is also the trigger point for a potential acceleration to the downside.

We’re going to learn a lot about how investors feel about this market by how they react to 2876.75 to 2753.75. I know it’s a day early, but I wouldn’t be surprised by a major reversal to the upside following a test of this value zone. It there is no reversal then we could see an attempt to build a support base.

We’re not issuing a buy signal. We’re just saying that a test of 2876.75 to 2753.75 could bring in the bargain-hunters.

EOS, Ethereum and Ripple’s XRP – Daily Tech Analysis – 28/02/20

EOS

EOS rose by 2.31% on Thursday. Partially reversing a 13.10% tumble from Wednesday, EOS ended the day at $3.6174.

A mixed start to the day saw EOS fall to an early morning intraday low $3.3900 before finding support.

Steering clear of the first major support level at $3.2070, EOS rallied to a late afternoon intraday high $3.7399.

Falling short of the first major resistance level at $3.9899, EOS fell back to $3.50 levels before finding late support.

At the time of writing, EOS was up by 0.63% to $3.6402. A bullish start to the day saw EOS rise from an early morning low $3.6163 to a high $3.6812.

EOS left the major support and resistance levels untested early on.

EOS/USD 28/02/20 Daily Chart

For the day ahead

EOS would need to move back through the morning high $3.6812 to support a run at the first major resistance level at $3.7749.

Support from the broader market would be needed, however, for EOS to break out from Thursday’s high $3.7399.

Barring a broad-based crypto rally, however, the first major resistance level would likely leave EOS short of $3.90 levels.

Failure to move back through to $3.6812 levels could see EOS fall back into the red.

A fall back through the morning low to sub-$3.5820 levels would bring the first major support level at $3.4250 into play.

Barring an extended crypto sell-off, however, EOS should continue to steer clear of sub-$3.30 levels.

Looking at the Technical Indicators

Major Support Level: $3.4250

Major Resistance Level: $3.7749

23.6% FIB Retracement Level: $6.62

38% FIB Retracement Level: $9.76

62% FIB Retracement Level: $14.82

Ethereum

Ethereum rose by 1.72% on Thursday. Partially reversing a 9.25% tumble from Wednesday, Ethereum ended the day at $227.63.

A bearish start to the day saw Ethereum fall to an early morning intraday low $209.26.

Ethereum fell through the first major support level at $217.57 and second major support level at $211.63 before finding support.

Tracking the broader market, Ethereum rallied to a late afternoon intraday high $239.00 before easing back to sub-$230 levels.

Coming up against the first major resistance level at $240.14, Ethereum fell to $222 levels before wrapping up the day at $227 levels.

At the time of writing, Ethereum was up by 1.92% to $231.99. A bullish start to the day saw Ethereum rise from an early morning low $226.61 to a high $234.90.

Ethereum left the major support and resistance levels untested early on.

ETH/USD 28/02/20 Daily Chart

For the day ahead

Ethereum would need to break back through the morning high $234.90 to bring the first major resistance level at $237.75 into play.

Support from the broader market would be needed, however, for Ethereum to break back through to $235 levels.

Barring a broad-based crypto rebound, the first major resistance level at $237.75 should leave Ethereum short of $240 levels.

Failure to move back through the morning high could see Ethereum give up the early gains.

A fall through back through to sub-$229 levels would bring the first major support level at $218.75 into play.

Barring an extended crypto sell-off, however, Ethereum should steer clear of sub-$210 support levels.

Looking at the Technical Indicators

Major Support Level: $218.75

Major Resistance Level: $237.75

23.6% FIB Retracement Level: $257

38.2% FIB Retracement Level: $367

62% FIB Retracement Level: $543

Ripple’s XRP

Ripple’s XRP rallied by 3.81% on Thursday. Partially reversing a 9.15% tumble from Wednesday, Ripple’s XRP ended the day at $0.23846.

A bearish start to the day saw Ripple’s XRP fall to an early morning intraday low $0.22431 before making a move.

Steering clear of the major support levels, Ripple’s XRP rallied to a late afternoon intraday high $0.24725.

Falling short of the first major resistance level at $0.2490, Ripple’s XRP fell back to sub-$0.24 levels to limit the upside on the day.

At the time of writing, Ripple’s XRP was up by 1.52% to $0.24209. A bullish start to the day saw Ripple’s XRP rise from an early morning low $0.23839 to a high $0.24450.

Ripple’s XRP left the major support and resistance levels untested early on.

XRP/USD 28/02/20 Daily Chart

For the day ahead

Ripple’s XRP will need to break back through the morning high $0.24450 to support a run at the first major resistance level at $0.2490.

Support from the broader market would be needed, however, for Ripple’s XRP to break out from Thursday’s high $0.24725.

Barring a crypto rebound, resistance at $0.2450 would likely leave Ripple’s XRP short of the first major resistance level.

Failure to move through the morning high $0.24450 could see Ripple’s XRP fall back into the red.

A fall back through the morning low $0.23839 to sub-$0.2370 levels would bring the first major support level at $0.2261 into play.

Barring an extended crypto sell-off, however, Ripple’s XRP should steer clear of sub-$0.22 levels on the day.

Looking at the Technical Indicators

Major Support Level: $0.2261

Major Resistance Level: $0.2490

23.6% FIB Retracement Level: $0.3638

38.2% FIB Retracement Level: $0.4800

62% FIB Retracement Level: $0.6678

Please let us know what you think in the comments below.

Thanks, Bob

The Crypto Daily – Movers and Shakers – 28/02/20

Bitcoin rose by 0.21% on Wednesday. Partially reversing a 5.51% slide on Wednesday, Bitcoin ended the day at $8,825.6.

A bearish start to the day saw Bitcoin slide to an early morning intraday low $8,555.0 before finding support.

Steering clear of the first major support level at $8,515.3, Bitcoin recovered to a late afternoon intraday high $8,975.0.

Falling well short of the first major resistance level at $9,248.5, Bitcoin fell back to sub-$8,700 levels before moving back into the green.

The near-term bearish trend, formed at late June’s swing hi $13,764.0, remained firmly intact, with Bitcoin struggling to break out from $10,000 levels.

For the bulls, Bitcoin would need to break out from $11,000 levels to form a near-term bullish trend.

The Rest of the Pack

Across the rest of the top 10 cryptos, it was a bullish day for the crypto majors.

Tron’s TRX, Ripple’s XRP, and Stellar’s Lumen led the way, with gains of 3.93%, 3.81%, and 3.06% respectively.

Binance Coin (+2.51%), Litecoin (+2.03%), and EOS (+2.31%) also found strong support.

Bitcoin Cash ABC (+1.87%), Bitcoin Cash SV (+1.68%), Cardano’s ADA (+1.33%), Ethereum (+1.72%), Monero’s XMR (+0.33%), and Tezos (+1.62%) trailed the front runners.

Through the first half of the week, the crypto total market cap rose to a Monday high $290.09bn before hitting a low Thursday low $241.84bn. At the time of writing, the total market cap stood at $254.27bn.

Bitcoin’s dominance rose to 64% levels before easing back. At the time of writing, Bitcoin’s dominance stood at 63.8%, which was still up from sub-63% levels seen on Monday.

Trading volumes recovered from sub-$160bn levels to hit a current week high $196.34bn on Thursday morning. At the time of writing, 24-hr volumes stood at $160.87bn.

This Morning

At the time of writing, Bitcoin was up by 0.65% to $8,883.3. A relatively bullish start to the day saw Bitcoin rise from an early morning low $8,792.2 to a high $8,908.3.

Bitcoin left the major support and resistance levels untested early on.

Elsewhere, it was a bullish start to the day for the majors. Binance Coin (+2.09%), Cardano’s ADA (+2.37%), and Ethereum (+2.35%) led the way early on.

Monero’s XMR trailed the back, up by just 1.04% at the time of writing.

BTC/USD 28/02/20 Daily Chart

For the Bitcoin Day Ahead

Bitcoin would need to move back through the morning high $8,903 to bring the first major resistance level at $9,015.4 into play.

Support from the broader market would be needed, however, for Bitcoin to break back to $9,000 levels.

Barring a broad-based crypto recovery, the first major resistance level would likely pin Bitcoin back on the day.

In the event of a crypto rally, the second major resistance level at $9,205.2 and 38.2% FIB of $9,620 could come into play.

Failure to move back through the morning high $8,908.3 could see Bitcoin hit reverse.

A fall back through to sub-$8,790 levels would bring the first major support level at $8,595.4 into play.

Barring an extended crypto sell-off, however, Bitcoin should well steer clear of the second major support level at $8,365.2 and the 23.6% FIB of $8,200.

European Equities: Futures Point to more Doom and Gloom ahead

Economic Calendar:

Friday, 28th February

French Consumer Spending (MoM) (Jan)

French GDP (QoQ) (Q4) 2nd Estimate

German Unemployment Change (Feb)

German Unemployment Rate (Feb)

Italian CPI (MoM) (Feb) Prelim

German CPI (MoM) (Feb) Prelim

The Majors

It was back into the deep red for the European majors, with Wednesday’s mixed session having been just a brief respite for the bulls.

The EuroStoxx600 slid by 3.75% to lead the way down, with the CAC40 and DAX40 ending the day down by 3.32% and 3.19% respectively.

A greater spread of the coronavirus across new countries and a sharp rise in new cases in Italy weighed on risk appetite on Thursday.

Fears of a recession in the world’s 8th largest economy rattled the markets, with China, Japan, Singapore, and South Korea already under the cosh.

Travel and Leisure stocks continued to bear the brunt of investor ire, though all sectors ended the day in the red.

The Stats

It was a relatively quiet day on the Eurozone economic calendar on Thursday. Economic data included prelim February inflation figures out of Spain and finalized consumer confidence figures for the Eurozone.

Unsurprisingly, economic data continued to play 2nd fiddle to the news wires and coronavirus updates.

The Eurozone’s consumer confidence indicator came in at -6.6 according to finalized numbers, which was in line with prelim. In January, the indicator had stood at -8.1.

  • The pickup in consumer confidence was attributed to a brighter outlook on the economic situation. Sentiment will likely tumble in the next set of numbers.
  • By contrast, the Employment Expectations Indicator eased mildly from 105.3 to 105.0.

Later in the day, U.S 4th quarter GDP numbers and durable goods orders were in focus but also failed to influence late in the session.

Core durable goods rose by 0.9% in January, following a 0.1% rise in December. Durable goods fell by 0.2%, however, partially reversing a 2.9% jump from December.

2nd estimate GDP numbers were in line with 1st estimates, with even a 5.2% jump in pending home sales not enough to prevent the slide.

The Market Movers

For the DAX: autos were back into the red on Thursday. BMW and Volkswagen led the down, with the pair sliding by 3.80% and by 4.79% respectively. Continental and Daimler saw more modest losses of 2.48% and 2.69% respectively.

Things were no better for the banks, which saw heavier losses on the day. Commerzbank slid by 5.25%, with Deutsche Bank down by 5.55%.

Deutsche Lufthansa was the worst performer on the DAX for a 2nd consecutive day, sliding by 6.48%.

From the CAC, it was another bearish day for the banks. BNP Paribas slid by 5.87%, with Credit Agricole and Soc Gen seeing heavier losses of 6.16% and by 6.44% respectively.

The auto sector also struggled, with Peugeot and Renault ending the day down by 1.89% and 6.38% respectively.

Air France-KLM slumped by 7.17% on the day.

The latest sell-off leaves the majors in corrective territory, with the EuroStoxx600 way off its all-time high from earlier in the month.

On the VIX Index

The VIX resumed its upward trend on Thursday, surging by 42.09%. Reversing a 1.04% loss from Wednesday, a 5th day in the red out of 6 saw the VIX end the day at 39.2.

Risk aversion spread across the global financial markets, with the S&P500 sliding into corrective territory on Thursday. Coronavirus cases in the U.S and the talk of a U.S pandemic led the move into corrective territory.

We had seen the markets previously buy into the view that the U.S economy would likely be unscathed from the virus.

Commentary from the CDC and rise in the number of cases suggested otherwise, however, with the U.S economic outlook now also uncertain.

When considering the economies that have fallen at the hands of the virus and those at risk, the doom and gloom sentiment does seem justified.

For the current week, Monday through Thursday, the S&P500 was down by 10.76%.

VIX 28/02/20 Daily Chart

The Day Ahead

It’s a relatively busy day ahead on the Eurozone economic calendar on Friday. Economic data includes German unemployment figures and French consumer spending and 4th quarter GDP numbers.

Of less influence on the day include prelim inflation numbers out of Italy and Germany.

From outside of the Eurozone, U.S inflation, trade data,  personal spending, and Chicago PMI numbers will also influence late in the day.

While the stats from the Eurozone and the U.S will influence, expect coronavirus news to remain the key driver.

Bargain hunters may be looking for an entry point but with so much uncertainty, any upside would likely remain limited.

In the futures markets, at the time of writing, the DAX was down by 269.5 points, while the Dow was up by 62 points.

The Dollar Takes a Hit as Economic Data Continues to Play 2nd Fiddle to the Coronavirus

Earlier in the Day:

It was a relatively busy day on the Asian economic calendar this morning. The Japanese Yen and Aussie Dollar were in action.

For the Japanese Yen

Economic data included, February inflation figures and January’s job to applications ratio, industrial production, and retail sales figures.

According to consumer price figures released by the Ministry of Internal Affairs and Communication. The Ku-area of Tokyo saw the annual core rate of inflation ease from 0.7% to 0.5%, falling beyond a forecasted 0.6%.

  • Prices for Education slid by 6%, with prices for fuel, light and water charges falling by 2.8%.
  • There were solid increases in prices for clothes & footwear (+2.4%) and furniture and household utensils (+2.0%), however.
  • Prices for medical care (+1.3%), transportation and communication (+1.0%), culture and recreation (+0.9%) also provided support.
  • Prices for housing rose by just 0.5%, however.

With inflationary pressures easing in February, jobs available also eased, as the jobs/applications ratio fell from 1.57 to 1.49. The ratio last stood at sub-1.50 levels back in May 2017, when the ratio had also stood at 1.49.

The Japanese Yen moved from ¥109.638 to ¥109.616 upon release of the figures that preceded the industrial production and retail sales figures.

Retail Sales and Industrial Production

According to the Ministry of Economy, Trade, and Industry, retail sales fell by 0.4% in January, year-on-year, following a 2.6% slide in December. Economists had forecasted a 1.1% decline.

Industrial production increased by 0.8% in January, according to prelim figures, following a 1.2% rise in December. Economists had forecast a 0.2% rise.

According to the Ministry of Economy, Trade, and Industry,

Industries that mainly contributed to the increase were:

  • Motor vehicles, transport equipment (excl. motor vehicles), and other manufacturing.

Industries that mainly contributed to a decrease were

  • Production machinery, general-purpose and business orientated machinery, and electrical machinery, and information, and communication electronics equipment.

The Japanese Yen moved from ¥109.652 to ¥109.571 upon release of the figures. At the time of writing, the Japanese Yen was up by 0.06% to ¥109.52 against the U.S Dollar.

For the Aussie Dollar

According to figures released by RBA, total credit increased by 0.3%, month-on-month, in January. In December, credit had risen by 0.2%.

  • Business credit jumped by 0.5%, following a 0.2% rise in December, supporting the marginal uptick.
  • Personal credit fell at a sharper pace, however. Following a 0.4% decline in December, personal credit fell by 0.6% in January.
  • Housing credit rose by 0.3%, following a 0.3% increase in December.

The Aussie Dollar moved from $0.65811 to $0.65832 upon release of the figures. At the time of writing, the Aussie Dollar was up by 0.20% to $0.6582.

Elsewhere

At the time of writing, the Kiwi Dollar was up by 0.03% to $0.6309.

The Day Ahead:

For the EUR

It’s a relatively busy day ahead on the economic calendar. Key stats include German unemployment and French consumer spending figures.

Barring material deviation from 1st estimate numbers, 2nd estimate GDP figures out of France will likely have a muted impact on the EUR.

Later in the European session, prelim Italian and German inflation figures for February will also likely have a muted impact on the EUR.

Outside of the numbers expect news updates on the coronavirus to also provide direction. We’ve seen the Dollar take a hit as the coronavirus spreads across the U.S, leaving the U.S economy at risk of a slowdown.

At the time of writing, the EUR was down by 0.03% at $1.0998.

For the Pound

It’s another quiet day ahead on the economic calendar, with no material stats to provide the Pound with direction.

We can expect the Pound to be under pressure as the markets shift attention to negotiations that commence next week.

At the time of writing, the Pound was up by 0.04% to $1.2892.

Across the Pond

It’s a busy day ahead on the U.S economic calendar.

Key stats include Chicago PMI, personal spending, inflation and trade data. With the markets now beginning to expect monetary policy easing, today’s stats will have a material influence.

We expect finalized consumer sentiment figures for February to have a muted impact on the day.

Outside of the numbers, news updates on the coronavirus will also influence.

The Dollar Spot Index slid by 0.49% to 98.508 on Thursday.

For the Loonie

It’s a busy day ahead on the economic calendar, with key stats including GDP and RMPI numbers.

With the Bank of Canada in action next week, any soft numbers and expect the markets to price in a rate cut.

The BoC had previously talked of a willingness to make a move should economic indicators support a cut. With the coronavirus spreading globally and weighing on global trade and consumption, expect the numbers to do the talking.

The Loonie was down by 0.02% at C$1.3393 against the U.S Dollar, at the time of writing.

Is This A Repeat of February 2018 Market Crash?

Back in early 2018, after a dramatic rally in early January 2018, the US stock market collapsed suddenly and violently – falling nearly 12% in a matter of just 9 trading days.  Our researchers asked the question, is the current collapse similar to this type of move and could we expect a sudden market bottom to setup?

Although there are similarities between the setups of these two events, our researchers believe there are two unique differences between the selloff in 2018 and the current selloff.  We’ll attempt to cover these components and setups in detail.

First, the similarities:

_  The contraction in market price just before the end of the year in 2017 was indicative of a market that had rallied to extended valuation levels, then stalled in December as the year-end selling took over.

_  The renewed rally in early January was a process of capital re-engaging in the market as future expectations continued to drive and exuberant investor confidence in the markets.

These two similarities between 2018 and 2020 seem fundamental.

Yet, there are differences that may drive a further price contraction event – beyond what we saw in 2018.

_  The US/China trade deal disrupted market fundamentals over the past 6+ months and established a more diminished function of global economics as the trade tensions continued

_  The foreign market capital shift process, where foreign capital poured into the US stock market over the past 12+ months and supported the US Dollar was a process of avoiding foreign market risks.  This process trapped a large portion of foreign capital in the US markets prior to the 2020 collapse.

_  Global geopolitical functions are far more fragile than they were in 2018.  After BREXIT was completed and prior to the signing of the US/China trade deal, a number of concerns existed throughout the world and are still valid.

_  The Wuhan Corona Virus has changed what global investors expect and how both supply and demand economic functions are being addressed world-wide.

The potential of an early price bottom setting up after this 2020 price collapse is very real.  Yet, the ultimate bottom in the markets may be much lower than the 11% or 12% price decline that happened in 2018.  The scale and scope of the Corona Virus event, should it continue beyond April 2020 (and possibility well into June or July 2020), could extend the price decline even further.  Ultimately, this extended risk function may push the US and global markets to deeper lows before a bottom sets up – yet the outcome may be very similar.

After the double bottom in 2018 setup, a slow and stead price advance continued until the SPY price rallied to new highs in September 2018.  A very similar type of price activity may take place in 2020 after the ultimate bottom in price sets up.

Our researchers believe the ultimate bottom in the SPY will likely happen near $251 – near the middle of the 2018 price range.  Ideally, the event that takes place to create this price decline will likely happen in a “waterfall” event structure.  This means we may see a series of 3 to 9+ day selloffs culminating in a major market bottom near $251.

If our research team is correct in this analysis, a bottom will likely form in the SPY and near $251 to $265 where and extended bottom pattern may setup.  We may see a double-bottom type of pattern as we saw in 2018.  Ultimately, we believe the bottom will setup sometime in mid-2020 and the remainder of the year will continue to support an extended price rally into the end of 2020.

Are we looking at a similar type of price event like we saw in early 2018?  Ideally, yes.  Although, we believe this downside price move will be deeper in terms of the total price decline (likely 18% to 25%) and will end when price valuation levels reach a point where global investors feel opportunity exists beyond risk.

Right now, we believe an incredible opportunity for skilled investors is present and that incredible market sector price rotations are taking place.  We believe the devaluation process will move the markets lower by at least 15% to 20% or more.  That suggests the bottom in the SPY is likely near $251 before we see any real opportunity for price to form a support base and begin to rally higher.

As a technical analysis and trader since 1997, I have been through a few bull/bear market cycles. I believe I have a good pulse on the market and timing key turning points for both short-term swing trading and long-term investment capital. The opportunities are massive/life-changing if handled properly.

I urge you visit my ETF Wealth Building Newsletter and if you like what I offer, join me with the 1-year subscription to lock in the lowest rate possible and ride my coattails as I navigate these financial market and build wealth while others lose nearly everything they own during the next financial crisis. Join Now and Get a Free 1oz Silver Bar!

Chris Vermeulen
www.TheTechnicalTraders.com .

 

E-mini Dow Jones Industrial Average (YM) Futures Technical Analysis – Driven Lower by Fear of the Unknown

March E-mini Dow Jones Industrial Average futures plunged in volatile trading on Thursday as fear the coronavirus may be spreading in the United States encouraged investors to aggressively trim their stock market exposure. The heavy selling is being blamed on a slew of corporate and analyst warnings on the economic impact of the virus.

At 21:35 GMT, March E-mini Dow Jones Industrial Average futures are trading 25630, down 1292 or -4.80%. Earlier in the session, the Dow hit its lowest level since August 14 at 25523.

The huge sell-off has essentially wiped out the entire U.S/China Phase One trade deal premium, which suggests traders don’t believe China will be able to fulfill its side of the agreement.

Daily March E-mini Dow Jones Industrial Average

Daily Technical Analysis

The main trend is down according to the daily swing chart. The downtrend was reaffirmed on Thursday when sellers took out three more main bottoms at 26592, 25978 and 25710. The next target is the August 14 bottom at 25326, followed by the major bottom at 24859 from May 31, 2019.

The main range is 24859 to 29543. Its retracement zone at 26648 to 27201 is new resistance. Trading on the weak side of this zone is also helping to generate the downside momentum.

Daily March E-mini Dow Jones Industrial Average

Short-Term Outlook

The selling stopped near an uptrending Gann angle at 25605. If this fails then look for the selling to extend into the next main bottom at 25326, followed by another uptrending Gann angle at 25229. This is the last potential support angle before the May 2019 main bottom at 24859.

By no means are we trying to predict a bottom when we mention Gann angles and main bottoms as potential support. We’re just giving you a road map. No one can predict the momentum so for all we know, the market could straddle these levels all session before moving swiftly in either direction.

We do know from experience that these types of sell-offs often end with a dramatic reversal bottom, but that is usually triggered by a catalyst. Some think the Fed will come to the rescue. This may be a temporary solution designed to stop the selling, but any technical bounce is likely to be met with fresh shorting pressure because the Fed can’t really do anything to offset the damage from the coronavirus because the problem has not run its course and no one knows what the final outcome will look like when all is said and done.

Natural Gas Price Prediction – Prices Tumble Following Inventory Draw Miss

Natural gas prices tumbled 3.7% on Thursday following a smaller than expected draw in natural gas inventories according to a report from the Department of Energy. Much warmer than expected weather is expected to cover the eastern portion of the United States, and then moderate slightly over the next 8-14 days. The decline in LNG exports in the latest week, due to the lack of manufacturing activity in China continues to weigh on prices.

Technical Analysis

Natural gas prices moved lower on Thursday closing a fresh lows for the move after hitting 1.719 and poised to test the 2016 lows at 1.61. Resistance on natural gas prices is seen near the 10-day moving average at 1.86. Additional resistance is seen near the 50-day moving average at 2.015. Short term momentum remains negative as the fast stochastic heads lower and is poised to test oversold territory. The current reading on the fast stochastic is 23, just above the oversold trigger level of 20. Medium term momentum is above to turn negative as the fast stochastic is poised to generate a crossover sell signal. This occurs as the MACD line (the 12-day moving average minus the 26-day moving average) crosses below the MACD signal line (the 9-day moving average of the MACD line).

Stockpiles Fall Less Than Expected

Natural gas in storage was 2,200 Bcf as of Friday, February 21, 2020, according to the EIA estimate. This represents a net decrease of 143 Bcf from the previous week. Expectations are for a 158 Bcf draw. Stocks were 637 Bcf higher than last year at this time and 179 Bcf above the five-year average of 2,021 Bcf. At 2,200 Bcf, total working gas is within the five-year historical range.

Gold Price Prediction – Prices Consolidate as US Yields Stabilize

Gold prices are consolidating and despite the selloff in riskier assets, the rush to gold as a safe haven was minor. Gold has been consolidation and continues to range trade waiting for US yields to take another leg lower.  Yields dropped to 1.235% which is the lowest in more than 100-years but rebounded and above the 1.32%, which weighed on gold prices. The flight to bonds should continue following data that will be released at the beginning of March. Housing data continued to impress as the drop in the mortgage rate continued to attract home buyers.

Technical Analysis

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Technical Analysis

Gold prices moved higher early as riskier assets came under pressure. As the day progressed, prices retraced and traded near Wednesday close. The price action still looks like a bull flag pattern. This is a pause that refreshes higher. Target resistance on gold prices is seen near the 2012 highs at 1,792. Support is seen near the 10-day moving average at 1,621. Short term momentum has turned negative as the fast stochastic recently generated a crossover sell signal, and continue to accelerate lower as a steady clip. The current reading on the fast stochastic is 61, declining from overbought territory which also reflects decelerating positive momentum. The MACD histogram is printing in the black with a declining trajectory which points to consolidation.

The Housing Market is Surge

Declining Treasury yields are weighing on mortgage rates, providing lower costs to purchase homes. The National Association of Realtors reported that Pending Home sales surged 5.2% in January, up 5.7% year over year. Pending sales measure signed contracts, not closings.

S&P 500 Price Forecast – Stock Markets Plunge Again but Find Buyers

The S&P 500 has broken down again during the trading session on Thursday, reaching all the way down towards the 3000 level in the S&P 500 E-mini futures contract. Having said that, the market has bounced hard from that level and it does look as if it is trying to hang on to the 200 day EMA. If it does, that could have been the final flush in the massive selloff and correction. If the market was to break above the top of the candlestick, it’s likely that there will be a recovery. Quite frankly, there are a lot of longer-term traders out there just waiting to happen for those who are willing to step in and pick up cheap stocks.

S&P 500 Video 28.02.20

That being said, if we break down below the 3000 handle, then the market could go even lower, reaching down towards the 2900 level. Ultimately though, the resiliency of the US stock market is something to pay attention to, and if we do in fact get a close that is closer to a hammer than not, it should be noted that the previous candlestick was an inverted hammer, and that is a two candlestick pattern the typically means that you are starting to see some indecision. In this case, indecision when it comes to the selling of the contract. At this point, it certainly looks as if value hunters will be coming back in and trying to pick this market up as it has sold off far too quickly in the last couple of sessions.

Silver Price Forecast – Silver Markets Stabilize

Silver markets did very little during the trading session, which is quite interesting considering the stock markets around the world are collapsing. This suggests that perhaps people are starting to look at the industrial component of silver just as much as it is the precious metal component. At this point, I believe that silver does favor the upside longer-term, but obviously we have a lot of issues to work through right now. The 50 day EMA certainly looks as if it is offering a little bit of support, as it typically will. Underneath, the $17.50 level underneath should offer quite a bit of support.

SILVER Video 28.02.20

All things being equal this is a market that has plenty of support underneath, not the least of which will be found at the $17.00 level as it is a large, round, psychologically significant figure, and of course the scene of the 200 day EMA. This means that the market is probably going to continue to respect that area but if we did break down below the $17.00 level, then it’s likely that the market goes looking towards the $16.00 level next. That would be the beginning of a major “risk on” type of move in my estimation, something that doesn’t seem very likely in this environment. That being said, the most important thing about the market is its price, so you would have to listen to it. I think we are much more likely to see a bounce from here than anything else, reaching towards the $19.00 level.

Crude Oil Price Forecast – Crude Oil Markets Continue To Fall Apart

WTI Crude Oil

The West Texas Intermediate Crude Oil market has broken down rather significantly during the trading session on Thursday, as we continue to see a lot of markets worry about the spreading of the coronavirus and its impact on the demand for crude oil. As we have sliced down so drastically, it looks as if we will test the $45 level in the rallies should continue to be selling opportunities going forward. With that, I believe that the $50 level now offers a significant amount of resistance that will come into play and therefore shorting signs of exhaustion will more than likely continue to reap benefits for those who are patient enough to wait for them.

Crude Oil Video 28.02.20

Brent

Brent markets also have broken down significantly during the trading session on Thursday to press the $50 level. The $50 level underneath is a large, round, psychologically significant figure the people will be paying attention to, and the fact that we bounce from there suggests that at least the technical analysis standpoint of that level is still significant. That being said, it does look like any rally at this point should be a selling opportunity, especially near the $53 level. The $55 level above is the top of that resistance barrier, and if we can break above there then the market may have an argument towards the $60 level. All things being equal, this is a market that continues to suffer at the hands of the virus outbreak, and the slowing global demand, not only in Asia, but possibly in the European Union as well.

Natural Gas Price Forecast – Natural Gas Markets Plumbing Again as Inventory Number Disappoints

The natural gas markets continue to show signs of resistance to any move higher as the market shows a large amount of oversupply is still a major problem. The market continues to see a lot of negativity every time it tries to rally, and therefore it’s likely that we could go much lower. The $1.60 level underneath is a major level of support from a longer-term standpoint, so that might be where we are heading.

NATGAS Video 28.02.20

The inventory figure during the trading session on Thursday was very disappointing, as it was -143 billion instead of the expected -158 billion. In other words, we are not burning through the supply quick enough and then to add more fear is the fact that the coronavirus may slow down a lot of industrial use for natural gas, just as temperatures will be warming up in the northern hemisphere. In other words, there is nothing to think that this market is going to be able to rally for a significant amount of time, with perhaps the exception of the occasional spike higher due to the inevitable cold snaps that we get at the end of the wintertime. That’s a short-term opportunity for buyers, but quite frankly sets up a nice selling opportunity for those who are a little smarter about it.

Eventually, we will have the bankruptcies necessary to bring down the supply, but we aren’t there yet. Low natural gas prices continue to decimate the profits of any of the companies that are involved in this market, and things continue to look extraordinarily bleak. Selling rallies continues to be how I trade this market.

Gold Price Forecast – Gold Markets Continue to Attract Inflows

Gold markets rallied a bit during the trading session on Thursday as we continue to see a lot of selling pressure out there. Quite frankly, the market will continue to struggle with the idea of safety, and of course gold is one of the first places people look. With the US dollar kitten hit yet again, that also puts more upward pressure on precious metals in general. That being said though, I do think that even if the US dollar started to strengthen, it could very well be a safety thing, so therefore the gold market may completely ignore that as it had a couple of weeks ago.

Gold Price Predictions Video 28.02.20

Looking at this chart, I think the most obvious target is $1700 above, but quite frankly I think we break above there given enough time. Once we do, then the market is likely to continue going even further, perhaps reaching towards the $1750 level. Pullbacks at this point should continue to find plenty of value, especially with the $1600 level being an obvious area where we had previously seen resistance. The idea of “market memory” does make sense in this area, and it’s likely that the technical trading community will be paying close attention. I have no interest in shorting, and now it’s just a matter of finding some type of supportive area or little bit of a bounce in order to get involved. Value hunting is the best way going forward, as it allows you to buy an asset “on sale.” That’s cannot be any different here.