Dollar’s Bounce: Nearly Over?

Sterling’s weakness is a phenomenon of its own making. US-China tensions continue to run high as Washington has ratcheted up pressure on China and is insisting on the September 15 deadline for TikTok to change ownership or be banned. Beijing would rather see it shuttered than sold.

The high-flying US NASDAQ has pulled back from the record highs set at the start of the month by 10%, but bottom-picker have been met with overhead supply and profit-taking. Oil prices moved sharply lower for the second consecutive week. November Brent fell around 12%, and October WTI tumbled 14% over the past two weeks to levels not seen in three or four months.

Then there is the dynamic within the foreign exchange market itself. On September 1, the euro pushed above $1.20, sterling was approaching $1.35, and the Australian dollar poked above $0.7400. The greenback push below CAD1.30 for the first time since January. Comments by the ECB’s Lane about the role of the exchange rate as an input into its economic models and forecasts spurred a dollar short-squeeze rally.

We had anticipated that after the ECB meeting was out of the way, the market’s attention would turn to the FOMC meeting (September 15-16), where the outcome is likely to reinforce the dovish implications of adopting an average inflation target, around which there is extensive “strategic ambiguity.” Below we fine-tune this scenario.

Dollar Index

With a couple of minor even if notable exceptions, the Dollar Index has been confined to a 92.00-94.00 trading range since late July. It has been trending broadly sideways. It traded at its highest level in nearly a month in the middle of last week near 93.65, just above the upper Bollinger Band for the first time in several months.

The MACDs are trending higher, and the Slow Stochastic is just below overbought territory. The 92.70 level seen around last week’s ECB meeting corresponds to a (50%) retracement of the rally from September 1. A move above the 94.00 area would target 94.75-95.50.

Euro

The euro snapped a six-day slide in the middle of last week, a day before the ECB meeting. It will begin the new week with a three-day advance in tow. Lagarde’s effort to downplay the euro’s strength saw the market bid it a few ticks through the (61.8%) retracement objective of the slide that began after it poked above $1.20 on September 1. Both the MACD and Slow Stochastics have nearly completely unwound the stretched condition and appear poised to turn higher in the coming days. We continue to believe the break from this range takes place to the upside, but the range affair can persist a bit longer.

Japanese Yen

The dollar has been in an exceptionally narrow trading range against the Japanese yen. The nearly 60 pip range was among the smallest weekly ranges of the year. It did not stray more than 30 pips in either direction of JPY106.10. For the third consecutive week, the dollar recorded lower highs and higher lows. The momentum indicators do not appear helpful. More broadly, the dollar is hovering around the middle of a JPY105 to JPY107 trading range.

Britsh Pound

Sterling was pounded last week. It was marked down by almost 3.7%, the most in six months. Part of it was dollar strength. After all, the greenback strengthened against most of the major currencies. However, the real driver was reneging on the Withdrawal Agreement that is seen as making a disorderly exit from the standstill agreement more likely.

The Bank of England meets next week, and some groundwork for additional easing as early as November seems reasonable to expect. Sterling was pushing toward $1.35 on September 1 and made a low ahead of the weekend just below $1.2765. The 200-day moving average is near $1.2735, and the (61.8%) retracement of the rally since the end of June is about $1.2710. The (38.2%) retracement of the rally since the March low is a little below $1.2700. The next important retracement (50%) is closer to $1.2455. Initial resistance now is likely around $1.2950.

Canadian Dollar

The US dollar rose in four of last week’s five sessions to snap an eight-week slide against the Canadian dollar. It was only the second weekly advance here in Q3. The bounce faded in the middle of the week near CAD1.3260, a few ticks ahead of the (38.2%) retracement of the decline since the end of June. The next retracement objective (50%) is around CAD1.3320. The five-day moving average has crossed above the 20-day for the first time since July, and the momentum indicators are trending higher. A loss of CAD1.3100 would confirm the correction is over.

Australian Dollar

The pullback from the high above $0.7400 on (September 1) stopped at the (38.2%) retracement of the leg up from the end of June found near $0.7190. Initial support is now pegged around $0.7240. The MACD is still headed lower, but the Slow Stochastic appears to be bottoming. A move above last week’s high near $0.7330 would likely confirm the correction is over, and another run higher has begun.

Mexican Peso

The greenback’s slide was extended for the fifth consecutive week against the Mexican peso. In an outside down day on Wednesday, the dollar was pushed below the 200-day moving average (~MXN21.59) for the first time since before the pandemic. It has not been able to resurface above it. The next big target is MXN21.00. The momentum indicators are not helpful here, but it has been fraying the lower Bollinger Band (~MXN21.30). A modest bounce just to the 20-day moving average (~MXN21.82), the middle of the Bollinger Band, would be a large move of a couple percentage points.

Chinese Yuan

The greenback’s downtrend against the redback has now extended for the seventh consecutive week. It has risen in only one week so far in Q3. Since the end of June, the dollar has fallen by about 3.5% against the yuan. Given that it is so highly managed, one must conclude that officials see the modest strength as desirable.

Some benefits cheaper imports from the US may attract international capital, as market-liberalization measures, some of which are part of the US-China trade agreement, are implemented. It is difficult to know how far officials will allow things to go, but a near-term trading range between roughly CNY6.81 to CNY6.86 may be emerging.

Gold

The lower end of the recent trading range around $1900 was successfully tested last Tuesday, and the precious metal recovered to almost $1967 before consolidating ahead of the weekend. The MACD and Slow Stochastic appear poised to turn higher. While a gain above $1970 will appear constructive, gold has not been above $2000 for a month now.

Oil

October WTI fell for the second week for the first time since April. However, in recent sessions, a shelf has been carved in the $36.00-$36.60 area, and the Slow Stochastic appears set to turn higher. That area also corresponds to a (38.2%) retracement of the rally since those April lows. The next retracement target (50%) is around $33.50. It managed to finish the week above the lower Bollinger Band (~$37.05). The $39-$40 area may offer a formidable cap.

US Rates

Both the core PPI and CPI readings were above consensus forecasts, but it did not prevent the 10-year yield from falling five basis points last week to about 66 bp. In early August, the yield spent a few days south of 60 bp, but since the middle of June, it has mostly held above it. At the same time, it has not been above 80 bp either, which is well below the current rate of CPI (1.3% and 1.7%, for the headline and core, respectively).

The Treasury re-opens previously sold 20-year bonds and 10-year TIPS in next week’s auction. The 2-10-year yield curve eased to about 54 bp by the end of the week, which captures primarily the softer 10-year yield. The curve is at its 20-day average. The market anticipates a dovish Fed, noting downside risks and the lack of fiscal stimulus.

S&P 500

An outside down day on Thursday saw follow-through selling ahead of the weekend that took the S&P 500 to a new low since the record high on September 2. The benchmark bounced back after approaching 3300. It closed slightly higher ahead of the weekend, but not higher than it opened. The momentum indicators are still pointing lower.

The 3277 area houses the (38.2%) retracement of the gains since the mid-June low. Pushing through, there could signal another 2% decline. A move back above 3420 would stabilize the technical tone. A rally to new record highs was beyond the imagination in the dark days of March, and many have doubted it ever since–the gap between Wall Street and Main Street makes it unsustainable.

The question is whether this pullback marks the end of the rally, or is it a correction? While we still see it as most likely a correction, it does not mean that a bottom is in place.

For a look at all of today’s economic events, check out our economic calendar.

This article was written by Marc Chandler, MarctoMarket.

Bye-Bye “Hot Money”, Hello “Real Money”?

The Nasdaq 100’s 4.77 percent drop on Tuesday officially brings the index into a technical correction, having tumbled by over 10 percent from its record high and now testing its 50-day moving average as a support level.

The worst of the selloff though may be over, with Nasdaq futures slightly higher at the time of writing. Also note that the VIX index, also known as the fear index, has come off the 3-month high it posted last week, though still relatively elevated above the 30 psychological level and higher than its long-term average of around 20.

Prior to the recent selloff, the Nasdaq 100 was coming off the back of its fastest run this century, having doubled in the space of 20 months and crossing above the 12,000 psychological level. Much had been made about valuations reaching nose-bleed heights and pricing in perfection, while the index’s 14-day relative strength index ventured seemingly without a care deep into overbought territory.

Investors are now being made to reckon with those warning signs, as Big Tech leads this recent selloff that has wiped out trillions in overall market value. Having basked in the market’s scorching run over the summer months, a period in which multiple asset classes including stocks, gold, and even oil posted double-digit gains, investors are perhaps bracing for the chilly months ahead.

After all, the global economy is still reeling from the effects of the pandemic, with a vaccine yet to be ready for mass roll-out. The delay in the next round of US fiscal stimulus is also testing investors’ patience, while the November US elections could inject even more doses of uncertainty into global markets.

Recent media reports about Softbank Group making massive bets on tech stocks via the options market added to the narrative that equities were being fuelled by speculation, and a lot less by fundamentals. There were enough signs that a healthy pullback to more sustainable levels for tech counters was in order.

Yet the fundamentals appear to point to a supportive environment for tech counters. The social-distancing measures around the world is set to leave societies ever more reliant on tech offerings, with their business models suited for such an environment. Markets are also awash with unprecedented fiscal and monetary stimulus, while near-zero US interest rates should buffer the appeal of equities.

For proper context, even after the startling decline, the Nasdaq remains 58 percent higher and the S&P 500 is still up by 49 percent from their March troughs, and the price-to-earnings ratios for these indices remain well above their respective long-term averages. Despite such indicators suggest that there remains a fair bit of hot air that could be let out of the overly-inflated tech sector, investors may be faced with scarce alternatives in chasing returns.

Still, it remains to be seen how much of a drop would be enough to entice “real money” investors back into US equities. Perhaps long-term investors are just waiting for the dust to settle before buying the dip.

Written on 09/09/20 08:00 GMT by Han Tan, Market Analyst at FXTM

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About that Dollar Bounce

The price action lends credence to our view that a technical consolidative/corrective phase is at hand. Further near-term dollar recovery looks likely but does not change our longer-term bearish outlook.

Dollar Index

A bottom was carved and tested near 92.50. It is potentially a double bottom. A move above 94.00 is needed to confirm it, though others might not be convinced until 94.50 area (20-day moving average) is surpassed. The measuring objective of the double bottom is around 95.50, and the 95.80 is a retracement objective. The MACD appears poised to turn higher while the Slow Stochastic bottomed late last month, setting up a modest bullish divergence.

Euro

A potential double top is in the euro. It checked the air above $1.19 at the end of July and made a fractional new high in recent days. In between, it had fallen a little through $1.1700. That is the neckline of the double top and implies a measuring objective of near $1.15. We had offered a $1.1650 target last week. The 20-day moving average (~$1.1630) and the halfway mark of the rally off last month’s low ($1.1640) are near there as well. The next retracement (61.8%) is found closer to $1.1550. The MACD and Slow Stochastic are rolling over. Note too that implied vol rose along with the euro, and as the single currency corrects lower, vol will likely ease. The chart here since 2008 illustrates the importance of the area euro has approached. The fate of the 12-year downtrend is at stake.

Japanese Yen

The dollar posted its first leg up against the yen in dramatic fashion, with a key reversal from JPY104 on July 31. Follow-through buying lifted it to nearly JPY106.50 at the start of last week. There were a few days on consolidation, and the next leg up appears to have begun before the weekend. We suspect it can rise into the JPY107.00-JPY107.50. The 200-day moving average lies a little above the JPY108, around the upper end of its previous range. The Slow Stochastic turned higher at the end of July. The MACD is also edging higher.

British Pound

A double top also may be in place for sterling. The pound reached a high on the last day of July near $1.3170, and on August 6, a little above $1.3185. In between, it slipped to around $1.2980. The break confirms the pattern with a measuring objective of the $1.2780 area. The 20-day moving average and the 50% retracement of the last leg up of sterling that began near $1.1520 on July 20 also comes in near there. The next retracement (61.8%) comes in a little below the double top objective (~$1.2770). The momentum indicators are just begun rolling over.

Canadian Dollar

The US dollar fell to six-month lows against the Canadian dollar around CAD1.3230 in the middle of last week, but rebounded back to CAD1.3400 amid the wider greenback recovery ahead of the weekend. The 20-day moving average is found near CAD1.3435, and the high from late last month is a little higher (~CAD1.3460). A push there would signal a test on the CAD1.3500-CAD1.3530, and near the upper end of that range, the 200-day moving average is found. The momentum indicators are floundering in over-extended territory and have yet to convincingly curl up.

Australian Dollar

The potential topping pattern is not as aesthetically pleasing as the euro or sterling. It made a high at the end of July a little above $0.7225. It fell to about $0.7075 before rebounding and reached nearly $0.7245 before the pre-weekend cent sell-off. The greenback’s recovery saw the Aussie fall through and close below the previous day’s low, for a key reversal. A break of the $0.7075 area would confirm the topping pattern and project toward $0.6925. There are several areas of intermittent support. The $0.7040 area is the (50%) retracement of the rally that began in early July. The $0.7000 area is of modest psychological importance, and the next retracement (61.8%) objective is also there. The MACDs are not helpful now, and the Slow Stochastic has turned lower.

Mexican Peso

Emerging markets, for which the Mexican peso often serves as a proxy, seemed to turn lower against the dollar before the majors. Leaving aside the Turkish lira, where officials have finally appear to abandon their ill-conceived currency strategy, emerging market currencies remained under pressure, with the JP Morgan Emerging Market Currency Index falling for the second consecutive week.

Last week’s 1.5% decline is the largest decline in three and a half months. The dollar rose around 3.3% against the rand last week after gaining 2.4% in the prior week. Last week, the dollar’s nearly 4% gain against the Brazilian real was the most among emerging market currencies. The greenback looks poised may be range-bound between around MXN22.30 and MXN23.00. Our near-term bias is for a stronger dollar, but it closed softly ahead of the weekend.

Chinese Yuan

The yuan looks rich, given the dollar’s recovery ahead of the weekend and given the escalation and broadening tensions with the US. It traded at its best level since March (with the dollar at a low ~CNY6.9360). A trendline drawn off the late May high (~CNY7.1770) comes at the start of next week near CNY6.9860, but a move back to if not above CNY7.0 seems likely. Around 4.75% three-month implied vol is low compared with other currencies, but it is above its 200-day moving average (~4.4%). The skew in the options market (three-month risk-reversal) favoring dollar calls edged up slightly last week. While the skew is still low, it did increase more than the one-month tenor and could be picking up some risks around the US election.

Gold

New record highs were seen before the weekend near $2075.50, but then gold reversed lower and fell below the previous day’s low (~2034.55), though closed slightly above it. The bearish price action is intuitively consistent with the dollar’s bounce and the signal from the momentum indicators. The Slow Stochastic is poised to turn lower and did not confirm the new price high. The MACD is poised to cross down. Initial support is expected in the $1980-$2000 area. The rally has been so sharp that even a modest (38.2%) of the recent rally from early last month is closer to $1955.

Oil

The September WTI contract reached a five-month high (~$43.50) in the middle of last week, just shy of the 200-day moving average (~$43.80). This marked the end of a four-day net (close-to-close) rally of nearly 5.7%. Crude trade heavily in the second half of the week. It tested the upper end of a band of support that extends from around $39.80 to $41 before the weekend. The MACD has been trending lower since early/mid-June. The Slow Stochastic has actually turned up from mid-range. Still, our bias is lower.

US Rates

The US rates have found a near-term floor. The 2-year has held the 10 bp record low. Traders may have thought about pushing the 10-year yield below 50 bp, but have pulled back. The 30-year yield held 1.15% and recovered to almost 1.25%. There is some thought that with a weak dollar environment and near-record low-interest rates, some concessions may be needed to induce a robust reception to the US quarterly refunding. It is as if the inventory must be distributed to make room for new product.

The Treasury will raise $112 bln ($48 bln 3-year, $28 bln 10-year, and $26 bln 30-year) in coupon sales, which is about 16% more than the previous quarterly refunding. The Treasury has announced intentions to sell $132 more coupons in the August-October period than it did the last three months as it seeks to fund the huge gap between revenues and expenditures. One implication is that it would seem to boost the chances that the yield curve steepens. The 2-10 year curve briefly dipped below 40 bp last week, a low since late April. There is scope to claw back toward 50 bp in the coming weeks. The 2-30 year curve has been bouncing off 107 bp for two weeks. It can steepen toward 125 bp in the period ahead.

S&P 500

The benchmark gained almost 2.5% last week and filled the old breakaway gap from February (~3328.5). The S&P 500 gapped higher to start the week, and the gap takes on additional technical significance because it appears on the weekly and monthly charts as well. That gap, for reference, is roughly between 3272.20 and 3284.5. It then gapped higher on Wednesday, and that gap is unfilled as well (~3306.8-3317.4).

This area may offer initial support. The MACDs are not yielding any useful signal, while the Slow Stochastic turned up in the past week after barely correcting the over-extended reading. The S&P closed firmly, setting new highs were set for the week in the run-up to the close. There seem to be little in the way of a test on the record high set in February around 3393.5.

For a look at all of today’s economic events, check out our economic calendar.

This article was written by Marc Chandler, MarctoMarket.

Trading Sniper: Three Best Setups on the Market Right Now

What counts in trading is the desirable risk to reward ratio and unfortunately buying Gold now does not have the risk/reward ratio that would thrill most traders. In addition to that, the risk of a very deep, bubble-bursting correction is quite significant. Instead of focusing on Gold, for FXEmpire viewers, we exclusively prepared three trading setups, worth looking at right here, right now.

The first one is SP500, which right now is below the crucial horizontal support on the 3235. That should have been a negative sign but I feel somehow optimistic about the future of this index. The reason why is the emerging inverse head and shoulders pattern. We are currently finishing the right shoulder and the neckline of this formation is…yes, you guessed right – 3235. Price closing a day above that resistance will be a buy signal.

A similar pattern can be spotted on DAX.  Here, we also do have an inverse head and shoulders pattern but on this German Index, it is additionally present on a combination of two crucial supports. The first one is the horizontal one on the 12800 and the second is the dynamic up trendline. As long as we stay above them, the sentiment is positive.

I will finish with the EURCHF, where I want to show You two of the best things in technical analysis. The first one is the power of the 38,2% Fibonacci and the second is the power of the false breakout. As You can see, EURCHF was testing the 38,2% many times and it was flawlessly defended as a support. This week, started with a bearish gap and a breakout.

The price reversed very sharply straight away, which left sellers only with the false breakout and losing positions. Once market participants established that the early breakout was fake, they started buying, which resulted in a bullish takeoff. The sentiment on EURCHF is definitely positive.

Tomasz Wisniewski, CEO Axiory Intelligence.

Twitter: https://twitter.com/wisniewskifx

Nasdaq 100 Analysis for 09/07/2020

There are two factors that we evaluate: price location and relative strength (not to be confused with RSI). Today, the NSX closed on it’s high and almost took out yesterday’s high as well. How much longer do you think the markets can run like this without a significant retrace? In terms of location, the risk of retrace is HIGH and even though it is possible to push somewhat higher, the potential is very likely to be limited. This means this is a time to be more cautious, defensive and selective, NOT “feeling safe”.

Why am I so contrarian here? There is no structural evidence that a broader retrace is in play, or even beginning. The red flag can be spotted when you compare other markets like the S&P 500 and Russell 2000 which are not pushing new highs like the NSX. The S&P in particular still has significant resistance around the 3200 area which means a proportionally large number of stocks are NOT participating in this race to the moon. A healthy rally is one where they are more or less in sync.

Keep in mind, I am not calling for a bear market, or a trend reversal. I am anticipating a healthy retrace and the nearest level of support on the NSX is the 10,200 area. If that is taken out, the next inflection point is around the 9750 area (historical market peak) and IF that is taken out, 9150 is next.

That is a significant move from current levels, but that is what we must consider in terms of risk. The retrace can come out of no where, and a chart will NOT provide any kind of “predictive” value until supports are taken out, and some kind of clear bearish structure is established which is a process that can take days or even weeks. In any case, the herd mentality is often the strongest at market turning points, learn to anticipate it, not participate in it.

S&P 500 Has Room to Run Higher, Says Raymond James Strategist

U.S. stocks ended the week low, erasing previous gains amid investors’ pessimism as some states saw a second wave of COVID-19 infections. The Dow Jones Industrial Average gained 1.0%, the S&P 500 increased 1.9%, and the NASDAQ jumped 3.7% last week.

Although economic data remained mixed, showing that the recession brought in by the COVID-19 pandemic may be sharp, but will not sustain for long. However, markets recovered to a bullish stance again this week after the Federal Reserve announced stimulus for corporate bonds, leading to tighter spreads, which lent a helping hand to riskier assets.

“On the positive note, we got further confirmation from the Fed that it will remain supportive. Potential COVID-19 treatments, improvement in economic data, and further fiscal stimulus could push the market closer to our upside case scenario of 3,384,” wrote Michael Gibbs, director of equity portfolio and technical strategy at Raymond James.

“We use 3,111 as our base case S&P 500 price target for 2020. With the S&P 500 currently trading in line with this target, we would look to accumulate favored sectors during market volatility. Moreover, the market will need to pass the baton from valuation expansion to re-acceleration of economic and earnings expansion. We believe this could cause some periods of volatility as this transition takes place and would use any dislocation to add to positions.”

Raymond James in its weekly market guide noted that earning per share growth has seen stabilization as earnings season approaches. While it is largely expected to be a very challenging quarter, it is also expected to be the trough in earnings for this recessionary period. S&P 500 earnings are expected to drop 43.2% year-on-year.

While this continues to point to the severity of the economic situation, the recent stability, not just for the second quarter of this year, but also for the third and the fourth quarters, points to some expectation that the worst is likely behind us. However, the worst-case scenario may be averted.

The sectors that have seen the largest earnings revisions since the end of 2019 have been the more cyclical sectors such as Energy, Consumer Discretionary, Industrials, and Financials, Raymond James strategist added.

For a look at all of today’s economic events, check out our economic calendar.

Major Stocks around the world fall, COVID-19 new cases strengthening upward

Asian stocks and U.S Stock futures slumped Thursday morning

As rising caseloads of COVID-19 in parts of America and China dampened hopes of a quick global economic recovery from the most damaging disease ever to hit the human race.

“This tightening will likely negatively impact the economic recovery,” Goldman Sachs analysts said of authorities’ moves to lock down parts of the Chinese capital in response to the current outbreak.

S&P 500 mini futures dropped about 1.2% in at Asia’s trading session while the MSCI’s broadest index of Asia-Pacific shares excluding Japan dropped as much as 1% in value.

In addition, Japan’s Stock Index Nikkei 225 lost 1.3% while in China, Chinese blue-chip index CSI300 shares also lost about 0.1% in early trade.

Asian stocks and U.S Stock futures slumped Thursday morning as rising caseloads of COVID-19 in parts of America and China dampened hopes of a quick global economic recovery from the most damaging disease ever to hit the human race.

“This tightening will likely negatively impact the economic recovery,” Goldman Sachs analysts said of authorities’ moves to lock down parts of the Chinese capital in response to the current outbreak.

S&P 500 mini futures dropped about 1.2% in at Asia’s trading session while the MSCI’s broadest index of Asia-Pacific shares excluding Japan dropped as much as 1% in value.

In addition, Japan’s Stock Index Nikkei 225 lost 1.3% while in China, Chinese blue-chip index CSI300 shares also lost about 0.1% in early trade.

In America, the S&P 500 dropped 0.36% yesterday, however, the tech powerhouse index Nasdaq kept its record-breaking momentum by added 0.15% due to hopes of increased demand for various online services such as online video streaming, remote working and cloud-based services due to the epidemic that had restricted human activities globally.

Meanwhile, China’s announced cancellation of flights, shut educational institutions and sealed off some neighborhoods as it increased efforts to limit COVID-19 resurgence that had strengthened fears around Asia’s economic tiger.

“It is a big shock to markets that China, which appears to have successfully quashed the disease, is seeing a second wave. And in the U.S. we see record cases in many states,” said Norihiro Fujito, chief investment strategist at Mitsubishi UFJ Morgan Stanley Securities.

“All this suggests that the more you re-start the economy, the more infections you have. People have thought the economy will quickly recover in July-September after dismal April-June. But that is now becoming uncertain.”

Global Investors according to reports from Reuters rushed to the safety of U.S bonds, with the 10-year U.S. Treasuries yield dropping by 3 basis points to 0.704%.

For a look at all of today’s economic events, check out our economic calendar.

Playing the FX Cross in the Wake of the FOMC

The Fed aren’t going anywhere

There is little doubt the Fed was dovish, and the gravy train is going nowhere with future asset purchases continuing at the current pace of $80b p/m and MBS $60b p/m, which should underpin risk for some time. Judging by the bank’s economic projections (and dot plot) interest rates are not going up well past 2023, and the conversation on yield curve control (YCC) was certainly explored a few times, something Powell said was still “an open question”.

One suspects if they are going to announce YCC it will take place in the September meeting, and that meeting will be a biggy as it will give them a decent stretch to see how their many programs, not to mention economics, are evolving and the impact they are having on getting them towards its mandate.

When we consider YCC, I would expect the Fed to focus on the 3-5-year Treasury curve, more akin to what the RBA is doing than the BoJ, although there are a ton of questions around its commitment and of course what level (of yield) would they target.

Real Treasury yields promoting a bid in gold

For now, though we see a solid move lower in nominal yields, with the Fed importantly managing to generate a positive move higher in inflation expectations, with 5-yr Breakeven rates moving +3bp and above 1% for the first time since 9 March. This has resulted in US 5-year real Treasury yields collapsing 11bp to -70bp. For gold traders, this is all that matters and for gold bulls, it is the perfect storm, especially when married with such as the bearish trend in the USD.

Gold has been happy to track the 1750 to 1650 range since mid-April, and I have argued many times, the answer lies in the bond market and it appears to be playing out – Is this the time we finally see a solid break of the range?

Daily gold chart

The move in bond yields has propelled the NAS100, which will feed off lower yields every day, with the Fed keeping the punchbowl in the mix for as long as it takes. On the other hand, the dour economic projections have really made it clear that the Fed sees the prospect of a V-shaped recovery as incredibly low, so we’ve seen the Russell 2000 lower by 2.6%, while the S&P500 fell 0.5%, held back by financials (thanks to the flatter yield curve), and energy (crude fell 2.2%). Asia is feeding off these leads and risk is under pressure, with traders taking a bit off the top.

The USD is heading lower longer-term

If we consider the Russell 2000 is more reflective of inward factors and the US economy, it perhaps tells us why the USD is also being further shunned. The US is no longer the standout and almost isolated destination for global savings that it has been in recent years, and investors now have a choice and have redistributed capital accordingly. Lower yields are certainly incentivising an offer in the USD too, especially with raised prospects of YCC the months ahead. Why? Because if the Fed is going to add an extra measure to further increase its balance sheet through unlimited bond purchases, to fix a specific parts of the Treasury curve at a given yield, then it just increases the prospect of deeper negative real yields and an ever bigger balance sheet.

After a big move in the USD – Trading FX from a tactical standpoint

From a tactical perspective, the USD may still in the doghouse, but if the S&P500 is looking at the Fed’s dour economic projections, the index could find a few headwinds in the near-term. Despite liquidity, if the S&P500 tracks lower then global growth proxies such as AUD, CAD and MXN may also struggle near-term. It makes the currency crosses become a more attractive trading vehicle.

I am watching EURCAD. After some messy price action, the buyers are starting to get a better say here and should crude come off further and we start to see a few more sellers in the S&P500 then the funding currencies (EUR, JPY, CHF) will outperform. Whether this starts to trend is questionable, but the battle lines are drawn.

If playing the USD, AUDUSD is looking more vulnerable, but EURUSD is still strong and would be a preference if keeping the USD in play.

We see price still holding the 5-day EMA and there are few reasons to be short with any genuine conviction on current price action – happy to stay bullish here, where a close above 1.1383 would open up 1.1500. Will turn more neutral on a break of 1.1321.

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Chris Weston, Head of Global Research at Pepperstone.

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Risk Taking Pauses Ahead of the ECB

The S&P 500 gapped higher yesterday, and that gap (~3081-3099) offers technical support. Benchmark 10-year bond yields are firmer. The US 10-year yield is rising for the fourth consecutive session around 74 bp is at the upper end of a two-month range. The dollar is trading higher against most currencies. Among the majors, those that have been among the strongest, like the Australian dollar, sterling, and the Scandi’s are the weakest today, adding to the sense of profit-taking and corrective forces.

Emerging market currencies are also softer, with the JP Morgan Emerging Market Currency Index struggling to extend a five-day rally. Gold is recovering from yesterday’s sell-off that saw nearly one-month lows (~$1690) and has resurfaced above $1700, the middle of a $100 range that largely confined it for the past two months. Oil is consolidating after the July WTI contract rose to nearly $38.20 yesterday, its highest in almost three months.

Asia Pacific

Hong Kong dollar forward points edged lower but bounced higher in late dealings, and the five-day drift lower has ended. Both the three-month and 12-month forward points rose today. We will continue to monitor them as a key gauge of tension. That said, we expect the Hong Kong band to remain in place for some time. Separately, the PBOC set the dollar’s reference rate (CNY7.1012) a little lower than the bank models suggested (~CNY7.1035).

After falling for four sessions, the dollar is firmer against the yuan for the second consecutive session. The yuan’s weakness is most evident against the basket (CFETS) that the PBOC is said to track. The yuan has fallen for the better part of three weeks and is at its lowest level against the basket since early January.

Under pressure from the US, China has resumed allowing foreign inbound flights. These had been canceled during the peak of the pandemic, and officials have been reluctant to normalize the situation. Yesterday, the US threatened to lift Chinese airline flights to the US to one for everyone China lets of US flights. Although we are sympathetic to the framing of the US-China relations as a “Cold War”– the multifaceted competition that is an organizing principle of international relations–this dispute is small beer. The tit-for-tat tactics, however, does illustrate the US penchant of unilateral action, where a coalition may have been possible as China’s asymmetrical actions impacted other countries as well.

Australia reported April trade figures. The surplus of A$8.8 bln was larger than expected, even if down from the A$10.4 bln surplus recorded in March. The 11% decline in exports was a bit less than forecast, while the 10% decline in imports was more than expected. The average monthly surplus through the first four months stands at A$7.1 bln. The average for the same period in 2019 was almost A$4.8 bln. Separately, Australia reported that retail sales fell by17.7% in April from March, mainly in line with forecasts.

The dollar’s surge against the yen continued. The greenback reached JPY109.15 in late Asian turnover before succumbing to mild profit-taking. Initial support is seen near JPY108.80, where a $1 bln option is set to expire tomorrow. On the upside, the next important technical target is near JPY109.50. Recall that the dollar finished last week near JPY107.80. The Australian dollar is trading comfortably inside yesterday’s range (~$0.6855-$0.6985). A loss today would snap a five-day rally that began from around $0.6620.

Europe

The ECB meeting is expected to result in an expansion of the Pandemic Emergency Purchase Program by 500 bln euros. Anything less would be disappointing. Roughly a third of the 750 bln euro allotment has been used. At the current pace, it will be exhausted by the end of Q3 or early Q4. The logic of expanding it now is that the staff’s updated forecasts will likely confirm Lagarde’s recent comment that the mild scenario can be ruled out. That implies an 8-12% contraction this year.

The staff forecasts themselves will be of interest, but the importance lies in providing the ECB will new “facts” that arguably will compel new action. There may be some other action the ECB considers, such as not only accepting bonds that have recently lost their investment-grade status as collateral but perhaps buying them outright, as the Fed has begun doing. It could also adjust the amount of reserves that are subject to negative rates. The ECB could also choose to make the terms of the Pandemic Emergency Long-Term Refinancing Operation more attractive, as the initial take-up was light.

Lagarde will likely be asked about the German Constitutional Court ruling on the ECB’s other bond-buying program and the euro, which is enjoying its longest advance since late 2013. Yesterday was day seven of the streak, and the 0.55% rally was sufficient to put higher on the year. On a purely directional basis, the euro is enjoying its highest correlation (~0.86) with the Dow Jones Stoxx 600 since May 2012. The 60-day correlation (~0.2) is not even at the highs for the year, indicating that the tighter co-movement is new.

This fits in well with our argument that it is a liquidity-driven story. And some argue that it is well discounted, but that might not do justice to the incentive structure that is ongoing and helps explain, for example, the incredible demand for the surprise sale by Italy of a ten-year bond yesterday. It announced the sale on Tuesday. Usually, Italy’s debt managers give more notice. Italy received bid for nearly 107 bln euros for a 14 bln euro syndicated offering, which is more 100x more demand that was seen for the ECB’s Pandemic Emergency Long Term Refinancing Operations (loans at minus 25 bp).

After much debate, the German government agreed on a 130 bln euro package (~4% of GDP) to support the economy. It includes several measures aimed at boosting consumption such as a temporary cut in the VAT (16% vs. 19%), 300 euros per child, and doubling the incentive to purchase electric cars. Germany is embracing counter-cyclical fiscal spending, something that it traditionally leans against (see ordoliberalism).

However, the crisis is extreme, and the headline figure is not quite what it may appear at first glance. Almost half (60 bln euros) is left over from the March supplemental budget, and not all the stimulus is targeted for this year. Nevertheless, it helps position Europe’s largest economy for a stronger recovery.

The euro’s longest advance in six and a half years is threatening to end with today’s pullback. It reached almost $1.1260 yesterday and has dipped below $1.12 in Europe today. The rally has been so sharp that initial support might be closer to $1.1170-$1.1180. Sterling poked above $1.26 briefly yesterday and stopped short of the double top from April in the $1.2640-$1.2650 area. It is testing the $1.25 area in late morning turnover in London. There may be some support around $1.2480, but stronger support is not seen until closer to $1.2400.

America

In our bizzaro world, the 2.76 mln private-sector job loss estimated by ADP is good news. The median forecast from the Bloomberg survey was for a 9 mln decline. April was revised to show 19.55 mln job loss instead of 20.23 mln. The non-manufacturing ISM employment showed little improvement (31.8 from 30.0). The official data will be released Friday. The median forecast in the Bloomberg survey is for a loss of 7.25 mln private-sector jobs in May, and 8 mln overall. Still, the “whisper number” will be less.

Note that the ADP data includes furloughed employees, while the monthly jobs report (Bureau of Labor Statistics) does not. Weekly jobless claims are expected to come down below 2 mln, for the ninth consecutive week of serial improvement. Separately, Canada and the US report April trade balances today, but it will be obscured by the weekly jobless claims and the ECB press conference.

If anything, the Bank of Canada was a bit more optimistic than anticipated. It noted that the country may have escaped the worst-case scenario and expects the economy to contract 12%-22% from peak to trough rather than the 15%-40% risk it previously saw.

It sees a 10%-20% decline this quarter. The Bank also indicated it could reduce some of its operations (frequency of repo operations decreased to once a week and the banker acceptances to twice a week) as it shifted from supporting the financial markets to supporting the economy. Deputy Governor Gravelle will deliver the Economic Progress Report tomorrow, and it allows more insight into the central bank’s thinking as Macklem takes the helm.

For the third session, the US dollar is finding support around CAD1.3480. It has not bounced much and remains stuck in the trough. It needs to move above the CAD1.3575-CAD1.3585 area to confirm a low is in place. The 200-day moving average is found near CAD1.3460, and the greenback has not traded below it since late February.

The US dollar fell to MXN21.51 yesterday before reversing higher, leaving a bullish hammer candlestick pattern in its wake. There has been some follow-through dollar buying. In fact, today is the first session since May 12 that the dollar has risen above the previous session’s high. The dollar has risen above MXN21.97 today. Initial resistance is seen near MXN22.10. The week’s high was set on Monday near MXN22.28, and a move above there would confirm a potentially important low is in place.

This article was written by Marc Chandler, MarctoMarket.

Risk Appetites Wane

Europe’s Dow Jones Stoxx 600 is off a little more to double this week’s decline and leaves it in a position to be the biggest drop since panicked days in mid-March. US shares are narrowly mixed, but coming into today, the S&P 500 is off 3.7% for the week, which, if sustained, would also be the largest decline in nearly two months.

Bond markets are better bid, and the US 10-year benchmark is off four basis points to 61 bp, the lowest in three and half weeks, despite the deluge of supply. European yields are off 1-3 bp. The dollar is firm against nearly all the world’s currencies. The yen, among the majors, and the Turkish lira and Russian rouble in the emerging market space, are the notable exceptions. Oil and gold are near five-day highs (~$1720 and $27 basis July WTI)

Asia Pacific

Australia reported a massive 594k job loss in April. While it was slightly more than most economists expected, given the magnitude, the median forecast of the Bloomberg survey for a loss of 575k proved fairly accurate. About 220k were full-time positions.

The unemployment rate rose from 5.2% to 6.2%. Economists had projected a jump to 8.2%. Australia’s 10-year yield is dipping below 90 bp for the first time this week. Wednesday saw record demand at the 10-year sale while the central bank has stepped back from its purchase program.

The Bank of Japan has also reduced its buying of equity ETFs and REITs. Its JGB buying had been tapered under its yield curve control initiative. Back in the particularly dark days in March, the BOJ bought a little more than JPY200 bln of the ETFs on four different occasions.

In the first five sessions of May, it purchased a total of JPY126.5 bln. Separately, a BOJ lending initiative in April that pays banks 10 bp on reserves associated with lending under the program is off to a successful start, and BOJ Kuroda hinted at an emergency meeting before the next formal meeting (June 16) to unveil a new facility to lend to small businesses.

Following the Reserve Bank of New Zealand’s move to put negative rates on the table, the government approved an NZD$50 bln (~$30 bln) stimulus package. It projects that the country’s debt will rise over 53% of GDP from less than 20% last year.

The 10-year benchmark bond rose six basis points today from the record low hit yesterday below 60 bp. Year-to-date, the Kiwi is the second worse performing major currency, off a little more than 11% (behind the Norwegian krone that has depreciated by nearly 13.7%).

The dollar rallied from JPY106.40 to almost JPY107.80 on Monday, and that has marked the range, for now, the third session. Narrower still, the greenback is within yesterday’s range (~JPY106.75-JPY107.30). There are two sets of expiring options to note today. There is about $1 bln at JPY106.75-JPY106.82 and another $1.1 bln in options struck at JPY107.00-JPY107.05 This is the fourth consecutive session that the Australian dollar is falling.

It is the longest streak since late March and early April. Watch the 20-day moving average. It is found near $0.6430 today, and although it has been flirted with on an intraday basis, it has not closed below it since April 3. A break of the $0.6375 area may be needed to confirm the top we have been anticipating. The dollar is little changed against the Chinese yuan and is hovering around the CNY7.09-CNY7.10 area, the upper end of its recent trading range.

Europe

Bank of England Governor Bailey hinted that the GBP200 bln bond purchase program will likely be extended as early as next month (next MPC meeting is June 18). Recall that at last month’s meeting, the majority wanted to wait while two members dissented in favor of an immediate increase of GBP100 bln in Gilt purchases.

While much attention has been focused on the fact that some derivatives in the US imply negative rates, the UK 2-year Gilt has a negative for the third consecutive session (about minus 3 bp). Since our experience with negative rates is so limited, we relied on induction to derive a hypothesis that countries with negative rates had central banks that led the move and have current account surpluses. That hypothesis is being tested. We suspect that the currency would have to bear more of the burden if this turns out to be the case.

The euro reached a seven-day high yesterday and approached $1.09 before reversing lower and recording new session lows late in the session near $1.0810. It is in about a 15-tick range on either side of that level, with little enthusiasm in either direction. There is a 1.2 bln euro option at $1.08 that expires today. Below there is an option for 1.8 bln euros at $1.0750.

The euro settled last week near $1.0840. Sterling fell to $1.2180 today, its lowest level since April 7, when it recorded the month’s low near $1.2165. It is lower for the fourth consecutive session, which is also its longest losing streak since March. Initial resistance is now seen near previous support in the $1.2250 area.

America

Powell had no more luck than his colleagues in removing the risk that the Federal Reserve will adopt a negative interest rate target. The implied yield of April 2021 through March 2022 fed funds futures contracts remains negative. The OIS forward curve is slightly negative two and three-years out. The impact on the dollar seems minimal at best.

It is higher against all the major currencies this month, but the Norwegian krone (~0.60%) and yen (~0.30%). Overall, Powell’s economic assessment was very somber. He indicated that a report out today will show that 40% of the households under $40k a year income, who had a job in February, lost it. Powell advised not placing much stock in estimates of full employment. The Chair tends not to put weight on economist’s intangible concepts like r-star (natural interest rate) or full-employment.

Powell called for more fiscal support, a day after the House of Representatives prepared an additional $3 trillion spending bill. When coupled with Dr. Fauci’s comments the previous day, calling for more testing and tracking, and slowing the re-opening process, the message appears squeezed risk appetites.

There are two highlights of the North American session today. First is the release of the US weekly initial jobless claims. Economists expected a decline to 2.5 mln, which is still around ten-times larger than what was prevailing before the crisis. It has been gradually declining since reaching above 6.8 mln in late March. Separately, the continuing claims are likely to push above 25 mln.

Note that the survey for the next monthly jobs report is being conducted this week. Second, the central bank of Mexico meets today, and the consensus forecast is for a 50 bp cut to 5.50%. A week ago, Mexico reported that April CPI fell to 2.15%. Given this and the broad stability of the peso, we suspect that if Banxico is to surprise, it is more likely to deliver a larger rather than a smaller cut.

For the fourth consecutive session, the US dollar has edged above the previous session’s high against the Canadian dollar. However, it is better offered in the European morning. The CAD1.4040-CAD1.4060 may provide support today, but it seems particularly sensitive to the broader risk appetites.

Tuesday’s range in the greenback against the Mexican peso is to be watched (~MXN23.75-MXN24.40). After rallying strongly in March and into early April, the US dollar has been consolidating for over a month and has largely been confined to a MXN23-MXN25 range. Lastly, note the EIA reported the first decline in US oil inventories (-745k barrels) since the middle of January.

Holdings in Cushing fell by 3 mln barrels. This, coupled with the IEA assessment of a marginal improvement in supply (reined in) and demand (a little stronger) dynamics, are helping to underpin prices today.

This article was written by Marc Chandler, Marcto Market.

Potential Trend Change in Market

As of the regular trading hours open, the S&P was around the same spot as yesterday’s closing price area of 2850, which coincides with our key 2850 level discussed below.

What is the bias/gameplan going into today?

For intraday purposes, we’re going into today as neutral-biased given the overnight reaction relative to our key levels, as the ongoing ferocious battle is still a potential trend change on the daily chart.

If we zoom out, we remain bear-biased going towards around 2650 per our 4-hour white/red line projections from earlier this week, but we are still waiting for more clues/confirmations. Bears need some sort of a day 2 setup to the downside eliminating the daily 20EMA trending support in a decisive manner in order to prove that the big, bad, real bears rotate back in town instead of gummy bears.

Fun fact, the bull train has bottomed out relative to the daily 20EMA trending support area every single time since the April 6, 2020 breakout, allowing us to catch and milk ES points and profits in textbook fashion. Will this time be different? We don’t know, but we are definitely prepared if and when the sh*t hits the fan. Otherwise, we BTFD at support again and keep milking this bull train.

For the next few sessions, the only thing that truly matters is whether price action maintains above 2850 or not on a daily closing basis. A breakdown below 2850 would be the first indication that big, bad, real bears rotate back in town, so we must stay vigilant.

For what it’s worth, there are lots of market participants that are getting complacent as the market has been nearing the ES 3000 psychology number by grinding up since the March 23 lows, and now everybody and their mother has been accustomed back to BTFD and getting PTSD from shorting.

This is why I suggested last Friday that doing homework over the weekend was imperative as you have pre-determined levels drawn up so that you could react quickly, if need be, in the first few sessions/weeks/whatever. You are prepared no matter what.

What should be your next step?

What’s your sh*t hits the fan level? What’s your first clue? What are your major resistances? For reference, the past 2 week’s high = 2965, 2 week’s low = 2771. The decent range for now.

See chart reviews and projections on the Emini S&P 500.

By Ricky Wen, an analyst at ElliottWaveTrader.net, where he hosts the ES Trade Alerts premium subscription service.

$3 Trillion Tsunami looms on US Markets

Futures on the index show an upward trend this morning, growing another 1.1%. This recovery did not fully offset the decline of previous days. However it  pushes the same thoughts as last week, when we saw profit-taking after a firm April for the stocks.

Additionally, it is encouraging that the indices are growing quite evenly. Very often it is a sign of confident purchases for the long term rather than speculation on the latest news. Along with the growth of stocks, the dollar has turned to decline. It seems that the demand for dollars was satisfied.

The Fed has managed to quench the dollar thirst, and now reduces the volume of purchases on its balance. In the last two weeks of March, the balance sheet increased by $557B and $586B, while the latest data showed that it increased by “only” $83B. If you assess the actions of the Fed by the dynamics of the dollar, the US Central Bank managed with thin balance in its operations.

However, the financial system is movable. And now there is a new, no less stressful test coming. The US Treasury Department is going to attract about $3 trillion in the second quarter of the year in its updated borrowing plans. This is five times higher than the previous quarterly record in 2008.

The big question now is what impact this will have on the markets. Historically, such situations have been negative for the markets, as investors will prefer highly reliable US government securities to riskier stocks. On a much smaller scale, this happened in September last year. Back then, the Fed was helping markets by injecting liquidity and can do so now, again dramatically increasing asset purchases on the balance sheet. This is not the only case. The US Treasury bills are regularly placed on a large scale, and the dollar is strengthening. It is an approach based on history.

But there is another approach, the one based on the logic. Besides the US Treasury offer, US bonds government bonds are thrown into the market by many EM countries, that sell their FX reserves to help the economy and keep national currencies from free fall. It may well turn out that the dollar debt may be too large in the markets. In this case, the value of dollar debt may begin to decline, because there will be too much of it.

However, the Fed only comes into play when the situation gets out of control. Will, the US Central Bank, act proactively this time, or will we see signs of a significant shift in balance before the regulator intervenes? Either way, this impending debt placement tsunami is unlikely to be quiet.

by Alex Kuptsikevich, the FxPro senior market analyst

This Market Makes No Sense

The stock market and the economy

As I have always tried to make people understand, the stock market and the economy are not one and the same. Rather, there is a reason that the stock market is considered the best “leading indicator” for the economy. And, it is purely because market sentiment (the true underlying driver of the stock market) is seen in action much quicker within the stock market as relative to the fundamentals within the economy, which take time to catch up to the market action.

To put it most simply, consider how long it takes you to effectuate growth in a business when sentiment turns bullish (obtaining funds, placing those funds to work in producing goods and services, marketing and selling those goods and services, earning profits, etc.) as compared to how long it takes to press the button on a computer to buy a stock. It is simply much faster to effectuate a turn in sentiment in the stock market than in the economy. And, this lag explains why the stock market always bottoms well before you see a turn in the economy.

As I read in other articles of late, it is quite clear that many have missed this rally off the 2191SPX bottom and are in complete disbelief due to their lack of understanding of what I just outlined above.

In fact, these are a smattering of the comments I have received from my prior two articles wherein I was calling for higher levels to be struck in the market:

“This “market” is so RIGGED it’s pathetic . . . Highest unemployment in decades and the “market” roars back faster than it ever has in over EIGHTY YEARS? I feel like I’m in some parallel matrix of backwards reality”

“buying in to this rally is absolute suicide.”

“If you think this is over you are simply wrong”

“This bear market is just getting started.”

“Bulls are so incredibly delusional if they think this is over”

While it is clear that most investors have reacted quite emotionally to the events of recent days, that is often the worst way to approach the market. So, let’s take a step back and review where we have been and then we can look to where we are likely going.

For those that have been following my analysis closely, you would know that I was building a short position in the EEM back in January and February, as it was presenting the clearest break down pattern, along with providing us with a very low risk set-up with wonderfully defined parameters. Moreover, as I wrote regarding the SPX late last year and early in 2020, if the market was going to break down below the 3100SPX level, it would open the door to take us back down to the 2200SPX region.

And, as we approached that 2200SPX region in March of this year, I highlighted to the members of ElliottWaveTrader my expectation that the SPX should bottom in the 2187SPX region, and rally back up towards the 2600-2725SPX region from there. As we now know, the SPX bottomed at 2191 (within 4 points of my targeted support), and we clearly rallied back to our original 2600-2725 target.

However, as the market moved into the 2600-2725SPX target zone, the structure made it quite clear to us that this rally had not run its course. Rather, the structure was actually pointing us to the 2890SPX region, as I highlighted in my last public article as well. So, we set our sights on the 2890SPX target. The market then proceeded to rally to the 2879 level (within 11 points of my target), whereas the futures struck my target.

For those that followed my analysis closely, you would know that once we struck this target region, I expected a pullback to be seen. Ideally, that pullback would hold the 2700SPX region before continuing higher. As we know today, the market proceeded to pullback from the 2890SPX target region, and bottomed at 2727SPX. Thereafter, we began a rally that has struck a high of 2955SPX (with 20 points higher seen in the futures).

Now, you are either thinking to yourself that this is the luckiest guy in the world or that this is some kind of voodoo.

 

 

Elliott Wave analysis

But, to be honest, this is simply our Fibonacci Pinball system of Elliott Wave analysis, which provides us with these high probability targets on both the upside and downside as the market acts as a pinball through these Fibonacci extensions and retracements we track in the standard structures we see quite commonly in the market.

When the market is acting in a standard manner, then it moves through these targets in an almost perfect “pinball-like” manner. However, if the market reacts in a manner outside of these standards, it provides us an early warning that something else is playing out and allows us to move into our alternative plans, which have been outlined well before the diversion from the standard occurs.

So, what does our methodology suggest at this point in time? Well, when the market rallied into the 2900-2950SPX region this past week, the structure of the market told me that the risks have risen high enough for me to suggest to the members of ElliottWaveTrader that they should significantly reduce their long positioning within the 2900-2950SPX region. Allow me to explain.

In the most bullish case scenario, we expected the market to rally from the 2191SPX region back up to the 3200/3300SPX region. That means that once we moved into the 2900-2950 region, we caught 70% of this rally off the March low rather safely. But, the last 30% carries with it the most risk, as I cannot be certain that the market will reach the most bullish target in my expectations.

Now, this is where our Fibonacci Pinball method of Elliott Wave analysis provides us even more insight when it comes to market context. Even if the market provides us with the most bullish scenario of a rally to the 3200-3300 region, I would then expect a pullback in the market to the 2600-2800 region. So, considering we caught the rally from 2191 to 2950SX, and we will likely come back down to levels lower than that later this year, I questioned if it was really worth the risk for the remaining 30% overhead?

So, as I outlined to the members of ElliottWaveTrader.net, the easy money on the long side in the market has been made as we moved into the 2900-2950SPX region. And, now the market is going to tell us in the coming two months whether it will continue higher to complete 5-waves off the 2191SPX level or not.

If we do complete those 5 waves into the 3200-3300SPX region, then I am going to prepare to “buy-the-dip” into the 2600-2800SPX region. However, if the market is unable to complete this 5-wave rally structure off the 2191 low, then it will open the door to a drop to the 2060SPX region in the coming months. While I am going to leave the finer details of how I view this within the members section of ElliottWaveTrader.net, I hope I am being clear that risks have risen to the point where one has to question if they are worth the rewards on the long side of the market at this time.

So, again, if you have been following my work, then not only did you catch most of the decline earlier this year, but you have now also caught the rally from the 2200 region to the 2900 region. I would say you have now likely had the best year of your career, and it is time to head to the sidelines to see how the next few week’s shake out.

But, this brings me to other comments I see quite often. And, it really gives me a chuckle when I see them from fellow Seeking Alpha “contributors,” such as this one, which was posted in response to my public analysis calling for a major rally off the 2200SPX region:

“You want “really silly.” That’s really silly. And anyone who cannot see that isn’t playing with all their circuit breakers on… The market is delusional, and you, rather than following the news cycle, which obviously the market is not following, are following the market.”

Well, my friends, those that have been following the “news cycle,” as suggested by this other “contributor,” have been scratching their heads as the market has rallied 35% off the lows we caught back in March. And, yes, we have been following the market. Does that make the 35% we have earned on the long side a delusion? Well, I keep looking at my account and it certainly looks real.

And, that last sentence penned by this “contributor” really made me scratch my head. If one realizes that the market is not following the news cycle, does it make sense to continue to follow the news cycle? Well, I guess if your goal is to prove that you are smarter than the market, you continue to follow the news cycle. But, if your goal is to maximize profits from the market, then you have to question what this person is really doing.

You see, folks, markets do not work based upon news cycles and logic. Rather, markets are driven by emotion. And, unless you understand how emotion drives the market, you will be standing on the sidelines, scratching your head, and thinking the market is delusional due to your superficially correlated news cycle perspective, while others reap the profits from their more sophisticated and advanced level of understanding the market.

I have said this before, and it is certainly worth repeating. Unless you understand the larger market context, then you will often be scratching your head when you see moves that defy logic. And, I have not seen any better methodology to provide market context then our Fibonacci Pinball method of Elliott Wave analysis. Does that mean we will always be right in our assessments? Absolutely not. But, our analysis is quite accurate the great majority of the time. And, if the market deviates from our primary analysis, we are able to adjust rather quickly, as that is also part of overall methodology.

At the end of the day, some of you view me as crazy, some of you view me as practicing voodoo, and some of you view me as simply lucky. But, you will never be able to view me as a perma-anything. You see, those that are perma-bulls will be right most of the time because the market rises the great majority of the time. Yet, they will also get caught looking the wrong way during the periods of major draw-downs, such as what we experienced in February and March of 2020. And, those that are perma-bears are more like a broken clock. But, when they are “right,” boy do they turn loud and boisterous. And, we certainly heard from them in March, yet they have been rather quiet in April.

As for me, I am perma-profit. My goal is to simply listen to the messages in market price structure, and endeavor to be on the correct side of the market for the greatest majority percentage moves the market has to offer, while balancing reasonable risk management strategies.

So, to answer that “contributor’s” comment to me in my last articles, yes, I will continue to discount the news cycle and follow the market. And, while you may consider me to be “delusional” in doing so, the profits earned by me and the members of ElliottWaveTrader are clearly not a delusion.

Avi Gilburt is a widely followed Elliott Wave analyst and founder of ElliottWaveTrader.net, a live trading room featuringhis analysis on the S&P 500, precious metals, oil & USD, plus a team of analysts covering a range of other markets.

Speculators Look Beyond Tank Tops to Accelerate Oil Buying

Saxo Bank publishes two weekly Commitment of Traders reports (COT) covering leveraged fund positions in commodities, bonds and stock index futures. For IMM currency futures and the VIX, we use the broader measure called non-commercial.

The below summary highlights futures positions and changes made by hedge funds across 24 major commodity futures up until last Tuesday, April 28. The risk on seen during this period was driven by hopes, perhaps in some cases premature, that the COVID-19 pandemic had started to loosen its stranglehold on the global economy. The S&P 500 jumped by 5% while the dollar and bonds traded softer.

Hedge funds were net buyers of energy and metals while they continued to sell agriculture commodities during the week to April 28. The prospect of production cuts and lock-downs starting to ease spurred speculative demand for crude oil and natural gas while copper short-covering continued. Gold and silver only attracted a small amount of buying despite rallying by 2% during the week. Baring a few exceptions such as soybeans, cotton and cattle, broad based selling across the agriculture sector continued.

Energy

The collapse to negative prices the previous week strengthened speculative demand for WTI futures. This in the belief that the current price weakness would support a rapid reduction in US production while attempts to ease lock-downs would spur a pickup in fuel demand.

The WTI net-long jumped by 74k lots or 35% to 283k lots, a 16-week high. The recovery in Brent crude oil net-longs have been much more slow and primarily due to short-covering. During the past four weeks funds cut short positions by 72.5k lots while only adding 14k lots of fresh longs. Overall the combined long in WTI and Brent rose by 83k lots to 426k, a three-month high.

Natural gas continued to be bought with the combined net long in four Henry Hub deliverable futures and swap contracts reaching a one-year high. Natural gas futures capped its best month in April since November 2018 with associated production from oil wells expected to shrink as drillers make deep cuts to production.

Metals

For a sixth week the gold net-long remained stuck in a 180k to 200k lots range. It highlights the current lack of clear direction with gold struggling to break away from $1700/oz. Silver meanwhile remains troubled by its recent bouts of volatility and for a fifth consecutive week funds made only small adjustments to maintain a long exposure some 80% below the February peak. Funds cut net bearish HG copper bets to 14-week low as the price rallied by 4% to test key resistance just below $2.40/lb

Agriculture

An overall negative week in terms of price action across the key crops of corn, wheat and soybeans had no impact on the fund net which remained close to its five-year average.  In softs, both sugar and cocoa rallied strongly into the weekend after funds began scaling back short positions in response to an improved outlook. Sugar rallied on the back of a recovery in oil potentially renewing demand for sugar-based ethanol while cocoa rose to challenge technical resistance at $2400/MT.

What is the Commitments of Traders report?

The Commitments of Traders (COT) report is issued by the US Commodity Futures Trading Commission (CFTC) every Friday at 15:30 EST with data from the week ending the previous Tuesday. The report breaks down the open interest across major futures markets from bonds, stock indexes, currencies, and commodities. The ICE Futures Europe Exchange issues a similar report, also on Fridays, covering Brent crude oil and gas oil.

In commodities, the open interest is broken into the following categories: Producer/Merchant/Processor/User; Swap Dealers; Managed Money and other.

In financials, the categories are Dealer/Intermediary; Asset Manager/Institutional; Managed Money and other.

Our focus is primarily on the behavior of Managed Money traders such as commodity trading advisors (CTA), commodity pool operators (CPO), and unregistered funds.

They are likely to have tight stops and no underlying exposure that is being hedged. This makes them most reactive to changes in fundamental or technical price developments. It provides views about major trends but also helps to decipher when a reversal is looming.

Ole Hansen, Head of Commodity Strategy at Saxo Bank.
This article is provided by Saxo Capital Markets (Australia) Pty. Ltd, part of Saxo Bank Group through RSS feeds on FX Empire

Stocks Are Falling on April 20 As Oil Prices Plunge

The next significant level of support for oil comes around $10.50, a price not seen in decades. The oil market is telling us that not all is well in the economy and that demand is weak. I talked about this disconnect in the week ahead commentary for subscribers yesterday.

Simple, put, the signals from the commodity, bond, and forex market are not reflecting the same bullish optimism of the equity market.

USOIL Daily Chart

S&P 500 (SPY)

The S&P 500 ETF is merely only giving back part of what they gained on that big closing cross, end of the day buy program into options expiration on Friday.  The first level of support comes at  $273.60, and then $263.40.

Bank of America (BAC)

Bank of America is falling some today, and I still happen to think that the stock is going to refill that gap around $20.

Daily BAC Chart

Tesla (TSLA)

Tesla had a big run last week. But shares are falling a bit today, and they could drop to support and the uptrend around $680.

Daily TSLA Chart

Disney (DIS)

Disney was downgraded today to neutral from buy at UBS. Additionally, the stock price target was cut to $114 from $162. The stock has failed multiple times at resistance around $109, and I think the stock is going to head back to the lows around $78.60.

Daily DIS Chart

Nike (NKE)

Nike has a rising wedge pattern in the chart, and that could result in a gap fill around $78.

Daily NKE Chart

Nvidia (NVDA)

Nvidia is falling today, and I still happen to think this one is heading lower. The stock is sitting on support and an uptrend near $284. A break of that trend could get the shares moving back to $218. Call me crazy.

Daily NVDA Chart

This article was written by Michael Kramer the financial market strategist and the portfolio manager of the Mott Capital Thematic Growth Portfolio.


Mott Capital Management, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future results.

Corona Virus Dropping more than Bodies – Interest Rates under a Global Pandemic

Low Interests Rates Are Propping Up The Global Economy

With central bankers cutting their prime interest rates to 0.0% or near 0.0%, investors are right to worry. The main concern is that the economic outlook is getting worse and the central banks may not be able to do anything about it.

The problem is that the major world powers already had low-interest rates. The U.S., the EU, Japan, the UK, and Australia are only the tip of the iceberg, low-interest rates were a common theme among most of the world’s central banks.

The central banks have been holding their key rates at or near historic lows for the last decade in an effort to spur global recovery. The reason is simple, the global economy took a long time to get back on its feet after the 2008 Global Financial Crisis and the footing was shaky.

The U.S. led the charge when it came to normalizing interest rates. After holding rates steady at 0%-to-0.25% for eight years the FOMC began hiking rates in 2015. After 9 incremental 0.25% adjustments, the rate topped out at 2.5%.

Since then, the FOMC made three “mid-cycle” adjustments in response to the trade war that put the benchmark at 1.75%. To put that in perspective, the high rate leading into the 2008 financial crisis was 5.25%. Since then, rates haven’t recovered half that ground leaving the FOMC without much ammo to fight future battles.

Other central banks were in the same boat or worse. The Bank of England was one of the last to cut rates to zero following the 2008 financial crisis, holding out until 2016, but in the end, did so. Since then, due to signs of economic recovery, they too have been hiking rates. The BoE’s top rate hit 0.75% in 2018 and was held at that rate into 2019. The Bank of Japan and European Central Bank were the worst off. Both of these institutions have held their rates at negative levels for several years.

The Best Medicine For Coronavirus? Fiscal Stimulus

The biggest risk to the world from the coronavirus is its impact on the economy. The virus is a threat to health, I’m not discounting its danger, but it’s little more than a cold in most cases. The problem is that everyone is going to get sick, sooner or later, and world governments are trying to slow the spread. This means disruptions to activity, hiccups in supply chains, business closures, loss of revenue, and a growing potential for a deep, worldwide financial recession.

The central bankers’ best means of fighting economic weakness is with monetary stimulus. Monetary stimulus means, in virtually all cases, lower interest rates. Lower interest rates make it easier for businesses to borrow money they need to get through periods of crisis. The trouble now is that the only central banks with ammo to fire used it up in a preemptive attack.

The FOMC made two emergency cuts, the BoE, Bank of Korea, Reserve Bank of Australia, and others at least one putting the world’s benchmark lending rates at 0%. If the economic fallout from the virus worsens there is little left for the central banks to do.

These Sectors Are Hurt The Worst

While all S&P 500 sectors are feeling pain from the coronavirus, there are several taking the direct force of the blow. The worst sectors are travel, leisure, and hospitality. The spreading virus has shut down travel and recreation on a global scale. The flights that are still allowed are virtually empty because no one wants to put themselves at risk. Likewise, casinos, resorts, and amusement parks are shutting down to prevent large crowds from gathering.

Most businesses have yet to quantify the amount of damages they will incur because the virus outcome is still an unknown quantity. Travel and leisure may be shut down for a month or they may be shut down for the rest of the year, we just don’t know and the potential for spillover into other sectors is huge. That said, a few companies have issued guidance that helps put the potential for loss in perspective.

Apple was the first major company to issue a guidance revision. The consumer tech giant is heavily dependent on China for its supply chain and said the epidemic would impact revenue as much as 10%, and that was before it spread globally. Since then, the company has had to close all stores outside of China which is another big blow to Q1 revenue.

Airliner United Airlines has come out with its own dire prediction. United Airlines executives see March revenue falling and that is just the beginning. Because of an expected downtick in traffic, they are cutting capacity by 50% for the next two months. They expect, assuming there is no flying ban, for capacity cuts to linger into the summer months. Basically, the economic impact will be severe and could last four to six months if not longer.

The Economic Impact Could Be Huge

With the world preparing to shut-down in an effort to stop the spread of the virus it is certain activity is slowing. The question is how much? Some industries are hurting, and badly, but others are not.

While shoppers shun public places, avoid large gatherings, and cancel plans for travel they are gearing up for an extended stay at home. This means increased spending on staples and health items that have retailers scrambling to fill shelves. Kroger and Amazon have both announced hiring plans to meet the demand and they are not the only ones.

Bloomberg did a study on the potential impact of the virus using four models. The worst-case scenario has a total impact on global economies at $2.7 trillion or roughly the annual output of the United Kingdom. This scenario is when the virus causes more than just localized disruptions, a point the world is on the verge of crossing.

Some sources estimate the impact has already caused world GDP to contract although the data is limited. The news we get from China is the most current there is and it isn’t promising. The PMI figures show a severe contraction in manufacturing and services activity that is scary if it becomes the global norm. GDP estimates vary widely but include the chance of 0% growth for China in the 1st quarter.

Contrary to China, data from the U.S. shows the economy not only expanding but accelerating in the first two months of the year. The Atlanta Fed’s GDPNow Tool is tracking at 2.9% for the first quarter and only fell 0.10% since peaking in late February. It is clear the U.S. economy was on solid footing before the virus, so the shock might not be as bad as feared for China. If the economic stimulus provided by the world’s central banks can sustain consumer spending the economy should rebound quickly.

The risk for most countries and the U.S. is not immune, it is not acting quickly enough. Delayed response or one not coordinated on a national scale will test the healthcare system and economic resilience of any nation. Prevention and slowing the spread is the key to ending the epidemic and paving the way for an economic rebound.

Low Rates Won’t Make Much Difference By Themselves

Lower interest rates won’t make much difference by themselves. Because most economic activity is driven by consumption and the consumers are home hiding from the virus, it’s them, the consumers, that need to be stimulated.

Low-interest rates will make it easier to borrow, many homeowners will get lower mortgage payments with a refi, but the positive impact will be small and long in coming. Low rates are good, they will help when the economy starts to rebound, but there are other fiscal weapons lawmakers can use with quicker results.

You can see proof of this in the charts. The FOMC lowered rates not once but twice and dramatically both times and was unable to stop the equity market from selling off. Even a $1 trillion spending package from Congress wasn’t enough to curb the selling.

How The Market Should Handle This Outbreak And Prepare For Future Outbreaks

This outbreak is the worst we’ve seen that I can remember but even so, we will get through it and with lessons learned. The first is that action needs to be taken quicker. No matter how innocuous a new sickness may seem it can’t be stopped after it’s let loose on the world.

Travel restrictions may have seemed like an overreaction two months ago but look where we are now. Cruise ships can’t operate, travel is severely curtailed, schools are closed, and I write this article with a kitchen stocked for a month-long stay at home.

Investors should prepare for future outbreaks like this by hoarding cash. Stocks are trading at their cheapest levels in over a decade and ripe for the taking but you can’t buy any if you don’t have cash.

Eventually, the virus will pass and the economy will get back on its feet. When that happens all these cheap stocks will become valuable again and make millionaires out of anyone brave enough to buy.

Disney+ European Debut Scant Consolation Amid Covid-19 Woes

Starting today, many millions who are already being cooped up at home, having their outdoor movements restricted by their respective governments in a bid to stem the coronavirus outbreak, will get to enjoy Disney+ and the plethora of timeless classics and blockbusters offered on the streaming platform.

It’s estimated that Europe will account for some 25 million Disney+ subscribers by 2025, adding to the platform’s existing 28 million customers located beyond the continent’s borders. The global goal stands at 90 million subscribers by 2024. Such projections promise a steady and lucrative revenue stream for the world’s largest entertainment company.

Yet, shareholders have refused to be enamored by such a rosy outlook in recent months.

Disney’s stocks have performed worse than the S&P 500 so far in March

Since its highest-ever closing price on November 26, 2019, Disney’s shares have plummeted 43.4 percent and is now trading at its lowest levels in six years. The stock’s 27.1 percent decline so far this month has outpaced the S&P 500’s 24.3 percent drop during the same period.

Covid-19: the scourge of the house of mouse

The pain points are obvious, and it’s all down to the coronavirus outbreak.

Disney’s theme parks have been shut, which gives up $20 million a day from admissions fees alone. The broader segment accounted for over a third of overall fiscal revenue and nearly half of profits in 2019.

Disney’s top and bottom lines are set to face even more pressure, given the delays to its movie releases, plugs pulled on film and TV production sets, and the foregone earnings on cancelled sporting events (which is severely stunting ESPN’s menu). These factors prompted S&P Global Ratings to recently cut its outlook on Disney’s credit rating to ‘negative’, taking into account that the latter still has to service almost $52 billion in debt.

Can new Disney CEO make shareholders dreams come true?

It will be interesting to see how Disney’s new CEO, Bob Chapek, whose appointment in February came as a shock to markets, handles the role amid turbulent times. Should the widely-anticipated global recession become a reality, Chapek will be kept busy for years trying to restore the company’s earnings prowess.

In the interim, at least shareholders in Europe can further console themselves by gorging on the Avengers, Star Wars, and even Home Alone franchises, all from within the confines of their homes, as they wait for the Covid-19 crisis to pass.

Written on 03/24/20 08:00 GMT by Han Tan, Market Analyst at FXTM

For more information, please visit: FXTM


Disclaimer: This written/visual material is comprised of personal opinions and ideas. The content should not be construed as containing any type of investment advice and/or a solicitation for any transactions. It does not imply an obligation to purchase investment services, nor does it guarantee or predict future performance. FXTM, its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness of any information or data made available and assume no liability for any loss arising from any investment based on the same.

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When will the markets return to growth? Here is the answer

It was the third biggest one-day decline in the index after 1987’s Black Monday (-20.5%) and October 1929 crash (-13%). The Volatility Index, VIX, closed at its highest level in history, clearly reflecting the extreme fears in the markets, even at the end of trading in the United States.

On Tuesday morning, the indices rebounded, with futures on the S&P 500 adding almost 5% since the beginning of the day, touching the upper bound of the trading range. FTSE100 futures have returned to the levels of the beginning of the week. This reverse gives hope that positive sentiment will prevail in the markets today.

Many observers note that the current market rebound may be as deceptive as last Friday’s upswing, as the coronavirus continues to spread rapidly, and we see an ever-growing new daily cases numbers.

In our view, market sentiments are pegged to the daily number of new infected. When China and Korea managed to seriously slow down the spread of the virus, markets returned to growth. In the first half of February, Asian indices were falling more in the countries with the biggest number of detected cases. Later, on February 21, European and American indices began to decline. And the turbulence is increasing in line with the growing number of new cases there.

If our observations are correct, the stock markets may gain ground for growth when the number of new cases start to decrease day after day. Yesterday we saw such a decline, although it is more of a formality. Worldometer showed 12,896 new cases on March 16, compared to 12,924 a day earlier.

Besides this, on Monday, the markets continued massive liquidation of all positions, including traditional safe-havens. Ten-year Italian government bonds showed a yield increase from 1.2% to 2.2% in just a few days.

And this can easily be explained by the expectation that the measures taken by the government will destabilize the Italian budget, increasing the debt burden on the government.

And it is still undefined how the government of Italy or other countries will subsequently deal with the extremely high debt burden. Besides short-term market turbulence, investors are beginning to fear that the longer the recession lasts, the higher the chances of default. A milder scenario suggests high inflation, allowing debt inflation. This means that bond prices may continue to decline on fears of a similar depreciation in the debt of large economies and companies.

by Alex Kuptsikevich, the FxPro senior market analyst. 

US Stock Market Overview – Stocks Rally Led by Nasdaq; Building Permits Soar

US stocks moved higher on Wednesday led by the Nasdaq, which rallied nearly 0.9%. Most sectors in the S&P 500 index were higher led by energy and technology shares. Utilities and Real-estate bucked the trend. The Labor Department reported that U.S. producer prices increased by the most in more than a year in January, boosted by rises in the costs of services. US Housing Starts declined less than expected. The Fed meeting minutes showed that central bankers are content with rates where they are. Gold prices rallied another 0.65% helping to buoy gold mining shares.

Producer Prices Rise More than Expected

The Labor Department reported that US producer prices increased to an 18-month high in January, boosted by rises in the costs of services such as healthcare and hotel accommodation. The producer price index increased by 0.5% in January, the largest gain since October 2018, after climbing 0.2% in December. On a year over year basis, PPI advanced 2.1%, the biggest increase since May, after rising 1.3% in December. Expectations were for PPI to gain 0.1% in January and rising 1.6% on a year-on-year basis. Excluding the volatile food, energy and trade services components, producer prices increased 0.4%, the most since April, after rising 0.2% in December. The core PPI increased 1.5% in the 12 months through January, matching December’s rise.

Housing Start Fall Less than Expected

US Housing Starts fell less than expected in January while permits surged to a near 13-year high. Housing starts dropped 3.6% to an annual rate of 1.567 million units last month, according to the Commerce Department. That followed three straight monthly increases. Data for December was revised up to show homebuilding rising to a pace of 1.626 million units, the highest level since December 2006, instead of surging to a rate of 1.608 million units as previously reported. Expectations had been for housing starts to fall  to a pace of 1.425 million units in January. Housing starts jumped 21.4% on a year-on-year basis in January. Building permits soared 9.2% to a rate of 1.551 million units in January, the highest level since March 2007, lifted by gains in both single- and multi-family housing segments.

The Fed Meeting Minutes Show Rates Will Remain Unchanged

Federal Reserve meeting minutes showed that officials expressed confidence at their most recent meeting about the state of the U.S. economy. They believe that interest rates likely would remain unchanged for a while. The central bank’s policymaking group voted to leave its benchmark overnight funds rate in a range between 1.5% and 1.75%. In coming to that decision, Federal Open Market Committee members noted that the outlook for the economy had gotten stronger just since the previous forecast in December.

Stock Pick Update: February 19 – February 25, 2020

Here are our stock picks for the Wednesday, February 19 – Tuesday, February 25 period.

The Stock Pick Update for the Wednesday, February 11 – Tuesday, February 18, 2020 period resulted in a modest loss of 0.22%. The S&P 500 index has lost just 0.01% in the same period. So our stock picks were relatively slightly weaker than the broad stock market. However, our average long result was better than the broad stock market’s gauge.

Our last week’s short stock picks weren’t profitable, as they worsened our overall result, but the stock market has entered a period of short-term uncertainty following recent rally. If stocks were in a more prolonged downward correction, being able to profit anyway, would be extremely valuable. Of course, it’s not the point of our Stock Pick Updates to forecast where the general stock market is likely to move, but rather to provide you with stocks that are likely to generate profits regardless of what the S&P does.

This means that our overall stock-picking performance can be summarized on the chart below. The assumptions are: starting with $100k, no leverage used. The data before Dec 24, 2019 comes from our internal tests and data after that can be verified by individual Stock Pick Updates posted on our website.

Below we include statistics and the details of our three recent updates:

  • Feb 18, 2020
    Long Picks (Feb 11 open – Feb 18 close % change): PSX (-2.96%), DD (+1.00%), PNC (-2.96%), NRG (+2.83%), EXR (+3.66%)
    Short Picks (Feb 11 open – Feb 18 close % change): NEE (+3.91%), PLD (+1.76%), AMD (+4.33%), PXD (-2.28%), DOW (-3.92%)
    Average long result: +0.32%, average short result: -0.76%
    Total profit (average): -0.22%
  • Feb 11, 2020
    Long Picks (Feb 5 open – Feb 11 close % change): PSX (-0.11%), MS (+1.68%), DD (-1.09%), PEG (-1.98%), NTAP (+3.59%)
    Short Picks (Feb 5 open – Feb 11 close % change): ETR (+1.93%), NOW (-2.72%), PEAK (+0.69%), HAL (-2.07%), STT (+0.91%)
    Average long result: +0.42%, average short result: +0.29%
    Total profit (average): +0.36%
  • Feb 4, 2020
    Long Picks (Jan 29 open – Feb 4 close % change): SLB (-0.67%), VMC (+2.26%), WFC (-0.34%), CNP (+0.72%), CTSH (+0.94%)
    Short Picks (Jan 29 open – Feb 4 close % change): ATO +0.78%), AAPL (-1.73%), PEAK (-0.11%), KMI (+0.28%, ex div. -$0.25), NEM (-0.16%)
    Average long result: +0.58%, average short result: +0.19%
    Total profit (average): +0.39%

The broad stock market has reached historically high levels recently. The breathtaking correction in December of 2018 was followed by the record-breaking comeback rally. The late October – early November breakout led to another leg higher, as the S&P 500 index broke above 3,300 mark. But will the rally continue? If the market goes higher, which stocks are going to beat the index? And if it reverses down from here, which stocks are about to outperform on the short side?

We will provide stock trading ideas based on our in-depth technical and fundamental analysis, but since the main point of this publication is to provide the top 5 long and top 5 short candidates (our opinion, not an investment advice) for this week, we will focus solely on the technicals. The latter are simply more useful in case of short-term trades.

We will assume the following: the stocks will be bought or sold short on the opening of today’s trading session (February 19) and sold or bought back on the closing of the next Tuesday’s trading session (February 25).

First, we will take a look at the recent performance by sector. It may show us which sector is likely to perform best in the near future and which sector is likely to lag. Then, we will select our buy and sell stock picks.

There are eleven stock market sectors: Energy, Materials, Industrials, Consumer Discretionary, Consumer Staples, Health Care, Financials, Technology, Communications Services, Utilities and Real Estate. They are further divided into industries, but we will just stick with these main sectors of the stock market.

We will analyze them and their relative performance by looking at the Select Sector SPDR ETF’s.

Let’s start with our first charts (charts courtesy of www.stockcharts.com).

There’s S&P 500’s 30-minute chart along with market sector indicators for the past month. The S&P 500 index has gained 1.62% since January 17. The strongest sector was the Utilities XLU, as it gained 7.06%. The Real Estate XLRE gained 5.84% and the Technology XLK gained 5.29%.

On the other hand, the weakest sector was the Energy XLE, as it lost 9.06%. The Health Care XLV lost 0.89% and the Materials XLB lost 0.84%.

Based on the above, we decided to choose our stock picks for the next week. We will choose our top 3 long and top 3 short candidates using a contrarian approach, and top 2 long and top 2 short candidates using trend-following approach:

Contrarian approach (betting against the recent trend):

  • buys: 1 x Energy, 1 x Health Care, 1 x Materials
  • sells: 1 x Utilities, 1 x Real Estate, 1 x Technology

Trend-following approach:

  • buys: 1 x Utilities, 1 x Real Estate
  • sells: 1 x Energy, 1 x Health Care

Contrarian approach

Top 3 Buy Candidates

XEC Climarex Energy Co. – Energy

  • Declining wedge pattern – potential upward reversal
  • Technically oversold – short-term correction play
  • Potential resistance level of $42-44

BSX Boston Scientific Corp. – Health Care

  • The price remains above support level of $41.5-42.0
  • Potential breakout above month-long downward trend line
  • Potential resistance level of $43.5-44.5 (upside profit target level)

NUE Nucor Corp. – Materials

  • Potential breakout above declining wedge pattern
  • Positive technical divergences
  • The price bounces off support level of $47

Summing up, the above contrarian long stock picks are just a part of our whole Stock Pick Update. The Energy, Materials and Health Care sectors were the weakest since January 17. So that part of our ten long and short stock picks is meant to outperform in the coming days if the broad stock market acts in a different way than before.

We hope you enjoyed reading the above free analysis, and we encourage you to read today’s Stock Pick Update – this analysis’ full version. There, we include the remaining long and short stock picks for the next week. There’s no risk in subscribing right away, because there’s a 30-day money back guarantee for all our products, so we encourage you to subscribe today.

Check more of our free articles on our website – just drop by and have a look. We encourage you to sign up for our daily newsletter, too – it’s free and if you don’t like it, you can unsubscribe with just 2 clicks. If you sign up today, you’ll also get 7 days of free access to our premium daily Gold & Silver Trading Alerts. Sign up for the free newsletter today!

Thank you.

Paul Rejczak
Stock Trading Strategist
Sunshine Profits – Effective Investments through Diligence and Care


Disclaimer

All essays, research and information found above represent analyses and opinions of Paul Rejczak and Sunshine Profits’ associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Paul Rejczak and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Rejczak is not a Registered Securities Advisor. By reading Paul Rejczak’s reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Paul Rejczak, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.