What Distinguishes Japanese Technicians from Western Technicians

However, within years I realized that there were major shortcomings to the Western technical approach as they were based upon technical studies which used lagging indicators.

One of my mentors, Larry Williams expressed that sentiment in the best possible way. He said that as a Western technical analysts we are like individuals sitting at the back of a boat looking at the wake caused by the propellers. We are attempting to derive where the boat is headed by determining where it has been. Truly a lagging indicator. But he added one caveat, “only the captain knows when he will turn the wheel”.

However, it was a client of mine that first exposed me to the art of Japanese technical analysis. Within my first few years of trading, I noticed that the vast majority of first-time futures traders lost money. Within that pool of new traders, I noticed one gentleman who had the uncanny knack of selling market tops right before a key reversal, as well as buying market bottoms before a pivot occurred.

After witnessing him correctly predict and profit from 10 consecutive trades, I realize he was using a technique that was completely foreign and unfamiliar to me. I asked him what techniques he used to have such a stellar performance and he answered that it would be too complicated to explain, but he could send me a book that would detail this technique.

The book I’m referring to is the Japanese chart of charts written by Seiki Shimizu. It was the first book written by a famous Japanese trader and translated into English in 1986. It is one of the more difficult books I have ever tackled in that the Japanese language is composed of “Kanji”, or word pictures.

According to Seiki Shimizu, “A chart is like a cat’s whiskers” In his book, he writes “Standing on the corner we notice many things… in the case of a skipping rope, a child will always focus on the moving rope while jumping. However, this habit and instinct are not limited to human beings. A cat preying for a mouse will wait near a likely hiding hole. If a mouse does appear, the cat must decide which way it thinks the mouse will go and springs in that direction once the mouse begins to move. I don’t think the cat understands the mouse’s feelings and thought patterns. It’s the cat’s whiskers that are said to have the telepathic power of being able to interpret a mouse’s movement by smell, light, and wind. Therefore, I believe it is this power that moves a cat’s whiskers, whereupon the cat decides whether to wait or chase after the mouse.

It is said that “A market price is a living thing.”

Japanese Candlestick Charts and their patterns were conceived over three hundred years ago by a rice trader named Sokyu Honma (1716 -1803). Sokyu lived in Sakata, Japan, and was also known as Sokyu Honma and Munehisa Homma.

It was rumored that he made 100 consecutive profitable trades. His success was so great that he achieved the rank of honorary Samurai, as well as attaining the government rank of a financial advisor.

At first, his methods of trading were kept a secret as they were passed down when he compiled a book in 1755 called the ‘Fountain of Gold – the Three Monkey Record of Money’. This book detailed his findings and observations of market sentiment.

Simply put the Japanese technical approach can mathematically quantify market sentiment. Something that has alluded to Western traders.

This article has been written as an ancillary discussion to the interview that David Linda myself did this morning in which we spoke about my methodology. As it is too complex to be able to discuss the totality within a single opening letter I am providing links to articles that I have written for Kitco education at the end of this article.

I hope that the knowledge presented within these brief presentations will allow you as a trader to gain insight, and most importantly be a more effective trader.

For those who want more information, please use this link.

Wishing you, as always, good trading and good health,

Gary S. Wagner

References on the Japanese candlestick technique found in the Kitco education section;

THE HISTORY OF JAPANESE TECHNICAL ANALYSIS

EAST VERSUS WEST (LESSON ONE)

EAST VERSUS WEST – CLASSIC NAMES AND EXPLANATIONS OF JAPANESE CANDLESTICKS (LESSON TWO)

THE SAKATA FIVE

AN INTRODUCTION TO HEIKIN-ASHI CHARTS

July 8th 2021: Dollar Index Unmoved Following Fed Minutes

Charts: Trading View

EUR/USD:

Monthly timeframe:

(Technical change on this timeframe is often limited, though serves as guidance to potential longer-term moves)

Closing the book on the month of June witnessed EUR/USD—in the shape of a near-full-bodied bearish candle—touch gloves with familiar support at $1.1857-1.1352 and erase 3.0 percent. A bullish revival from the aforesaid support shines the technical spotlight on 2021 peaks at $1.2349; additional enthusiasm may welcome ascending resistance (prior support [$1.1641]).

July currently trades 0.4 percent lower.

Based on trend studies, the primary uptrend has been underway since price broke the $1.1714 high (Aug 2015) in July 2017. Furthermore, price breached major trendline resistance, taken from the high $1.6038, in July 2020.

Daily timeframe:

Unchanged technical structure from previous analysis.

Quasimodo support at $1.1836 remains underwater on the daily scale, despite Europe’s shared currency receiving a modest boost following the latest FOMC minutes[1]. Continued interest south of $1.1836 throws light on another Quasimodo formation at $1.1688.

As for trend on the daily scale, the currency pair has exhibited an early consolidation phase since 2021, following healthy gains in 2020.

According to the RSI indicator, bullish divergence is still on the table out of oversold space, action implying that despite price registering fresh lows, downside momentum has slowed and warns traders that buyers are perhaps on the doorstep.

H4 timeframe:

Demand from $1.1794-1.1822 appears overstretched, having US hours on Wednesday clip the lower edge of the zone and touch a session low of $1.1781. With buyers perhaps troubled and breakout sellers filled, Quasimodo support at $1.1749 could be the next level to welcome price action.

H1 timeframe:

US trading on Wednesday witnessed H1 establish a hammer pattern—typically viewed as a bullish cue. What’s interesting is the candle formed a whipsaw through $1.18 bids. This filled protective stop-loss orders from those attempting to long $1.18 and trapped breakout sellers (bear trap). Support at $1.1784 (a previous Quasimodo resistance) was in place to facilitate a $1.18 stop run and, as a result, permitted informed buyers to jump on board.

Maintaining position north of $1.18 brings forward demand-turned supply at $1.1838-1.1850 and the 100-period simple moving average at $1.1844 (a logical upside target for $1.1784 longs), with a break unmasking $1.19.

The view from the RSI shows bullish divergence, informing traders downside momentum is slowing.

Observed levels:

Should H1 buyers secure position above $1.18 and head for H1 demand-turned supply at $1.1838-1.1850, this could be a location sellers attempt to make a show from. The rationale comes from Quasimodo support at $1.1836 on the daily timeframe offering little right now and H4 demand at $1.1794-1.1822 echoing a feeble tone. On top of this, June has displayed a series of lower lows and lower highs.

AUD/USD:

Monthly timeframe:

(Technical change on this timeframe is often limited, though serves as guidance to potential longer-term moves)

Since the beginning of 2021, buyers and sellers have been squaring off south of trendline resistance (prior support – $0.4776 low) and supply from $0.8303-0.8082. Thanks to June’s 3.0 percent decline, however, support is featured at $0.7394. Additional downside pressure brings light to demand at $0.7029-0.6664 (prior supply).

July is down 0.2 percent.

Trend studies (despite the trendline resistance [$1.0582] breach in July 2020) show the primary downtrend (since mid-2011) remains in play until breaking $0.8135 (January high 2018).

Daily timeframe:

Unchanged technical structure from previous analysis.

Buyers and sellers are in the process of battling for position between supply-turned demand at $0.7453-0.7384 (houses a number of Fibonacci levels) and the 200-day simple moving average at $0.7570, a dynamic value sheltered south of resistance from $0.7626.

In terms of trend, 2020 was a respectable year for AUD/USD, though 2021 is on the back foot.

From the RSI, the value continues to ease out of oversold, establishing bullish divergence. This reveals downside momentum is slowing and may fuel a bullish phase.

H4 timeframe:

Between Quasimodo resistance at $0.7599 (a level welcoming sellers on Tuesday) and support at $0.7440 (parked under Friday’s low at $0.7445) are key levels to be mindful of on the H4 timeframe.

H1 timeframe:

Demand at $0.7479-0.7492—though not a premium formation—aided an AUD bid heading into the early hours of Europe on Wednesday, dethroning $0.75 and clocking highs just south of resistance at $0.7546. Things soured amid US hours, nonetheless, dropping through noted areas to test space ahead of Quasimodo support at $0.7460 before retesting the mettle of $0.75 as resistance in recent hours.

Momentum, according to the RSI, reveals mild bullish divergence forming. This essentially shows pressure to the downside easing, serving as a warning that buyers could enter the fray.

Observed levels:

The response from the lower side of $0.75 is likely to draw technical eyes on the H1. Evidence in favour of sellers taking the wheel here is room to push lower on H4, daily and monthly timeframes, with H1 players perhaps taking aim at Quasimodo support from $0.7460, followed by the upper side of supply-turned demand at $0.7453-0.7384 on the daily timeframe.

USD/JPY:

Monthly timeframe:

(Technical change on this timeframe is often limited, though serves as guidance to potential longer-term moves)

Following January’s bullish engulfing candle and February’s outperformance, March concluded up by 3.9 percent and cut through descending resistance, etched from the high ¥118.66.

Although April finished lower by 1.3 percent and snapped the three-month winning streak, May (+0.2 percent) held the breached descending resistance and echoed support in June, higher by 1.4 percent.

July trades 0.5 percent in the red.

Daily timeframe:

Tuesday cutting through trendline support, taken from the low ¥102.59, and Wednesday embracing this position—albeit in the shape of a doji indecision candle—highlights supply-turned demand at ¥107.58-106.85 as a reasonable downside target.

Territory north underlines long-term resistance at ¥111.88-111.20, located south of supply at ¥112.68-112.20.

Trend studies reveal the pair has been trending higher since the beginning of the year.

In terms of where we stand on the RSI, the value marginally dropped through the lower wall of an ascending channel between 58.82 and 47.51. Below here, the 50.00 centreline is in sight.

H4 timeframe:

For those who read Wednesday’s technical outlook you may recall the following (italics):

Resistance from ¥111.56 made a show at the tail end of last week, delivering a bearish bias on Friday. Territory north of current resistance shines light on Quasimodo resistance at ¥112.17.

Continued interest to the downside positions Quasimodo support at ¥110.48 in the crosshairs, sharing chart space with Fib retracement levels (Fib cluster) and trendline support, extended from the low ¥108.56.

As evident from the H4 chart, Quasimodo support at ¥110.48 and associated Fib studies delivered a floor on Wednesday. Buyers, although appearing hesitant, could take aim as far north as resistance from ¥111.56.

H1 timeframe:

Support coming in from Fib studies on the H4 at around ¥110.50 appears to have reinvigorated interest at H1 demand from ¥110.47-110.55, despite its lower edge giving way early Wednesday.

Bulls taking the lead from current demand draws attention to ¥111 and the 100-period simple moving average around ¥110.97, while knocking under the aforesaid demand places support at ¥110.33 in the light.

Coming from the RSI, the indicator is engaging the 50.00 centreline. Important structure to be aware of are support at 18.76 and resistance from 78.38.

Observed levels:

As mentioned in previous analysis, longer term, a decisive trendline support breach on the daily timeframe, drawn from the low ¥102.59, is likely to place any buying under pressure. Until that point, though, short-term action is focused on support around the ¥110.50ish region on the H4, and H1 demand at ¥110.47-110.55. Near-term upside targets rest between the ¥111 level and the 100-period simple moving average around ¥110.97 on the H1.

GBP/USD:

Monthly timeframe:

(Technical change on this timeframe is often limited, though serves as guidance to potential longer-term moves)

Since February, GBP/USD has echoed a rangebound environment just south of $1.4377: April high 2018. This follows December’s (2020) trendline resistance breach, taken from the high $2.1161, which could serve as support if retested.

July is currently down 0.2 percent.

Primary trend structure has faced lower since early 2008, unbroken (as of current price) until $1.4377 gives way.

Daily timeframe:

Unchanged technical structure from previous analysis.

Quasimodo support at $1.3609 is likely to remain on a number of watchlists, having seen the base dovetail closely with a 38.2% Fib retracement at $1.3641 and the 200-period simple moving average, circling $1.3658. To the upside, emphasis is on resistance at $1.4003.

Momentum, measured by the RSI, has slowed to the downside of late, despite fresh (price) lows recently forming. This is shown by way of RSI bullish divergence.

H4 timeframe:

Unchanged technical structure from previous analysis.

Quasimodo support from $1.3761 re-entered the fight on Wednesday and held a mild bullish tone. Ultimately, aside from Tuesday’s top at $1.3899 and a handful of highs around $1.3939, scope to climb to supply at $1.3986-1.3958 is seen. Note that a resistance zone is also present directly above at $1.4027-1.3998.

Venturing south of this level unlocks another Quasimodo support at $1.3712.

H1 timeframe:

Unchanged technical structure from previous analysis.

Similar to Tuesday, Wednesday settled around the lower side of $1.38 and nearby 100-period simple moving average at $1.3814, following earlier optimism a touch north of $1.3750.

Sellers establishing position at $1.38 potentially unlocks support from $1.3750, set beneath H4 Quasimodo support mentioned above at $1.3761. North of $1.3814, on the other hand, shifts interest to resistance at $1.3861 and $1.39.

The RSI recently formed bullish divergence off support at 30.00 (the oversold threshold), with the indicator now touching gloves with the 50.00 centreline. Above here, overbought resistance is found at 72.00.

Observed levels:

With H4 coming from Quasimodo support at $1.3761, this may discourage $1.38 sellers on the H1. A H1 close above the 100-period simple moving average around $1.3814, therefore, could witness bulls take control and head for H1 resistance at $1.3861.

DISCLAIMER:

The information contained in this material is intended for general advice only. It does not take into account your investment objectives, financial situation or particular needs. FP Markets has made every effort to ensure the accuracy of the information as at the date of publication. FP Markets does not give any warranty or representation as to the material. Examples included in this material are for illustrative purposes only. To the extent permitted by law, FP Markets and its employees shall not be liable for any loss or damage arising in any way (including by way of negligence) from or in connection with any information provided in or omitted from this material. Features of the FP Markets products including applicable fees and charges are outlined in the Product Disclosure Statements available from FP Markets website, www.fpmarkets.com and should be considered before deciding to deal in those products. Derivatives can be risky; losses can exceed your initial payment. FP Markets recommends that you seek independent advice. First Prudential Markets Pty Ltd trading as FP Markets ABN 16 112 600 281, Australian Financial Services License Number 286354.

  1. https://www.federalreserve.gov/monetarypolicy/files/fomcminutes20210616.pdf

European Equities: U.S Nonfarm Payrolls in Focus

Economic Calendar

Friday, 2nd July

German Retail Sales (MoM) (May)

The Majors

It was a relatively bullish day for the European majors on Thursday.

The CAC49 led the way, rising by 0.71%, with the DAX30 and the EuroStoxx600 seeing gains of 0.47% and 0.62% respectively.

Market focus returned to economic data from the Eurozone and the U.S, supporting a partial recovery of Wednesday’s losses.

The upside was limited, however, in spite of a fresh record high Eurozone PMI and a weaker EUR.

Concerns over the rising number of new COVID-19 cases continued to limit the upside across the European majors.

The Stats

It was a busy economic calendar this morning. Following Tankan survey numbers from Japan and manufacturing PMI numbers from China, manufacturing PMI and unemployment figures from the Eurozone were in focus.

The Member States

Spain’s manufacturing PMI rose from 59.4 to 60.4, while Italy’s manufacturing PMI slipped from 62.3 to 62.2 in June.

Economists had forecast PMIs of 58.6 and 61.5 respectively.

For Germany, the manufacturing PMI increased from 64.4 to 65.1, which was down from a prelim 64.9.

The French manufacturing PMI fell from 59.4 to 59.0, which was up from June’s prelim 58.6.

The Eurozone

In June, the Eurozone’s manufacturing PMI increased from 63.1 to a record high 63.4, which was also up from a flash 63.1.

According to the June Survey,

  • Production increased sharply, with jobs growth hitting a survey peak in June.
  • Investment goods producers recorded the strongest growth, followed by intermediate goods producers.
  • While consumer goods producers continued to lag, growth was the most marked since Jun-2020.

By country, the Netherlands led the way in spite of a 2-month low PMI of 68.8. By contrast, Greece sat at the bottom of the table despite a 254-month high PMI of 58.6.

Germany ranked 3rd, with a 2-month high PMI of 65.1, with Italy’s 2-month low PMI of 62.2 leaving Italy in 5th spot.

Eurozone Unemployment

In May, the Eurozone’s unemployment rate fell from 8.1% to 7.9%, which was in line with forecasts.

From the U.S

Jobless claims and manufacturing sector PMIs were in focus.

In the week ending 25th June, initial jobless claims fell from 415k to 364k, which was better than a forecasted 370k.

The ISM Manufacturing PMI slipped from 61.2 to 60.6, however. Economists had forecast a more modest decline to 61.0.

The Market Movers

For the DAX: It was a relatively bullish day for the auto sector on Thursday. BMW rose by 0.74%, with Continental and Daimler ending the day up by 0.58% and by 0.52% respectively. Volkswagen saw a more modest 0.45% gain on the day.

It was also a bullish day for the banks. Deutsche Bank and Commerzbank ended the day up by 0.45% and by 0.33% respectively.

From the CAC, it was a bullish day for the banks. BNP Paribas and Credit Agricole rose by 1.15% and by 1.47% respectively. Soc Gen led the way, however, rallying by 3.38%.

It was also a bullish day for the French auto sector, however. Stellantis NV rose by 0.89%, with Renault rallying by 4.47%.

Air France-KLM and Airbus SE saw gains of 1.38% and 1.35% respectively.

On the VIX Index

It was a 2nd consecutive day in the red for the VIX on Thursday.

Following a 1.19% loss on Wednesday, the VIX fell by 2.21% to end the day at 15.48.

The NASDAQ rose by 0.13%, with the Dow and the S&P500 ending the day up by 0.38% and by 0.52% respectively.

VIX 020721 Daily Chart

The Day Ahead

It’s a quieter day ahead on the economic calendar. There are no material stats from the Eurozone to provide the majors with direction.

From the U.S, the stats will be more significant, however. June’s nonfarm payroll figures and unemployment rate will provide direction late in the session.

A number of FOMC members have begun talking of a shift in policy as early as next year. A marked increase in payrolls may force further pressure on the FED as inflationary pressures linger.

Away from the economic calendar, COVID-19 news will once more need monitoring. Any further lockdown measures will test support for the majors.

The Futures

In the futures markets, at the time of writing, the Dow Mini was up by 29 points, with the DAX up by 48 points.

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

U.S Nonfarm Payrolls Will Put the Greenback in the Spotlight Later Today

Earlier in the Day:

It was a particularly quiet start to the day on the economic calendar this morning. There were no material stats for the markets to consider through the early hours.

For the Majors

At the time of writing, the Japanese Yen was down by 0.04% to ¥111.570 against the U.S Dollar, with the Aussie Dollar down by 0.04% to $0.7467. The Kiwi Dollar was down by 0.13% to $0.6965.

The Day Ahead

For the EUR

It’s a  quiet day ahead on the economic data front. There are no material stats due out of the Eurozone to provide the EUR with direction.

At the time of writing, the EUR was down by 0.03% to $1.1846.

For the Pound

It’s a particularly quiet day ahead on the economic calendar. There are no material stats due out of the UK to influence the Pound.

The lack of stats will leave the Pound in the hands of COVID-19 news updates, with concerns over the Delta variant lingering.

At the time of writing, the Pound was down by 0.02% to $1.3764.

Across the Pond

It’s a busy day ahead.

Government labor market figures are due out later today, with wage growth, nonfarm payroll, and unemployment figures in focus.

Expect the nonfarm payroll and unemployment numbers to have the greatest impact in market risk sentiment.

Following disappointing figures for May, a sharp increase in June NFP numbers would fuel a Dollar rally. FED Chair Powell has highlighted labor market conditions would need to material improve to support a near-term move by the FED.

Other stats include trade data and factory orders that should have a relatively muted impact on the Greenback.

At the time of writing, the Dollar Spot Index was down by 0.03% to 92.573.

For the Loonie

It’s a relatively quiet day ahead on the economic data front. Building permit figures and trade data are due out later today.

Expect the trade data to draw the greatest interest.

At the time of writing, the Loonie was down by 0.02% to C$1.2440 against the U.S Dollar.

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

Clear Cut Symmetry Spells Further Selling in BTC

This puts the price back below the 200-day moving average. Today’s candle is almost identical to Monday’s candle with basically the same high and low, and bodies of the candle end at the same area, right around $32,750. $36,000 has become an area of minor resistance as pricing wasn’t able to move above this level for the entire week; with three of the five days this week, pricing traded to just below this level.

fri 31

The critical support level at approximately $30,700 was broken through on an intraday basis Tuesday of this week. This alludes to the possibility that we will get a break below this level in the coming weeks. If and when that occurs, I expect a violent fall down to $23,000 to backfill the gap that remains on the CME futures chart between December 24 and December 28 stretching from $23,000-$26,000.

On our weekly candlestick chart, notice that we have included a new Fibonacci data set starting from the lows of March 2020 to the all-time high hit in April 2021. You will see some astonishing symmetry between the candles between the run-up that lasted until May and the subsequent correction we are still immersed. Notice the correlation between the two moving averages the 15-day and 21-day (three week and seven week). On the way up, the 15-day severed as support during the steepest parts of the climb, and the 21-day was absolute support.

fri real 31

The final apex hit at approximately $65,000 marked the end of the bullish channel. The following week notice how prices fully exited the bull channel the two moving averages also switched to a bearish alignment with the shorter 15-day on the bottom. This last week was the nail in the coffin according to my technical data. Not only were we unable to open and trade above the 15-day signaling the decline has hastened but the space between the moving averages is growing. This shows that the correction has gained momentum.

This week’s candle also closed well below the 50% retracement. Notice that on the way up pricing broke above and below this level three times (same as on the way down) after running up $12,000 the previous week creating the gap yet to be backfilled. In those last two weeks of December notice, it was one of the few times the 3-week moving average was truly support. Juxtapose that with current action where that same moving average has just become resistance. If the remarkable symmetry that has been prevalent from the rally beginning in October to the correction that began in April, then we are in for a swift fall to backfill the $23,000-$26,000 gap next week.

 

European Equities: German Business Sentiment and U.S Stats in Focus

Economic Calendar

Thursday, 24th June

Spanish GDP (QoQ) (Q1)

German Ifo Business Climate Index (Jun)

ECB Economic Bulletin

Friday, 25th June

GfK German Consumer Climate (Jul)

The Majors

It was a bearish day for the European majors on Wednesday.

The DAX30 slid by 1.15%, with the CAC40 and the EuroStoxx600 falling by 0.91% and by 0.58% respectively.

A pickup in Eurozone private sector activity failed to deliver the majors with support. The devil was in the details, with a continued surge in prices charged reigniting inflation fears.

While ECB President Lagarde continued to provide the markets with assurances early in the week, at some point the ECB will need to act. Hopes are that the inflation surge is temporary…

The Stats

Economic data from the Eurozone was on the busier side on Wednesday with prelim private sector PMIs for June in focus.

France

According to prelim figures, the manufacturing PMI fell from 59.4 to 58.6, while the services PMI rose from 56.6 to 57.4.

Economists had forecast a manufacturing PMI of 59.0 and a services PMI of 59.4 respectively.

Germany

The manufacturing PMI rose from 64.4 to 64.9 with the services PMI increasing from 52.8 to 58.1.

Economists had forecast a manufacturing PMI of 63.0 and a services PMI of 55.5.

The Eurozone

In May, the manufacturing PMI held steady at 63.1, while the services PMI increased from 55.2 to a 41-month high 58.0. Economists had forecast PMIs of 62.1 and 57.8 respectively.

A pickup in service sector activity across the Eurozone led to an increase in the composite from 57.1 to a 180-month high 59.2. Economists had forecast a rise to 58.8.

According to the Markit survey,

  • Prices charged for goods and services rose at an unprecedented rate, with demand continuing to outstrip supply.
  • While firms took on extra staff at the sharpest rate in almost 3-years, backlogs saw a record increase,
  • New order growth accelerated to the fastest since June 2006.
  • Business confidence rose to the highest level since data was first available in 2012.

From the U.S

Economic data was also on the busier side.

Prelim private sector PMIs for June were also in focus late in the European session.

In June, the manufacturing PMI rose from 62.1 to 62.6, while the services PMI declined from 70.4 to 64.8.

Economists had forecast PMIs of 61.5 and 70.0 respectively.

As a result, the composite PMI declined from 68.7 to 63.9, which was worse than a forecasted decline to 67.0.

Other stats including housing sector numbers for May, which had a muted impact on the majors.

The Market Movers

For the DAX: It was a bearish day for the auto sector on Wednesday. Volkswagen slid by 2.25%, with BMW and Daimler ending the day down by 1.01% and by 1.16% respectively. Continental fell by a more modest 0.16% on the day.

It was also a bearish day for the banks. Deutsche Bank and Commerzbank ended the day with losses of 0.37% and 0.31% respectively.

From the CAC, it was a mixed day for the banks. BNP Paribas and Credit Agricole fell by 0.93% and by 1.08% respectively. Soc Gen bucked the trend, however, rising by 0.37%.

It was also a mixed day for the French auto sector. Stellantis NV fell by 0.47%, while Renault ended the day up by 0.41%.

Air France-KLM and Airbus SE both fell by 1.19% respectively.

On the VIX Index

It was a 3rd consecutive day in the red for the VIX on Wednesday.

Following a 6.88% fall on Tuesday, the VIX slipped by 2.04% to end the day at 16.32.

The NASDAQ rose by 0.13%, while the Dow and the S&P500 ended the day down by 0.21% and by 0.11% respectively.

VIX 240621 Daily Chart

The Day Ahead

It’s a relatively busy day ahead on the European economic data front. German business sentiment figures for June are due out later this morning.

The markets will be looking for a pickup in business sentiment at the end of the 2nd quarter to support the majors.

Expect any weak numbers to test support for the DAX.

From the ECB, the Economic Bulletin is also due out and will provide the broader markets with direction.

Following Lagarde’s optimistic outlook on the economy at the start of the week, the Economic Bulletin will need to be aligned.

From the U.S, initial jobless claims and core durable goods orders will also provide the majors with direction later in the day.

On the monetary policy front, central bank chatter will also need monitoring.

The Futures

In the futures markets, at the time of writing, the Dow Mini was up by 47 points.

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

Google’s Advertising Unit Under Fire Again. This Time From The EU

The European Commission opens a probe into Google’s advertising unit a few weeks after it was fined by French authorities. Google’s advertising unit is going against several EU regulations and is paying the price for it.

EU Opens Probe Into Google

The European Commission (EC) announced earlier today that it has officially launched an investigation into Google’s advertising unit. According to the announcement, Google is under investigation for favoring its own online display ad technology services. Hence, breaching the antitrust rules put in place by the commission.

European Commission Executive Vice President Margrethe Vestager said, “Google collects data to be used for targeted advertising purposes, it sells advertising space and also acts as an online advertising intermediary. So Google is present at almost all levels of the supply chain for online display advertising.”

The commission is concerned that the search engine giant is making it harder for rival online advertising services to compete in the ad sector. The European Commission exec said as part of the probe, they would be looking at the restrictions Google has put in place to undermine the efforts of advertisers, publishers and other third parties. The measures that limit their ability to access data and other user information would also be looked at.

Google Fined For Similar Offence In France

The probe comes a few weeks after Google was fined $267 million by the French Competition Authority for abusing its dominance in the online advert sector. The French regulator accused the search engine giant of using its position in the market to unfairly send business to its own service and discriminate against competitors in the online advertising industry.

Google has already committed to ending some of its selfish practices. However, it is unclear if it has implemented any of its suggestions. The regulations want to ensure they create a level playing field for all advertisers and allow publishers to adequately leverage their advertising spaces.

GOOGL stock chart. Source: FXEMPIRE

At the time of this report, Google’s stock price is up by 1.4%, and it is trading at $2,436 per share on the NASDAQ stock exchange.

Dogecoin – Daily Tech Analysis –June 16th, 2021

Dogecoin

Dogecoin fell by 2.20% on Tuesday. Reversing a 1.11% gain from Monday, Dogecoin ended the day at $0.3203.

A mixed start to the day saw Dogecoin rise to an early morning intraday high $0.3306 before hitting reverse.

Falling well short of the first major resistance level at $0.3367, Dogecoin slid to an early afternoon intraday low $0.3165.

Dogecoin fell through the first major support level at $0.3191 before a partial recovery to $0.32 levels.

At the time of writing, Dogecoin was down by 0.09% to $0.3200. A mixed start to the day saw Dogecoin fall to an early morning low $0.3184 before rising to a high $0.3215.

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

DOGEUSD 160621 Hourly Chart

For the day ahead

Dogecoin would need to move through the $0.3225 pivot to bring the first major resistance level at $0.3284 into play.

Support from the broader market would be needed, however, for Dogecoin to break out from $0.3250 levels.

Barring an extended crypto rally, the first major resistance level and Tuesday’s high $0.3306 would likely cap any upside.

In the event of a breakout, Dogecoin could test the second major resistance level at $0.3366 and resistance at $0.35. The third major resistance level sits at $0.3507.

Failure to move through the $0.3225 pivot would bring the first major support level at $0.3143 into play.

Barring an extended sell-off, however, Dogecoin should steer clear of sub-$0.31 levels. The second major support level sits at $0.3084.

A sustained fall through the 62% FIB of $0.2882 would form a near-term bearish trend from 8th May’s swing hi $0.7427.

Looking at the Technical Indicators

First Major Support Level: $0.3143

Pivot Level: $0.3225

First Major Resistance Level: $0.3284

23.6% FIB Retracement Level: $0.5691

38.2% FIB Retracement Level: $0.4618

62% FIB Retracement Level: $0.2882

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

Thanks, Bob

European Equities: Economic Data from China to Set the Tone ahead of the FED

Economic Calendar

Wednesday, 16th June

Eurozone Wages in euro zone (YoY) (Q1)

Thursday, 17th June

Eurozone Core CPI (YoY) (May) Final

Eurozone CPI (MoM) (May) Final

Eurozone CPI (YoY) (May) Final

The Majors

It was another bullish day for the European majors on Tuesday, with the EuroStoxx600 now having avoided the red for 8 sessions.

The CAC40 and the DAX30 rose by 0.35% and by 0.36% respectively, with the EuroStoxx600 gaining 0.11%.

A narrowing of the Eurozone’s trade surplus and disappointing retail sales figures from the U.S failed to weigh on the majors.

Market optimism towards the economic outlook ahead of tonight’s FOMC monetary policy decision and projections delivered support.

With some degree of uncertainty over the Committee’s stance on tapering, however, the upside was limited.

While there is uncertainty ahead of tonight’s decision, the ECB’s assurances have also provided the majors with support.

The Stats

It was a busier morning on the economic calendar, with finalized inflation figures for France, Germany, and Italy in focus. Trade data from the Eurozone was the key stat of the day, however.

Eurozone Trade

In April, the Eurozone’s trade surplus narrowed from €15.8bn to €10.9bn. Economists had forecast a narrowing to €14.4bn.

According to Eurostat,

  • Exports to the rest of the world was up 43.2% to €135.3bn in April when compared with April 2020.
  • Imports from the rest of the world increased 37.4%, year-on-year, to €133.0bn.
  • In April 2020, the trade surplus had stood at €2.3bn.
  • Intra-euro area trade rose to €178.9bn in April 2021, up by 61.9% compared with April 2020.

Inflation

In May, German consumer prices increased by 0.5%, which was in line with forecasts. German consumer prices had risen by 0.7% in April.

From France, consumer prices increased by 0.3% in May, which was also in line with forecasts. In April, consumer prices had risen by 0.1%.

In Italy, consumer prices stalled in May after having risen by 0.4% in April. This was also in line with forecasts.

While the numbers were mixed for the month of May, all three member states reported in a pickup in the annual rate of inflation.

Germany’s annual rate of inflation accelerated from 2.0% to 2.5%, with France’s ticking up from 1.2% to 1.4%.

In spite of consumer prices stalling in May, Italy’s annual rate of inflation picked up from 1.1% to 1.3%.

From the U.S

It was a busy day on the economic calendar, wholesale inflation and retail sales were the key stats of the day.

In May, the core producer price index rose by 0.7%, after a 0.7% increase in April. Economists had forecast a 0.5% rise.

Retail sales fell by 1.30%, however, after having risen by 0.9% in April. Core retail sales fell by 0.7% following a 0.8% decline from April.

Other stats included industrial production figures, manufacturing sector data from NY State, and inventory numbers.

These stats had a muted impact on the majors, however, ahead of tonight’s FOMC.

The Market Movers

For the DAX: It was a mixed day for the auto sector on Tuesday. Volkswagen slid by 2.64%, with Continental and BMW ending the day down by 1.05% and by 0.36% respectively. Daimler bucked the trend, however, rising by a modest 0.39%.

It was also a mixed day for the banks, however. Deutsche Bank rose by 1.35%, while Commerzbank ended the day flat.

From the CAC, it was a mixed day for the banks. BNP Paribas rose by 0.04%, while Soc Gen fell by 0.44%. Credit Agricole ended the day flat.

It was also a mixed day for the French auto sector. Stellantis NV ended the day flat, while Renault fell by 1.67%.

Air France-KLM fell by 0.85%, while Airbus SE rose by 0.69%.

On the VIX Index

It was a 2nd consecutive day in the green for the VIX on Tuesday.

Following a 4.73% gain from Monday, the VIX rose by 3.84% to end the day at 17.02.

The NASDAQ fell by 0.71%, with the Dow and the S&P500 ending the day down by 0.27% and by 0.20% respectively.

VIX 160621 Daily Chart

The Day Ahead

It’s a quieter day ahead on the European economic calendar.

Eurozone wage growth figures for the 1st quarter are due out later this morning.

With all eyes on the FED, however, we don’t expect too much influence from the numbers.

From the U.S, housing sector data and import and export price index figures are due out late in the day. We would also expect the markets to brush these aside.

With the FED policy decision and projections due out after the European close, there will likely be some caution…

Ahead of the European open, economic data from China will set the tone. Recent industrial production and retail sales figures have been on the weaker side…

The Futures

In the futures markets, at the time of writing, the Dow Mini was down by 5 points.

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

Nike Could Miss Second Quarter Estimates

Nike Inc. (NKE) bulls initially downplayed a Chinese social media backlash to March criticism about forced labor in the persecuted Uyghur minority, insisting the sports and apparel giant was too popular for a government-fueled boycott to succeed. However, the stock has continued to lose altitude during the quarter, suggesting potential downside to revenues when the company reports earnings on June 24th.

Chinese Growth at Risk

China revenues increased 42% on a currency-neutral basis in the quarter ending on Feb. 28 (fiscal Q3 2021), offsetting a 10% North American decline that was blamed on “supply chain challenges”. Continued bottlenecks and Chinese anger have forced some analysts to lower Q4 expectations, with consensus now looking for a profit of $0.51 per-share on $11.24 billion in revenue. However, those numbers could still prove too optimistic, given rising political tensions.

BofA Securities Lorraine Hutchinson summed up these headwinds in May, noting “We are bullish on the long-term prospects for Nike’s accelerated innovation, its distribution strategy to increase digital at the expense of undifferentiated wholesale partners and opportunities to use data to drive growth. However, we see risk to estimates from softness in China. While investors are well aware that Q4 will be hurt by boycotts, uncertainty about the duration of the weakness, the pace of recovery and the margin implications of cleaning up the channel leave us skeptical”.

Wall Street and Technical Outlook

Wall Street consensus has held a ‘Buy’ rating despite current events, based upon 24 ‘Buy’, 2 ‘Overweight’, 3 ‘Hold’, and 1 ‘Underweight’ recommendation. Price targets currently range from a low of $140 to a Street-high $192 while the stock closed Friday’s session more than $8 below the low target. This poor placement tells us that Main Street investors have grown far more skeptical about the China situation than sell-side analysts in lower Manhattan.

Nike returned to the January 2020 high at 105.62 in June and broke out in August, posting superior gains into December’s all-time high at 147.95. Price action since that time has carved a series of lower highs and lower lows, dropping the stock into an 8% year-to-date loss. It’s failed five attempts to mount the 50-day moving average during this period while bouncing twice at the 200-day moving average.  It’s now engaged in a third test while accumulation has dropped to a 12-month low, raising odds for a breakdown.

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

Disclosure: the author held no positions in aforementioned securities at the time of publication.

Sherwin-Williams Could Offer Low Risk Buying Opportunity

The Sherwin-Williams Co. (SHW) has been on fire since March 2020’s pandemic low, tripling in price into May’s all-time high at 293.05. The stock split three-for-one in March 2021 and raised both Q2 and fiscal year guidance earlier this week, setting the stage for even higher prices in coming months. Bank of America Securities took note of the bullish metrics on Thursday, upgrading the chemical giant while predicting “multiple years of robust paint demand”.

Homebuilding Frenzy

The surge in U.S. home sales has fueled the advance, with the pandemic and remote work environment encouraging upwardly mobile millennials to leave crowded urban areas in the northeastern and west coast states in favor of smaller towns and southern states. This trend is expected to continue for several years at a minimum, underpinning robust sales of all the materials needed to build and improve living spaces.

BofA’s Steve Byrne ‘double-upgraded’ Sherwin-Williams from ‘Underperform’ to ‘Buy’, noting “Our prior cautious view was based on concerns that the unprecedented DIY paint demand in 2020 could cannibalize contractor demand in 2021. However, our third year of paint contractor surveys clearly indicated the opposite view, with backlogs well above 2019 levels. This view is supported by robust US homebuilding trends and home resale activities”.

Wall Street and Technical Outlook

Wall Street consensus has dropped to an ‘Overweight’ rating after outsized share gains, based upon 13 ‘Buy’, 2 ‘Overweight’, 10 ‘Hold’, 1 ‘Underweight’, and 1 ‘Sell’ recommendation. Price targets currently range from a low of $222 to a Street-high $327 while stock opened Thursday’s session more than $25 below the median $306 target. This modest placement supports additional upside that could finally break the psychological $300 barrier.

Sherwin-Williams topped out just below 200 in November 2019, tested that level in January 2021, and dropped more than 90 points to a three-year low in March. The subsequent uptick completed a cup and handle breakout in July, generating a momentum-fueled advance that stalled above 150 in November. Positive price action cleared the barrier in April, ahead of the May peak and orderly pullback that’s targeting the 50-day moving average at 273. A weekly sell cycle predicts that level will get tested before bulls resume control of the ticker tape.

For a look at all this week’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication.

Is Copper the New Golden Child of the Metals Group?

Unquestionably gold continues to remain the primary precious metal that is a hedge against inflation. Gold has the same buying power as it has had for the last 100 years.

chart for kitco June 8

To elaborate, if you had a $20 gold coin or a $20 bill (redeemable in gold) in 1910, you could use either the gold coin or $20 bill to pay for a room at the Plaza Hotel in New York, by a new suit, and have a steak dinner. Today with the same $20 bill, you would be hard-pressed to buy just the steak dinner. However, a one-ounce gold coin is worth approximately $1900. With $1900, you could still buy a suit, stay at the Plaza for one night and have a steak dinner. In other words, the buying power of gold has not changed for the last hundred years; however, the dollar has dramatically devalued as inflation has ravaged the buying power of our fiat currency.

Because of that stability in buying power, gold will never lose its luster or allure as a safe-haven asset. It is for that reason that gold will always be a cornerstone asset in the safe-haven group.

However, as a purely speculative trade or investment you might want to look into copper futures. Copper has more than doubled in price, from $2.00 a pound in the middle of March 2020 and traded to a new record high on May 10 of
$4.87 per pound, resulting in a 143.5% increase in value.

More so, several analysts are predicting much higher pricing in copper this year and the first quarter of 2022. The commodity strategists at Bank of America forecast copper prices to run as high as $5.87 per pound by the end of the year. Recently Michael Widmer, Bank of America commodity strategist, said that inventories measured in tons are now at levels seen 15 years ago. He predicts that copper could spike to $13,000 per metric ton, which is roughly $5.89 per pound. He is also predicting that copper could hit $20,000 per metric ton by 2025. That would take copper pricing to just over $9 per pound.

“The world risks running out of copper” amid widening supply and demand deficits, according to Bank of America, and prices could hit $20,000 per metric ton by 2025.

“If our expectation of increased supply in secondary material, a non-transparent market, did not materialize, inventories could deplete within the next three years, giving rise to even more violent price swings that could take the red metal above $20,000/t ($9.07/lb).”

David Neuhauser, managing director of U.S. hedge fund Livermore Partners, said that “I think copper is the new oil and I think copper, for the next five to 10 years, is going to look tremendous with the potential for $20,000 per metric ton.”

While copper will never replace the safe-haven benefits of gold, and as such, gold should remain an essential and integral part of a diversified portfolio. At the same time, copper could be one of the more lucrative speculative investments over the next three years.

For those who want more information, please use this link.

Wishing you, as always, good trading and good health,

Gary S. Wagner

 

Wendy’s Jumps on Meme Stock Bandwagon, but Will It Last?

Fast-food chain Wendy’s is the latest stock to reach meme status on the WallStreetBets Reddit forum. WEN, however, is different from meme stocks that have gone before it, as it is not exactly a short squeeze in the making. Investors are entering the stock with a vengeance anyway in hopes of scoring outsized profits.

Wendy’s market cap has expanded by nearly 20% today, making it one of the best-performing meme stocks of the bunch. It is also making it look easy for retail investors looking to jump on the meme stock bandwagon as hedge fund traders think twice about shorting stocks in the market.

Short Interest

Wendy’s may be a surprising choice for some investors, considering that the fast-food sector hasn’t exactly been in the danger zone. If anything, drive-thru restaurants were popular during the pandemic, as they offered consumers a convenient and safe option for dining. That demand is expected to persist.

And unlike veteran meme stocks GameStop and AMC Entertainment, which have short interest close to 20%, short interest in Wendy’s reportedly sits under 5%. Trading volume in WEN is robust, with nearly 60 million shares changing hands. Average volume in Wendy’s stock is 3 million.

Fair Shake

Most meme stocks were first been dragged through the mud by short-sellers and have been rallying based on internet sentiment rather than any fundamentals. Wendy’s bucks this trend somewhat because it could be trading higher in its own right, even without the wind of the WallStreetBets’ crowd at its back. Its new summer salad notwithstanding, Wendy’s in its Q1 earnings report highlighted the following  developments:

  • bolstering its breakfast daypart
  • making a digital push, which plays into consumers’ mobile habits
  • growing its footprint around the world, including making its debut in the U.K.

Wendy’s fits the bill as a meme stock if only for its social media prowess. The company has a knack for engaging with its followers and poking fun at its competitors including Burger King, like this classic from 2019.

Source: Twitter

Wendy’s is a newcomer on the WallStreetBets bandwagon, though the forum has mentioned the company before. Whether or not it has a place in meme stock history remains to be seen. But it is not a stretch to expect that the stock could continue to rise not just for its ‘old-fashioned’ hamburgers but also for its ‘old fashioned’ bottom line.

Goldman Downgrades Imax to ‘Sell’

Goldman Sachs downgraded theater chains Imax Corp. (IMAX) and Cinemark Holdings Inc. (CNK) to ‘Sell’ on Wednesday, just one day after momentum favorite AMC Entertainment Inc. (AMC) soared 22% to an all-time high. Speculators scooped up shares after the company raised $290 million in cash in a sale to a hedge fund, securing their 2021 financial position. A great weekend box office underpinned the rally as well, with some receipts returning to 2019 levels.

Speculative Interest Dries Up

Imax held up better than Cinemark during the crisis, with a few brave souls focusing limited entertainment dollars on big budget productions. The chains continued to attract strong speculative interest heading into 2021 but upticks stalled in the first quarter due to valuation concerns. Imax lifted into a stronger technical position during the rally, completing a 100% retracement into horizontal 2017, 2018, and 2019 highs in the mid-20s.

Goldman analyst Michael Ng offered mixed commentary with the ratings, noting “Although there’s been a secular decline in movie-going, attendance declines are happening at a very slow place, declining 1.4% CAGR from the 2002 attendance peak to 2019. In fact, the box office has grown at 1.3% CAGR over that same time period as increased ticket prices have more than offset attendance declines. That said, we believe the closures of theaters during the pandemic may have accelerated the secular decline in attendance.”

Wall Street and Technical Outlook

Wall Street consensus on Imax now stands at an ‘Overweight’ rating, based upon 7 ‘Buy’, 2 ‘Hold’, and 1 ‘Sell’ recommendation. Price targets currently range from a low of $18.60 to a Street-high $30 while the stock will open Wednesday’s session just $3 above the low target. This weak placement suggests that Main Street investors generally agree with Goldman that movie stocks won’t offer strong returns for the rest of 2021.

Imax posted an all-time high at 43.80 in 2015 and turned sharply lower, dropping to an 11-year low in March 2020. It recovered at a steady pace into March 2021 when the stock reversed within two points of resistance in the mid-20s and fell six points.  Price action since that time has been stuck in a trading range with support at 20 while accumulation has held just below the first quarter peak. A positive catalyst could save the day with this configuration, breaking the resistance and lifting price into the 30s.

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

Disclosure: the author held no positions in aforementioned securities at the time of publication. 

Salesforce.com Could Rally To 300

Dow component Salesforce.com Inc. (CRM) is gaining ground in Wednesday’s market after Morgan Stanley upgraded the sales tracking giant to ‘Overweight’. The stock posted an all-time in the 280s in September, just days after the company was added to the Dow Jones Industrial Average. Price action since that time has carved an orderly but persistent bull flag pattern that’s been engaged in nearly six months of testing at 200-day moving average support.

Major Acquisition

The stock ended a 12-day 20% slide in March 2021 after Slack Technologies Inc. (WORK) reported a Q4 2020 loss of $0.01 per-share. Salesforce bought the business technology provider for $27 billion in December 2020 in a transaction expected to close in the second quarter of 2022. Price action since that time has tracked bilateral catalysts, adding volatility and modest downside. Even so, the company remains on track to hit new highs sometime this year.

Morgan Stanley analyst Keith Weiss raised his Salesforce rating to ‘Overweight’ with a $270 target on Wednesday, advising the pullback since September “creates a good entry point.” He also notes the company is “well positioned to benefit from an accelerating pace of investment in strategic digital transformation initiatives” and added that “significantly” better performance in past two quarters has addressed critics of the December acquisition.

Wall Street and Technical Outlook

Wall Street consensus is solid as a rock, with a ‘Buy’ rating based upon 32 ‘Buy’, 3 ‘Overweight’, and 9 ‘Hold’ recommendations. No analysts are recommending that shareholders close positions and move to the sidelines. Price targets range from a low of $200 to a Street-high $336 while the stock has opened Wednesday’s session just $18 above the low target. Caution after Salesforce’s outsized 37% 2020 return is contributing to this dismal placement.

Salesforce broke out above 2018 resistance above 160 in January 2020 and failed the breakout during the pandemic decline. It bounced back to the first quarter peak in July and broke out in August, surging into the 280s after addition to the Industrial Average. That marked the top, followed by a bull flag correction that should hold support near 200. Just keep in mind a breakdown will also fail the third quarter breakout, exposing a trip into the 150s.

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

Disclosure: the author held no positions in aforementioned securities at the time of publication. 

Home Depot Trading Higher After Beating Estimates

Dow component Home Depot Inc. (HD) is trading higher by more than 2% in Tuesday’s pre-market after beating Q1 2021 top and bottom line estimates by healthy margins. The home improvement giant earned $3.86 per-share during the quarter, $0.93 better than estimates, while revenue rose a healthy 32.7% year-over-year to $37.5 billion, nearly $5 billion higher than consensus. Comparative sales grew 31% worldwide, with 29% growth in the United States.

Home Buying Boom

The company has benefited from intense pandemic tailwinds, with locked-down and socially-distanced customers using the crisis to engage in home improvement projects. While that catalyst is winding down at a rapid pace, COVID also triggered a major geographical shift at the same time that remote-working millennials are marrying and building their nests, underpinning a massive home building and buying spree that should last for several years, at a minimum.

Despite Home Depot’s stellar report, bullish sentiment could offer a better opportunity for rival Lowes Corp. (LOW), who reports Q1 earnings in Tuesday’s pre-market. Oppenheimer analyst Brian Negal embraced this strategy last week. noting this “more upbeat call on Lowe’s is largely tactical in nature and hinged upon prospects for a continued flow of funds into more cyclically focused equities and now historically discounted valuation versus that of Home Depot.”

Wall Street and Technical Outlook

Wall Street consensus on Home Depot now stands at an ‘Overweight’ rating based upon 21 ‘Buy’, 3 ‘Overweight’, 10 ‘Hold’, and 1 ‘Sell’ recommendation. Price targets currently range from a low of $280 to a Street-high $377 while the stock is set to open Tuesday’s session about $24 below the median $350 target. A trip back up last week’s all-time high at $345.69 looks likely with this configuration but a breakout might not be in the cards.

Home Depot sold off from a 2020 high at 247 to a three-year low near 140 during the first quarter of 2020 and turned sharply higher, returning to the prior high in May. A June breakout stalled just below 300 in August while a March 2021 buying surge above that peak posted an all-time high last week.  A weekly Stochastic sell cycle makes a breakout unlikely in the second quarter but the long-term uptrend should eventually resume control of the ticker tape.

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

Disclosure: the author held no positions in aforementioned securities at the time of publication. 

They’re Back, Gold Bulls Return With A Mission, To Take Gold Higher

Although gold began to trade-off of those lows by the end of March, gold retested the lows at that price point creating a double bottom.

Considering that the market had been in a deep and defined multi-month price decline after hitting the all-time record high of $2088 in August of last year, market participants witnessed approximately a $500 decline. Concurrently data was suggesting that the economic scenario following one of the worst recessions the United States has witnessed were shifting. Employment numbers were gaining strength, the GDP was growing and cryptocurrencies were in a massive bull run.

However slow and steadily gold prices began to climb from the low of March 31, which came in just below $1680. In the case of the current rally there was no parabolic move. There was no single moment when traders witnessed the beginning of a long and sustained rally. Rather the rally that is currently underway occurred as a series of stair steps in which gold prices would gain value which would be immediately followed by sideways action in which gold would form a base at the new and higher price point and on some occasions decline slightly. However, slow and steady may not be the best way to describe a market which is gained just shy of $200 in the last two and half months.

There were a few exceptional days in which we saw gold rise in double digits, and today was one of those days. Make no mistake there were outside markets that had minor influences but the overwhelming force driving gold prices higher work traders and investors buying the precious metal.

As of 6 PM EST spot gold is currently fixed at $1866.20. The screen-print of the Kitco gold index is a snapshot of prices that were taken at 5 o’clock. Gold was trading approximately $0.40 above current pricing at $1866.40. Although there were fractional tailwinds provided by a falling dollar that only amounted to gains of $2.20. The additional gain of $20.30 was due to traders bidding the precious metal higher resulting in today’s gains of $22.50.

kgx may 17

Gold futures basis, the most active Comex contract, posted a gain of $29.00. Today’s $29 gain took the most active futures contract to $1867.60. Today’s gains indicate that gold at least for now, no longer remains range bound and has broken above its strong resistance level which occurred at approximately $1852, the 200-day moving average. The significance of that move is that market technicians view a stock or commodity above the 200-day moving average as in a long-term bullish trend and below that moving average in a long-term bearish trend.

gold may17

While I doubt there are champagne bottles popping throughout trading houses and investment firms, there is a reason to rejoice for those gold bulls that have waited for a sign that the long retracement truly ended in March with a double bottom formation and now has a realistic probability to once again challenge $1900 per ounce

For more information on our service, simply use this link.

Wishing you, as always, good trading and good health,

Gary Wagner

Deere Overloved and Overbought Ahead of Report

Deere Inc. (DE) is trading lower on Thursday after a top tier Wall Street bank downgraded the stock to ‘Market Perform’. It’s testing 50-day moving average support for the first time since October 2020, just one week before the company reports Q2 earnings, when analysts expect a profit of $4.28 per-share on $10.27 billion in revenue. If met, earnings-per-share (EPS) will mark more than a 100% profit increase compared to the same quarter in 2020.

Benefiting From Price Hikes

The stock is benefiting from higher agricultural commodity prices that have forced all sorts of food price hikes in 2021. It’s also a high tech leader, transitioning into fully autonomous tractors, combines, cotton pickers, sugarcane harvesters, and loaders as well as soil preparers, seeders, and crop care equipment. The conversion is adding to the bottom line, expanding margins in a multi-billion dollar industry with few competitors.

BMO Capital Markets analyst Joel Tiss downgraded the stock to ‘Market Perform’ from ‘Outperform’ on Thursday, noting the agriculture business could be on the front end of multi-year growth cycle, but “investing in Deere may not be the best way to reap the rewards”. In addition, he warns that “even a bullish scenario for the underlying business wouldn’t cause a big jump for the stock”, which has more than tripled in price since March 2020.

Wall Street and Technical Outlook

Wall Street consensus has eased in reaction to share gains, yielding an ‘Overweight’ rating based upon 14 ‘Buy’, 1 ‘Overweight’, 6 ‘Hold’, and 2 ‘Sell’ recommendations. Price targets currently range from a low of $287 to a Street-high $455 while the stock is set to open Thursday’s session about $30 below the median $404 target. A strong quarter may not generate much upside despite this modest placement, given extremely overbought readings after the vertical uptrend into 2021.

Deere topped out at 175 in 2018 and entered a trading range that broke down during 2020’s pandemic decline. It posted a three-year low and turned sharply higher, breaking out above resistance in August. Vertical price action stalled at 392 in March 2021 while a breakout attempt this week failed, reinforcing resistance. The stock has fallen to a 7-week low in the pre-market, highlighting weakness that could signal an intermediate correction lasting for weeks or months.

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

Disclosure: the author held no positions in aforementioned securities at the time of publication. 

Air Products Beat Revenue Estimates But Misses on Earnings

Air Products and Chemicals, which engages in the production, sale, and distribution of industrial gases worldwide, reported lower-than-expected earnings in the fiscal second quarter but beat revenue estimates due to higher energy cost, favorable currency, and higher pricing.

The Allentown, Pennsylvania-based company reported adjusted earnings per share (EPS) of $2.08, missing the Wall Street consensus estimates of $2.13 per share. But the industrial gases giant said its revenue rose about 13% year over year to $2.5 billion, beating the market expectations of $2.3 billion.

The company, which designs, engineers, and builds equipment that produces industrial gases, forecast full-year fiscal 2021 adjusted EPS guidance of $8.95 to $9.10, up 7% to 9% over prior year adjusted EPS. For the fiscal 2021 third quarter, Air Products’ adjusted EPS guidance is $2.30 to $2.40, up 14% to 19% over fiscal 2020 third-quarter adjusted EPS.

Air Products and Chemicals shares ended 2.45% higher at $300.74 on Tuesday. The stock rose over 10% so far this year.

Analyst Comments

Air Products and Chemicals (APD) only modestly o/p after a positive guidance update that should drive upward revisions and announcing stalled projects, Jazan and Lu’An, were back on track. We think commentary around updated terms for Lu’An may have been poorly received, however, we view the facility restart and confidence in a Jazan close by FY end as important positives. We reiterate our Outperform rating,” noted Marc Bianchi, equity analyst at Cowen.

“We continue to like APD’s ambitious capital deployment strategy into an industry offering significant growth in the base business with upside from Energy Transition investments. On the back of our higher estimates, we boost our DCF-based target from $340 to $360 which assumes a 6.5% WACC.”

Air Products Stock Price Forecast

Nine analysts who offered stock ratings for Air Products and Chemicals in the last three months forecast the average price in 12 months of $321.89 with a high forecast of $360.00 and a low forecast of $295.00.

The average price target represents a 7.03% increase from the last price of $300.74. Of those nine analysts, six rated “Buy”, three rated “Hold” while none rated “Sell”, according to Tipranks.

Morgan Stanley raised the base target price to $335 from $300 with a high of $450 under a bull scenario and $225 under the worst-case scenario. The firm gave an “Overweight” rating on the industrial gases company’s stock.

Several other analysts have also updated their stock outlook. Deutsche Bank raised the stock price forecast to $340 from $300. Cowen and company lifted the target price to $360 from $340. Citigroup upped the price target to $319 from $315. JP Morgan increased the target price to $304 from $280.

“We are raising our fair value estimate for narrow-moat-rated Air Products after the industrial gas firm reported its fiscal second-quarter results. We were encouraged to hear positive updates on the status of two large gasification projects: (1) Lu’An has asked Air Products to restart the facility; and (2) Air Products is now optimistic that the Jazan transaction will close during fiscal 2021,” noted Krzysztof Smalec, equity analyst at Morningstar.

“After updating our estimates, we are bumping our fair value estimate for Air Products to $317 from $297. Earlier this year, we saw the name as undervalued as market sentiment turned around against the company due to question marks around Lu’Anand Jazan, but the stock is now back in 3-star territory.”

Check out FX Empire’s earnings calendar

Home Depot Could Hit New All-Time High on Strong Q1 Earnings

Home Depot Inc, the largest home improvement retailer in the United States, is expected to report its first-quarter earnings of $2.99 per share, which represents year-over-year growth of about 44% from $2.08 per share seen in the same period a year ago.

The home improvement retailer would post revenue growth of 21% to $34.2 billion. In the last four quarters, on average, Home Depot has beaten earnings estimates about 2%.

However, the Atlanta, Georgia-based company’s shares traded about 4% lower at $328.67 on Tuesday. The stock rose over 23% so far this year. Home Depot’s better-than-expected results, which will be announced on May 18, would help the stock hit new all-time highs.

But the stock’s performance could hinge on margins.

Analyst Comments

“We expect a 25% to 30% Q1’21 comp as top-line strength likely continued through the quarter. We model gross margin down 40 bps. For context, in Q4 lumber inflation pulled gross margin down ~30 bps and likely worsened sequentially. On SG&A, assuming the per sq ft 2-year stack holds from Q4 (+24%), SG&A should lever 360 to 400 bps. In our model, this combination produces EPS of $3.55 to $3.85 vs consensus at $2.95. While a ’21 guide was not provided, if the ’20 top-line exit rate held through ’21, HD would expect a flat to slightly positive comp and an EBIT margin of at least 14%,” noted Simeon Gutman, equity analyst at Morgan Stanley.

“We believe trends have accelerated QTD relative to the ’20 exit rate, which means HD should be tracking above this framework. Flowing through the expected Q1 comp beat and adjusting other ’21 quarters for a decelerating 2-year stack (31%/25%/20%/20% with a 25% Q1 comp, 36%/27%/22%/20% with a 30% Q1 comp), our model produces a full year ’21 comp of 5% to 7.5%. This sets up HD for a strong “comp the comp” year. However, if this occurs, it could mean some revenue gets pulled forward from ’22, creating tougher compares.”

Home Depot Stock Price Forecast

Sixteen analysts who offered stock ratings for Home Depot in the last three months forecast the average price in 12 months of $341.36 with a high forecast of $375.00 and a low forecast of $310.00.

The average price target represents a 3.84% increase from the last price of $328.75. Of those 16 analysts, 14 rated “Buy”, two rated “Hold” while none rated “Sell”, according to Tipranks.

Morgan Stanley raised the base target price to $340 from $320 with a high of $420 under a bull scenario and $205 under the worst-case scenario. The firm gave an “Overweight” rating on the home improvement retailer’s stock.

Several other analysts have also updated their stock outlook. JP Morgan raised the target price to $355 from $330. UBS lifted the target price to $375 from $350. Wells Fargo upped the price target to $360 from $330. Citigroup increased the price objective to $375 from $288.

Check out FX Empire’s earnings calendar