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.

Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 81% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

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.

China Virus not to Blame for Recent Crude Oil Drop

Financial markets grew, despite reports of virus spreading, which remains alarming, and an increasing number of companies are experiencing supply disruptions due to interruptions in their usual supply chains.

This situation seems to be a severe test of China integration into the world economy and how its problems can affect the growth dynamics of other regions of the world.

A picture containing map, text

Description automatically generated

At the end of trading on Monday, Brent quotations declined below $54, in the region where Oil spent a couple of weeks at the end of 2018 at the peak of stock markets’ fears. At that time, market participants were afraid that further tightening of monetary policy would sharply slow down the growth rates of the largest world economies.

There is a striking contrast to how stock markets react this time. Fearing the coronavirus, Brent began its decline on January 20, losing 17% to a low on Tuesday morning. The difference between the S&P highs and lows over the same period is not more than 4%, and the net decline over this period is 1.7%, only one-tenth of Crude’s reaction. For comparison, between early October and late December, the S&P500 lost about 20%, while Oil lost twice as much.

A close up of a map

Description automatically generated

This difference in the reaction of stock and commodity markets, as well as the inability to find the bottom of Oil, is clear evidence of the energy market weakness. It’s not so much about the coronavirus and fears of declining Oil consumption in China.

Increasingly, the underlying reason is the relative stagnation of demand, while US production increases. Worse yet, the markets are well aware that current OPEC+ quotas are forced short-term measures, as well as periodic supply disruptions from the Middle East.

There is much Oil in the market. Potentially, there is much more Oil ready to be produced than is needed. Many countries prepare to do so as soon as they get the chance. And this makes prices vulnerable.

This is a wrong signal for Oil in the short term. The current situation can well be described as a market play against OPEC. Speculators bet that artificial restrictions are an unstable system, which will collapse sooner or later. The coronavirus outbreak now makes us think that it will happen sooner rather than later.

In the early 1990s, the market (not only the Soros Foundation) bet against the Bank of England that it would not be able to keep Pound course and volatility in times of economic decline.

Them the market won. It is quite probable that it will win this time too, sending Oil into free flight for a while. Unfortunately for the prices, it will mean a sharp decline in the coming weeks and months, but in the long term, such a strategy may be beneficial for oil producers too.

This article was written by FxPro

Stocks Ready to Jump Again, but Is Downtrend Over?

The U.S. stock market indexes gained 1.2-1.7% on Friday, as they retraced some of the recent decline. The S&P 500 index fell over 200 points from its record high of 3,027.98 recently. Then it retraced more than 120 points of that sell-off, before getting back to the low again on Thursday. But on Friday the Dow Jones Industrial Average gained 1.2% and the Nasdaq Composite gained 1.7%.

The nearest important resistance level of the S&P 500 index is now at around 2,900. The next resistance level is at 2,940-2,950, marked by last week’s local high. On the other hand, the support level is at 2,855-2,865, marked by Friday’s daily gap up of 2,856.67-2,864.74.

The broad stock market broke below its two-month-long upward trend line in early August, and then it quickly retraced most of the June-July advance. The S&P 500 index remains below the previous medium-term local highs. For now, it looks like a consolidation following the January-February advance. However, it could also play out as a long-term topping pattern ahead of a more meaningful downward correction:

Positive Expectations Again

The index futures contracts trade 1.2-1.4% above their Friday’s closing prices. So expectations before the opening of today’s trading session are very positive again. The European stock market indexes have gained 1.3-1.4% so far. There will be new important economic data releases today.

The S&P 500 futures contract trades within an intraday uptrend, as it extends its late last week rally. The nearest important resistance level is at 2,930-2,940, marked by the short-term local highs. On the other hand, the support level is at 2,895-2,900, among others. The futures contract gets closer to its last week’s high, as the 15-minute chart shows:

Nasdaq 100 Close to 7,700

The technology Nasdaq 100 futures contract follows a similar path, as it trades within an intraday uptrend. It bounced off support level of 7,350-7,400 on Thursday. The nearest important resistance level is now at 7,700-7,750. The Nasdaq futures contract remains above the short-term upward trend line, as we can see on the 15-minute chart:

Big Cap Tech Stocks Remain at Resistance Levels

Let’s take a look at the Apple, Inc. stock (AAPL) daily chart. The stock retraced most of the recent decline last week, as it got back to the broken upward trend line. But then it reversed off the resistance level of $210-215. The stock remains close to that resistance level. We could see another attempt at breaking higher:

http://stockcharts.com

Now let’s take a look at the daily chart of Microsoft Corp. stock (MSFT). The stock remains below the broken upward trend line. The resistance level is still at $140-145. For now, it looks like a consolidation within a medium-term uptrend:

Dow Jones Extending Consolidation

The Dow Jones Industrial Average broke below its upward trend line in late July. Then it fell to around 25,500, before bouncing off the 200-day moving average. Last week the blue-chip stocks’ gauge got back lower and it broke slightly below that average. But then it bounced off that support level again. We could see more short-term fluctuations following the mentioned late July – early August sell-off:

Nikkei Remains Close to 20,500

Let’s take a look at the Japanese Nikkei 225 index. It broke below an over month-long upward trend line in July. Then it fell slightly below the 20,500 mark again. The market continues to trade along the previous medium-term lows:

The S&P 500 index broke below the upward trend line in late July, as investors reacted to the Fed’s Rate Decision release, among other factors. We saw technical overbought conditions along with negative technical divergences then. And the market declined following renewed trade war fears. Recently it was rebounding off the support level of around 2,800-2,820. Has the bottom been reached? For now, it looks like a consolidation following the decline.

Concluding, the S&P 500 index will likely open higher again today. The market may retrace more of its recent sell-off. If the index breaks above its last week’s high, we could see more buying pressure.

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.

China and Germany Support Markets, Now The Initiative is With The Fed

These measures supported national stock indices, which have been leading in the region since the beginning of the day, adding more than 1.5%.

Prior to that, it was reported on Friday that the coalition government of Germany is preparing to soften its budget rule to help the economy avoid a recession. GDP, as was reported last week, has fallen in the second quarter, with business sentiment declining to multi-year lows in August. This promises to lead to a further downturn in the economy in the third quarter.

Both Germany and China are heavily dependent on world trade, so they are the first to be pressured by growing trade conflicts. The governments of these countries are almost simultaneously considering measures to sustain domestic demand, with little opportunity to influence external demand.

Many other economies are also expected to take similar measures to stimulate domestic demand through lower interest rates, which further reduces interest rates in debt markets. In the financial markets, low-interest rates support demand for raw materials and stocks, while in the economy as a whole, it strengthens lending. On the other hand, there is also a fear of low rates in the markets, as they accompany the economic downturns.

Simply put, the markets are waiting for interest rates to decline as well as also being afraid of it, as it is a sign of recession. Consequently, in these conditions, central bankers will have to work hard to keep the markets from volatility, which may be caused by positions that are either too hard or too soft.

From this point of view, a new week may be important to clarify the Fed’s position. Minutes of the FOMC meeting will be published on Wednesday, providing a greater explanation of the July rate cut. Meanwhile, on Thursday and Friday, at the central bankers’ symposium in Jackson Hole, we will hear the latest estimates and forecasts on monetary policy.

The main focus of the markets will be on whether the Fed is ready to continue cutting rates this year. This is because the markets are pricing rate cuts at each of the three remaining meetings this year and even a 10% chance of double-digit rate cut in one of the meetings. Fed Governor Jerome Powell has said that the July easing is just a mid-cycle adjustment, not the start of a prolonged easing cycle.

This article was written by FxPro

US Stock Market Overview – The Nasdaq Rallies, Lead by Apple, While Walgreens Weighs on the Dow

US stocks were mixed on Tuesday with the Nasdaq notching up a small 0.25% gains, the S&P 500 also finished in the black and the Dow Industrials bucked the trend. Sectors were mixed, led higher by real-estate and technology with energy the worst performing sector. This comes despite a surge in crude oil prices which notched up robust gains.  Durable goods orders were subdued and GM reported weak car sales. The Atlanta Fed up its forecast of Q1 GDP growth which helped the dollar remain buoyed.

Durable Goods Orders Slide

Business investment in the US is dipping according to the US Commerce Department. US orders for non-defense capital goods excluding aircraft slipped 0.1% pulled down by declining demand for machinery. The January figures were revised slighter higher to 0.9% from 0.8%. Expectations were for core capital goods orders to increase 2.6% year over year. Shipments of core capital goods were flat in February. Headline durable goods orders dropped 1.6% in February. The report by the Commerce Department was delayed because of the government shutdown. Orders for motor vehicles dipped 0.1% in February. Orders for non-defense aircraft plunged 31.1% after rising 9.2% percent in January.

GM Reports Sales Drop

The drop in vehicle sales reported by the commerce department was mimicked by a sales report released by General Motors on Tuesday. The company reported Q1 sales on Tuesday that fell 7% year over a year saying that buyers are spending more on expensive sport utility vehicles and pickup trucks. The company said that same store sale on transaction prices for pickups increased to $8,040 compared with the outgoing models in the same quarter of 2018, reflecting the continued interest among buyers.

GDP Forecasts Point to Stronger Growth in the US

Solid construction spending helped buoy the forecasts for Q1 growth in the US. The Atlanta Fed’s GDPNow model is now tracking 2.1% growth up from 1.7% previously.  The New York Fed’s Nowcast model is tracking 1.3% for Q1 and 1.6% for Q2.  Final Q4 growth was just revised down to 2.2% from 2.6% according to the US Commerce Department.

World Trade is Contracting

World trade slipped by 0.3% in the Q4 and is forecast to growth by 2.6% in 2019 according to the  World Trade Organization. It forecast in September that 2018 growth would be 3.9%, down from 4.6% in 2017. Goods trade volumes are expected to grow more strongly in developing economies this year, with 3.4% growth in exports compared with 2.1% in developed economies.

Energy Shares and Oil Diverge

There was a divergence in energy shares on Friday. The entire sectors were lower, from upstream to integrated and downstream. Even oil services stocks were under pressure. This came despite a breakout in crude oil prices which eclipsed the 200-day moving average and close at $62.75, the highest close since early November.

Asia Eyes Internal Reform, Europe Down On Growth Fears, US Market Waits On FOMC

Asia Was Broadly Higher Ahead Of Deng Xiaoping anniversary

Asian equities were broadly higher in Monday trading as traders eye an anticipated speech from Chinese President Xi Jinping ahead of the Deng Xiaoping anniversary. The anniversary marks 40 years since reforms within China opened its doors to foreign trade and comes at a time when Chinese reforms are desperately needed.

With Chinese/US trade relations the worst they’ve been in decades there is an expectation President Xi will begin implementing new reforms.

The Australian ASX led Asian indices higher with a gain of 1.00% on strength in financials and mining but nearly all sectors were showing gains. The Nikkie was next strongest with a gain near 0.60% while the Shang Hai and Korean Kospi both close with gains near 0.10%. The Hong Kong Heng Seng was the only major indices in the region to close in negative territory.

European Markets Fall On Global Growth Worry

European markets fell on Monday despite optimism in Asia. A report issued by the Bank of International Settlement over the weekend warns volatility and sharp market sell-offs are not over and that has the market edging lower.

Shares of ASOS fell the hardest. The UK retailer cuts its full-year forecasts on signs of slowing growth and led the entire retail sector to a loss of -1.0%. Shares of ASOS itself shed a gaping 36% by midday and were heading lower.

The French CAC was in the lead at midday, down around -0.80% for the early session. The German DAX was close behind with a loss near -0.75% and the UK FTSE was close behind that. The BIS report, coupled with last week’s weak Chinese retail sales and industrial production data, were the primary causes of today’s declines.

US Markets Edge Lower Ahead Of The FOMC

US index futures were indicated flat in the earliest hours of today’s pre-open session and then slowly fell as the opening bell approached. The BIS report, weak data from China, and fear of an upcoming government shut-down all played a role. The BIS report is really nothing new, traders have been expecting the same for some time, the problem is that it puts the issue front and center where it can’t be ignored, market volatility is going to be around for a while.

Traders are now turning their focus to an FOMC policy statement due out on Thursday. The central bank is largely expected to raise rates by a quarter percent and to indicate a slow-down or pause of future rate hikes until data shows inflation has returned to acceleration. A variation from this outlook is likely going to spark a major move in equities and currencies. The DXY Dollar Index fell in early Monday trading but is hanging near a long-term high, just under major resistance, and is set to make a big move when the FOMC statement is released.

Equity Markets and USD Rise as US Could Tolerate NAFTA Deadline in 2019 for the Right Deal

US Treasury Secretary Steve Mnuchin gave an interview on NAFTA over the weekend where he said that President Trump is “more determined to have a good deal than he’s worried about any deadline”. He spoke about the US acceptance of the deadline slipping into 2019 once the right deal for the US is achieved. USDCAD is trading around 1.28735 with USDMXN trading around 19.90000. There is an element of “Risk on” this morning as equity markets moved up and USDJPY pushed to new highs. Gold has slipped lower while WTI Oil is higher, trading around $71.89.

Mnuchin also mentioned the US-China trade war and declared that it is currently ‘on hold’.

Canadian Consumer Price Index (MoM) (Apr) was 0.3% versus an expected 0.4% against 0.3% previously. Consumer Price Index (YoY) (Apr) was 2.2% versus an expected 2.3% against 2.3% previously.

Canadian Retail Sales ex Autos (MoM) (Mar) were -0.2% versus an expected 0.5%. Retail Sales (MoM) (Mar) were 0.6% against an expected 0.3% from 0.4% previously which was revised up to 0.5%. Retail sales exceeded expectations after missing expectations for the December and January readings with a higher revision welcome. USDCAD moved higher from 1.27961 to 1.28838 after the data release.


Suggested Articles


Baker Hughes US Rig Count numbers matched the previous release last Friday, which showed that there were 844 Oil rigs in operation. With Oil at the highest levels in recent times, on the back of a bigger than expected draw in inventories on Wednesday; this data can set the tone for traders as they look to the week ahead.

Japanese Exports (YoY) (Apr) were released, coming in at 7.8% against an expected 8.1% from 2.1% previously. Imports (YoY) (Apr) were also released, coming in at 5.9% against an expected 9.6% from -0.6% previously. Merchandise Trade Balance Total (Apr) came in at ¥626.0B against an expected ¥405.6B. This data shows a fall in both Imports and Exports but an increase in the Trade Balance.

  • EURUSD is down -0.18% overnight, trading around 1.17475.
  • USDJPY is up 0.55% in the early session, trading at around 111.343
  • GBPUSD is down -0.14% this morning trading around 1.34378.
  • USDCAD is down -0.07% overnight, trading around 1.28715
  • Gold is down -0.49% in early morning trading at around $1,286.41
  • WTI is up 0.60% this morning, trading around $71.89

This article was written by FxPro

How will U.S. Sanction on Iran Impact on the Global Markets?

While there are many words that may be used to describe Donald Trump’s tenure as U.S. President, ‘dull’ is certainly not one of them. A list of his recent endeavors definitely makes for interest reading, from initiating a trade war with China to withdrawing from the controversial Iran Nuclear Deal struck by his predecessor Barack Obama back in 2015.

Essentially, this deal compelled the Iranian government to limit its nuclear ambitions, in exchange for the removal of the economic sanctions that had previously been improved on the international stage.

In this article below, we’ll explore the aftermath of Donald Trump’s decision to withdraw from the agreement and reimpose sanctions, while asking how this is impacting on the global financial markets.

The Iran Deal – What we Know so Far

In truth, Trump has been critical of the Iran Nuclear Deal ever since his 2016 election campaign, claiming that the nation is continuing to build a nuclear program despite providing no evidence to support this assertion.

He has remained on the attack throughout his tempestuous Presidency, so it came as no surprise when he officially withdrew from the agreement earlier this month. At the same time, Trump pledge to reimpose previously lifted sanctions on the Iranian economy, which will be rolled out in line with 90 and 180-day wind-down periods.

In doing so, of course, he has broken cover from his European allies, many of whom have been critical of the move (particularly in the current geopolitical climate). In fact, the leaders of the other five nations that brokered the original agreement back in 2015 expressed their disappointment at the decision, including French President Emmanuel Macron and Theresa May.

Unsurprisingly, Russia also expressed their dismay at the decision, although deputy Russian ambassador Dmitry Polyansky confirmed that his political colleagues were less than surprised.

There is a wider issue developing, however, with the U.S. also pledging to sanction any nations that refuse to decrease or cease their trade with Iran after the final wind-down period. The EU is taking drastic steps to negate this issue, by reviving legislation that will enable European companies to continue their current volume of trade with Iran while remaining immune to American sanctions.

This so-called “blocking statute” will elevate tensions between the U.S. and the EU, and there’s no doubt that this could place a huge strain on the global economy and financial markets.


Suggested Articles


How will These Developments Impact on the Financial Markets?

For now, of course, the markets have responded relatively well to the withdrawal of the U.S. from the Iran deal and their supposed trade war with China, thanks to a combination of deterministic trader outlooks and the fact that so much of Trump’s administration consists of smoke and mirrors.

In fact, stock and bond markets have both enjoyed gains since the announcement, while oil has experienced two significant price hikes as a result of Trump’s anti-Iran rhetoric.

Premium crude prices soared by $1.24 to $70.15 per barrel when Trump initially discussed the withdrawal back in March, while confirmation of the decision in May helped Brent oil to achieve a four-year high of $80 per barrel. These hikes have been largely inspired by the fact that the reintroduction of sanctions will reduce Iran’s oil trade, diminishing the global supply and placing a greater emphasis on demand.

While this is great news for investors and day traders with access to online trading platforms, the climate could change quickly if the EU does indeed to undermine the U.S. and negate sanctions. The US currently does have a financial connection to Iran and Europe may be worried that an escalation of the conflict can slow down its economy.

But after all, Trump is not a man who responds well to any kind of public challenge, and this could well lead to an economic impasse that has a more damaging impact on the global economy.

The Week Ahead – NAFTA, China, Iran and Italy in Focus

On the Macro

For the Dollar, while soft inflation has pinned back the Dollar, Tuesday’s retail sales figures out of the U.S should revive the Dollar rally, though it’s not just the stats this week, with geopolitics and FED talk in focus. The Dollar Spot Index ended the week down 0.03% to 92.537

For the EUR, Ahead of inflation figures scheduled for release out of the Eurozone on Wednesday, 1st quarter GDP numbers out of Germany on Tuesday will be a key driver in the early part of the week. Forecasts are EUR negative, while Draghi may try to ease concerns over the economy on Wednesday, though unlikely to deliver anything hawkish on the policy front. The EUR/USD ended the week down 0.14% to $1.1943.

For the Pound, it was pretty dovish on Super Thursday, with any hopes of a rate hike this year now reliant upon the stats, making the Pound ever more sensitive to this Tuesday’s employment numbers. The GBP/USD rose by 0.08% to $1.3542 last week.

For the Loonie, the end of the week could spur more strength should April retail sales figures come in hot, though no one will care if NAFTA talks deal a blow to Canadian trade terms. The USD/CAD ended the week down 0.41% to $1.2795.

Out of Asia, While China’s April industrial production figures will influence market risk appetite on Tuesday, Japan could see an end to its longest stretch of economic growth since the 1980s on Wednesday, with the economy forecasted to contract in the 1st quarter. April employment numbers out of Australia on Thursday will also need to be watched, any weak numbers likely to see the Aussie Dollar back to $0.74 levels. The AUD/USD ended the week up 0.05% to $0.7543.

Geo-Politics

On the political front, there’s plenty to consider through the week…

Loonie Relief: NAFTA talks are set to continue with the deadline having been extended to Thursday, 17th May, the Loonie set to rocket in the event of a favorable outcome.

Trade War Cometh: U.S – China trade talks kick off on Tuesday, while the U.S Trade Representative Office will be holding public hearings on proposals to impose tariffs on $50bn of China imports, the hearings scheduled to take place next Wednesday and Thursday.

Ciao Italia: Italy’s populist and anti-establishment Five Star and League parties inch closer to forming a coalition. It’s either a coalition this week and a revival of talks of Italy leaving the Euro or back to the ballot boxes, neither particularly positive for the EUR.

Iran: The EU’s meeting on Iran on Tuesday will draw some attention. The EU may need to tread carefully, with the U.S administration likely to frown upon any decision to stay within the agreement and leave the U.S out in the cold at a time when Trump’s eyeing trade terms.


Suggested Articles


The Rest

ECB President Draghi is set to speak on Wednesday, with other members of the ECB scheduled to speak through the week, though there’s unlikely to be any talk of a shift in outlook towards interest and deposit rates.

FED Talk through the week may sit behind noise from the Oval Office, but can’t be ignored with members Williams, Mester, Kashkari, Bullard, Brainard and Bostic scheduled to speak through the week.

The RBA’s May meeting minutes due out on Tuesday could put more pressure on the Aussie Dollar, the RBA seemingly intent on standing pat on policy this year.

Crude Oil prices are in focus with, not only the monthly OPEC and IEA reports due out, but talk of sanctions on Iran and the EU’s decision on whether to continue with the agreement key to outlook on supply disruption, China, and Russia unlikely to be cutting oil imports from Iran.

Join our Telegram Channel

US Futures Rise the Day After Trump’s Iran Decision, Oil Soars

Geo-Political Waves and Anxious Investors, Asian Equities Tentative Early

Asian and European markets have been rather cautious early this morning and lost value after the tentative results on Wall Street yesterday. Geopolitical news has dominated the investment landscape. The U.S decision to walk away from the Iranian nuclear deal has raised plenty of eyebrows. And China, Japan, and South Korea are holding a summit today, in which economics and North Korea are getting plenty of attention. US futures set to open higher. US production price index was released below analyst expectations at 2.6%, Core PPI came out in line with analysts’ expectations at 0.2%.

German Industrial Production data was slightly stronger than expected yesterday, and Italian Retail Sales will be released soon. Wall Street continues to prove uneasy, and American investors are still looking for equilibrium due to the strong U.S Dollar.

Major Currencies Testing Technical Limits, Consumer Price Index Tomorrow

The Yen, Euro, and Pound continue to be tested in forex. Major currencies are near important technical limits against the U.S Dollar. Producer Price Index figures will come from the States today, and tomorrow’s Consumer Price Index reading will cause waves. The Federal Reserve is expected to raise its interest rate in June already, but if U.S data remains strong it will increase the likelihood of an additional rate hike in the early fall – potentially September.

Energy Sector and Iran Conversation, Crude Oil Testing Highs this Morning

U.S Crude Oil values have jumped higher and the commodity is comfortably above 70.00 Dollars a barrel. Supply numbers will come from the States today, but the topic of conversation will be Iran and how renewed sanctions from the U.S will impact the energy sector.

Inflation Numbers from U.S Coming, Crude Oil Inventories Data

The Producer Price Index from the U.S will get the attention of traders upon its release at 12:30 GMT.

  • 8:00 AM GMT, Italy, Retail Sales
  • 12:30 PM GMT, U.S, Producer Price Index
  • 14:30 PM GMT, U.S, Crude Oil Inventories

Yaron Mazor is a senior analyst at SuperTraderTV.

SuperTraderTV Academy is a leader in investing and stock trading education. Sign up for a class today to learn proven strategies on how to trade smarter.