Best Stocks, Crypto, and ETFs to Watch – Bank of America, Netflix, Ethereum in Focus

Bank of America Corp. (BAC) sold off in sympathy with JPMorgan Chase and Co. (JPM) in Friday’s session, reacting to the Dow component’s surprisingly weak quarterly revenue. A second day of lower prices on Tuesday could set up a strong buy-the-news reaction when BAC reports in Wednesday’s pre-market session. The stock has the highest relative strength in the elite money center group and is nearing a critical test at 2006’s all-time high in the mid-50s.

Netflix Inc. (NFLX) has been sold aggressively in recent weeks, dropping 27% and failing a breakout above resistance at 600. The streaming giant bounced into Friday’s close after announcing an increase in monthly subscription prices. However, the hike is a two-edged sword because subscriber churn (new subs plus cancellations) could escalate, canceling out revenue gains. The company is likely to comment on the decision when it reports Q4 2021 earnings after Thursday’s closing bell.

SPDR S&P Retail ETF (XRT) fell to a 10-month low on Friday after December Retail Sales ex-auto fell 2.3%, compared to expectations for a 0.2% increase. The shortfall, during the critical holiday sales season, suggests that inflation is impacting consumer buying behavior. Even so, retailers reported strong October and November results, stoked by fears that supply chain disruptions could generate empty shelves. Despite that early buying pressure, smart traders will be watching the fund for a sell signal that offers timely short sale profits.

Ethereum (ETH) could be bottoming out after a two-month slide that relinquished 60% of the cryptocurrency’s value. ETH broke out above May resistance at 4,400 in November, failing the breakout just three weeks later. The subsequent decline reached support at the 50-week moving average about one week ago, with that level narrowly aligned at the .618 Fibonacci rally retracement level. Weekly Stochastics remains in a bearish cycle but is nearing the oversold level, with a bullish crossover set to issue an intermediate buying signal.

Dividend paying stocks continue to outperform growth and value plays in 2022 as investors look for ways to protect portfolios from rising inflation. Dow component Proctor & Gamble Co. (PG) could benefit from this rotation when it reports Q2 2022 earnings on Wednesday. The company is expected to earn $1.65 per-share on $20.34 billion in revenue during the quarter, with that profit perfectly matching results during the same quarter last year. PG, which posted an all-time high on Jan. 6, pays a respectable 2.18% annual dividend yield.

Catch up on the latest price action with our new ETF performance breakdown.

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

Weekly Waves 17 Jan: Ethereum, GBP/USD, and Gold

Weekly Waves 17 Jan: Ethereum, GBP/USD, and Gold

Our analysis indicates a bearish ABC correction on the GBP/USD, a potential 5 waves down on ETH/USD, and a slow wave 4 pattern on XAU/USD.

ETH/USD Downtrend Must Respect Shallow Fibs

ETH chart, 17.01.22

The Ethereum (ETH/USD) crypto currency pair is in a downtrend after breaking below the support trend lines (dotted green):

  1. Price action could be moving down lower in 5 waves (pink). But price action should respect the shallow Fibonacci levels (red box) and resistance trend line (red).
  2. A break above these Fib levels place the bearish analysis on hold. A bearish bounce and continuation lower, however, could confirm the 5 wave pattern in wave A (grey).
  3. The main targets of the bearish swing are the -27.2% and -61.8% Fibonacci targets.
  4. In any case, a larger ABC (grey) pattern seems to be taking place in a wave 4 (yellow) correction.

GBP/USD Strength Expected to Face Opposition

GBP/USD chart, 170122

The GBP/USD is showing a strong bullish impulse, which was able to break above the resistance trend line (red) of the downtrend:

  1. The bulls however are facing a strong resistance zone from the previous top (red box). A bearish bounce is likely to occur here (orange arrows).
  2. A bearish ABC (blue) pattern could emerge at the resistance to create a pullback. But this could simply complete a wave B (pink) within a larger ABC (pink) pattern.
  3. The blue box could indicate an inverted head and shoulders pattern. A deeper bearish retracement would place the bullish ABC on hold or invalidate it. A stronger push up above the resistance (red box) however still will indicate a wave A (pink) most likely.

XAU/USD Bullish Chart Pattern

Gold is moving sideways after a strong impulsive move up:

  1. A bullish break above (green arrow) the resistance (red) trend line could indicate an uptrend continuation. But if the current Elliott Wave analysis is correct, then the previous top should stop the uptrend.
  2. A bearish bounce (orange arrow) could complete the ABC (blue) in wave B (pink) and send price back down to the previous bottom.
  3. A bullish bounce (green arrow) at the previous bottom could complete the ABC (pink) pattern within wave 4 (yellow) and restart the uptrend.
  4. A deeper retracement below the previous bottom places the uptrend on hold or invalidates it.

Good trading,

Chris Svorcik

The analysis has been done with the indicators and template from the SWAT method (simple wave analysis and trading). For more daily technical and wave analysis and updates, sign-up to our newsletter

 

Wall Street Week Ahead Earnings: Goldman Sachs, Procter & Gamble, United Airlines, and Netflix in focus

The following is a list of earnings slated for release January 17-21, along with a few previews. A number of big companies will report earnings in the week ahead, including Goldman Sachs and Bank of America, Procter & Gamble, Netflix, and a number of transportation companies. Investors will carefully monitor the latest news on the rapidly spreading Omicron coronavirus variant to see how it affects earnings in 2022.

Earnings Calendar For The Week Of January 17

Monday (January 17)

No major earnings are scheduled for release. The stock market in the U.S. will be closed in observance of Martin Luther King, Jr. Day.

Tuesday (January 18)

IN THE SPOTLIGHT: GOLDMAN SACHS

The New York-based leading global investment bank Goldman Sachs is expected to report its fourth-quarter earnings of $11.89 per share, which represents a year-over-year decline of about 2% from $12.08 per share seen in the same period a year ago.

The world’s leading investment manager would see a decline in revenue of nearly 1% to $11.65 billion from a year ago. It is worth noting that in the last two years, Goldman Sachs has surpassed market consensus expectations for profit and revenue most of the time.

“We expect Goldman Sachs to report mixed results, with revenues outperforming the consensus estimates and earnings missing the expected figure. The investment bank reported better than expected results in the last quarter, with the top-line increasing 26% y-o-y. This was driven by significant growth in the investment banking business, followed by higher global markets and consumer & wealth management revenues,” noted analysts at TREFIS.

“While investment banking grew on the back of growth in mergers &acquisitions (M&A) and equity underwriting deal volumes, global markets benefited from higher equity trading revenues. Similarly, the consumer & wealth management segment gained from an increase in outstanding loan balances. That said, the top-line was partially offset by negative growth in the asset management division, primarily due to lower equity investment revenues. We expect the same trend to continue in the fourth quarter. We estimate Goldman Sachs’ valuation to be around $447 per share which is 14% above the current market price.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE JANUARY 18

TICKER COMPANY EPS FORECAST
BAC Bank of America $0.78
SCHW Charles Schwab $0.83
CNXC Concentrix $2.54
HWC Hancock Whitney $1.33
IBKR Interactive Brokers $0.74
JBHT J.B. Hunt Transport Services $2.0
MBWM Mercantile Bank $0.85
ONB Old National Bancorp $0.38
PNFP Pinnacle Financial Partners $1.56
PNC PNC Financial Services $3.62
PRGS Progress Software $0.62
SBNY Signature Bank $3.92
TFC Truist Financial $1.27
UCBI United Community Banks $0.63

 

Wednesday (January 19)

IN THE SPOTLIGHT: PROCTER & GAMBLE, UNITED AIRLINES

PROCTER & GAMBLE: The world’s largest maker of consumer-packaged goods, is expected to report its fiscal second-quarter earnings of $1.66 per share, which represents year-on-year growth of just over 1% from $1.64 per share seen in the same period a year ago.

The Cincinnati, Ohio-based consumer goods corporation would post revenue growth of over 3% to $20.4 billion from a year ago. It is worth noting that the company has consistently beaten consensus earnings estimates in the last two years, at least.

“We believe strategy changes can sustain Procter & Gamble (PG) LT topline growth in the 4% range. In the US, a strong breadth of performance and share gains give us confidence that market share momentum is sustainable and supports LT topline growth above HPC peers. While near-term pressures from commodity/freight inflation will impact margins, we believe PG has stronger pricing power than peers, particularly with share gains,” noted Dara Mohsenian, equity analyst at Morgan Stanley.

PG trades at ~22.5x CY22e EPS, an HSD% discount to HPC peers CLX, CL and CHD, and looks compelling given our call for higher LT PG growth.”

UNITED AIRLINES: The major U.S. airline company is expected to report a loss for the eight-consecutive time of $-2.12 in the holiday quarter as the aviation service provider continues to be negatively impacted by the ongoing COVID-19 pandemic and travel restrictions.

However, that would represent a year-over-year improvement of about 70% from -$7.0 per share seen in the same period a year ago. The Chicago, Illinois-based airlines would post revenue growth of over 130% to $7.94 billion.

“Despite some headwinds around staffing issues, we expect United Airlines (UAL) to guide to a continued sequential improvement with capacity guided to be down in the 17-18% range in Q1, which incorporates domestic capacity down in the 1% range, while international capacity remains down 27%,” noted Sheila Kahyaoglu, equity analyst at Jefferies.

“Remaining in a Net Loss Position into Q1. We expect a continued sequential decline in CASM-ex to 11.63¢, which reflect a 9% increase vs. 2019 levels, which compares to the 13% increase we expect in Q4. Nonetheless, UAL will remain in a net loss position in Q1, before turning positive in Q2.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE JANUARY 19

TICKER COMPANY EPS FORECAST
AA Alcoa $2.5
ASML ASML Holding $4.3
CFG Citizens Financial Group $1.16
CMA Comerica $1.6
DFS Discover Financial Services $3.48
FAST Fastenal $0.36
FUL H.B. Fuller $1.06
KMI Kinder Morgan $0.27
MS Morgan Stanley $1.83
PACW PacWest Bancorp $1.06
PG Procter & Gamble $1.66
STT State Street $1.93
USB U.S. Bancorp $1.13
UAL United Airlines $-2.12
WTFC Wintrust Financial $1.56

 

Thursday (January 20)

IN THE SPOTLIGHT: NETFLIX

The California-based global internet entertainment service company NetFlix is expected to report its fourth-quarter earnings of $0.82 per share, which represents a year-over-year decline of over 30% from $1.19 per share seen in the same period a year ago.

However, the streaming video pioneer would post revenue growth of over 16% to $7.71 billion. It is worth noting that the company has beaten earnings per share (EPS) estimates just thrice in the last two years.

“We believe share performance is highly dependent on increasing global membership scale. Proven success in the US and initial international markets provides a roadmap to success in emerging markets, and scale should allow Netflix (NFLX) to leverage content investments and drive margins,” noted Benjamin Swinburne, equity analyst at Morgan Stanley.

“Higher global broadband penetration should increase the Netflix (NFLX) addressable market, driving member growth and providing further opportunity given NFLX’s global presence. Longer-term, we see the ability to drive ARPU growth, particularly given increased original programming traction.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE JANUARY 20

TICKER COMPANY EPS FORECAST
AAL American Airlines $-1.72
CSX CSX $0.42
FITB Fifth Third $0.91
ISRG Intuitive Surgical $1.01
KEY KeyCorp $0.56
MTB M&T Bank $3.24
NTRS Northern Trust $1.82
OZK Bank OZK $0.98
PPBI Pacific Premier Bancorp $0.85
PPG PPG Industries $1.2
RF Regions Financial $0.49
SASR Sandy Spring Bancorp $1.1
SIVB SVB Financial $6.29
TRV Travelers $3.77
UNP Union Pacific $2.66
WBS Webster Financial $1.11

 

Friday (January 21)

TICKER COMPANY EPS FORECAST
ALLY Ally Financial $2.0
FHB First Hawaiian $0.47
HBAN Huntington Bancshares $0.37
INFO IHS Markit $0.71
SLB Schlumberger $0.39

 

The Week Ahead – Earnings, Central Bank Chatter and a Busy Economic Calendar in Focus

On the Macro

It’s a busy week ahead on the economic calendar, with 63 stats in focus in the week ending 21st January. In the week prior, 44 stats had been in focus.

For the Dollar:

Key stats include Philly FED Manufacturing and initial jobless claims due out on Thursday.

Other stats include NY Empire State Manufacturing and housing sector data. These stats should have a muted impact on the markets, however.

In the week ending 14th January, the Dollar Spot Index fell by 0.58% to 95.165.

For the EUR:

ZEW Economic Sentiment figures for Germany and the Eurozone will be the key stats early in the week.

Finalized December inflation figures for member states and the Eurozone in the week will also draw interest.

At the end of the week, however, expect Eurozone consumer confidence figures to also influence. The markets will be looking for the effects of rising consumer prices on sentiment.

On the monetary policy front, the ECB monetary policy meeting minutes are due out on Thursday, with ECB President Lagarde scheduled to speak on Friday.

For the week, the EUR rose by 0.44% to $1.1411.

For the Pound:

It’s an important week ahead on the economic calendar.

On Tuesday, claimant counts and the UK’s unemployment rate will be in focus.

Inflation and retail sales figures due out on Wednesday and Thursday will also be key, however.

The stats through the week should give the BoE the numbers it needs to decide what’s next on the policy front.

On the monetary policy front, BoE Gov. Bailey is scheduled to speak on Wednesday.

The Pound rose by 0.64% to end the week at $1.3675.

For the Loonie:

It’s a relatively quiet week ahead on the economic calendar.

Inflation figures will be in focus on Tuesday, ahead of retail sales and employment figures on Friday.

With the markets expecting a hawkish BoC, this week’s stats could seal the fate of the Loonie near-term.

The Loonie ended the week up 0.72% to C$1.2552 against the U.S Dollar.

Out of Asia

For the Aussie Dollar:

Westpac consumer sentiment and employment figures will be in focus. While consumer sentiment is important, expect the employment numbers to be key. Another sharp pickup in hiring could force the RBA to reconsider its current stance on cash rates.

The Aussie Dollar rose by 0.36% to $0.7207.

For the Kiwi Dollar:

Business confidence figures for the 4th quarter get things started on Tuesday. We have seen business confidence wane recently, so the markets will be expecting some weak numbers.

Of greater significance will be electronic card retail sales figures due out on Wednesday.

At the end of the week, Business PMI numbers will also draw interest, however.

The Kiwi Dollar ended the week up by 0.37% to $0.6804.

For the Japanese Yen:

It’s a relatively quiet week ahead. Key stats are limited to trade data on Thursday and inflation figures on Friday. We don’t expect the numbers to move the dial, however.

On Tuesday, the BoJ also delivers its first monetary policy decision of the year. No surprises are expected…

The Japanese Yen rallied by 1.19% to ¥114.190 against the U.S Dollar.

Out of China

It’s a big week, with 4th quarter GDP numbers due out on Monday. Expect the numbers to set the tone for the week. Disappointing growth figures could bring into question market optimism towards the global economic outlook.

Other stats on Monday include fixed asset investments, industrial production, and retail sales figures. Barring dire numbers, however, these should have a limited impact on the markets.

On the monetary policy front, the PBoC will also be setting loan prime rates on Thursday.

The Chinese Yuan ended the week up by 0.39% to CNY6.3528 against the U.S Dollar.

Geo-Politics

Nothing new to consider in the week ahead, with China and Capitol Hill and Russia continuing to be the key areas of focus.

COVID-19

COVID-19 news updates will remain a key area focus. Risk aversion could hit should a new strain of the virus appear in a developed economy.

Corporate Earnings

It’s also corporate earnings season, with a number of big names releasing results that could test support for riskier assets.

U.S Mortgage Rates Surge in Response to U.S Inflation Figures for December

Mortgage rates were on the rise once more in the second week of 2022.

In the week ending 13th January, 30-year fixed rates surged by 23 basis points to 3.45%. 30-year fixed rates had risen by 11 basis points in the week prior. As a result, 30-year fixed rates held above the 3% mark for an 9th consecutive week.

Compared to this time last year, 30-year fixed rates were up by 80 basis points.

30-year fixed rates were still down by 149 basis points, however, since November 2018’s last peak of 4.94%.

Economic Data from the Week

It was a relatively quiet first half of the week on the U.S economic calendar. Key stats included December inflation figures on Wednesday.

In December, the U.S annual rate of inflation accelerated from 6.8% to 7.0%, the highest since 1982. The core annual rate of inflation picked up from 4.9% to 5.5%.

On the monetary policy front, FED Chair Powell had given testimony on Tuesday, delivering some market relief. The FED Chair talked of the U.S economy’s ability to withstand rate hikes while also holding back from suggesting the need for more than 3 hikes in the year.

The inflation figures ultimately drove yields northwards, however.

Freddie Mac Rates

The weekly average rates for new mortgages as of 13th January were quoted by Freddie Mac to be:

  • 30-year fixed rates jumped by 23 basis points to 3.45% in the week. This time last year, rates had stood at 2.65%. The average fee remained unchanged at 0.7 points.
  • 15-year fixed rose by 19 basis points to 2.62% in the week. Rates were up by 46 basis points from 2.16% a year ago. The average fee rose from 0.6 points to 0.7 points.
  • 5-year fixed rates increased by 16 basis points to 2.57%. Rates were down by 18 basis points from 2.75% a year ago. The average fee fell from 0.5 points to 0.3 points.

According to Freddie Mac,

  • All mortgage types saw rates rise, driven by the prospect of a faster than expected tightening of monetary policy.
  • The shift in sentiment was driven by a continued pickup in inflation exacerbated by uncertainty in labor and supply chains.
  • In spite of the rise in mortgage rates this year, purchase demand has yet to reflect the jump in rates.
  • Given the fast pace of home price growth, however, it will likely dampen demand in the near future.

Mortgage Bankers’ Association Rates

For the week ending 7th January, the rates were:

  • Average interest rates for 30-year fixed with conforming loan balances rose from 3.33% to 3.52%. Points decreased from 0.48 to 0.45 (incl. origination fee) for 80% LTV loans.
  • Average 30-year fixed mortgage rates backed by FHA increased from 3.40% to 3.50%. Points increased from 0.42 to 0.45 (incl. origination fee) for 80% LTV loans.
  • Average 30-year rates for jumbo loan balances increased from 3.31% to 3.42%. Points fell from 0.38 to 0.36 (incl. origination fee) for 80% LTV loans.

Weekly figures released by the Mortgage Bankers Association showed that the Market Composite Index, which is a measure of mortgage loan application volume, increased by 1.4% from a week earlier. The Index had fallen by 2.7% from 2-weeks earlier.

The Refinance Index slipped by 0.1% in the week ending 7th January and was 50 basis points lower than the same week a year ago. The index had declined by 2% from 2-weeks ago. The refinance share of mortgage activity decreased from 65.4% to 64.1% in the week ending 7th January. The share had risen from 63.9% to 65.4% in the 2-weeks prior.

According to the MBA,

  • Mortgage rates increased significantly as the FED signaled tighter policy ahead, pushing yields higher.
  • 30-year fixed hit 3.52%, its highest level since March 2020.
  • Rates at these levels are quickly closing the door on refinance opportunities for many borrowers.
  • Applications remained at their lowest level in over a month.
  • The housing market started 2022 on a strong note. However, the strength in growth will be dependent upon a more rapid growth in housing inventory to meet demand.

For the week ahead

It’s a particularly quiet start to the week for the U.S markets. Economic data is limited to NY Empire State Manufacturing numbers that should have a muted impact on yields.

From elsewhere, 4th quarter GDP numbers from China will also draw interest on Monday, however.

Away from the economic calendar, expect COVID-19 news updates to remain a key area of focus.

Weekly Technical Market Insight: 17th – 21st January 2022

Charts: Trading View

(Italics: Previous Analysis Due to Limited Price Change)

EUR/USD:

Weekly timeframe:

As anticipated, long-standing resistance from $1.1473-1.1583 (active S/R since late 2017) entertained a bearish showing last week. Downstream, familiar support resides at $1.1237-1.1281. Made up of a 61.8% Fibonacci retracement at $1.1281 and a 1.618% Fibonacci projection from $1.1237, this area delivered a floor heading into the close of 2021. ‘Harmonic’ traders will acknowledge $1.1237 represents what’s known as an ‘alternate’ AB=CD formation (extended D leg).

Strengthening the aforementioned resistance area, the pair took out 2nd November low (2020) at $1.1603 in late September (2021), suggesting a downtrend on the weekly timeframe. This is reinforced by the monthly timeframe’s primary downtrend since mid-2008.

Daily timeframe:

Technical observations on the daily timeframe reveal the currency pair forming a potential whipsaw above a 7-month trendline resistance, extended from the high $1.2254. Note also that price movement established a bearish engulfing candle (a reversal pattern in which focus is directed to the real candle body rather than upper and lower shadows). Should bearish follow-through emerge this week, Quasimodo support offers an obvious target at $1.1213.

For those who read Friday’s technical briefing you may recall the following:

Long term, we’re at the lower boundary of weekly resistance at $1.1473-1.1583, structure perhaps hindering further buying beyond the daily timeframe’s 7-month trendline resistance, extended from the high $1.2254.

Momentum studies, derived through the relative strength index (RSI), shows the indicator spun lower ahead of resistance at 63.66 and is threatening a move back to the 50.00 centreline.

Trend on this scale has been lower since June 2021.

H4 timeframe:

Fibonacci resistance between $1.1506 and $1.1476 served this market well at the tail end of the week, welcoming a one-sided decline on Friday and throwing light on support at $1.1382, closely followed by a decision point at $1.1354-1.1379. Harmonic traders (much like the weekly timeframe) will acknowledge that the 1.272% Fibonacci projection at $1.1476 forming the lower side of the noted resistance is commonly referred to as an ‘alternate’ AB=CD formation (extended D leg).

What also gave credibility to the Fibonacci resistance (underlined in previous writing) was the area overlapping the lower edge of weekly resistance from $1.1473-1.1583.

The technical framework on this chart, therefore, shines light on a possible test of support at $1.1382 and neighbouring decision point at $1.1354-1.1379 early week.

H1 timeframe:

A closer reading of price action on the H1 shows Friday led the currency pair under support at $1.1452, which was subsequently retested and established resistance. Merging trendline support, drawn from the low $1.1285, and the psychological base at $1.14 was later tested and held into the close. $1.14 failing to hold places demand at $1.1363-1.1375 in view.

As you would expect, the relative strength index (RSI) dipped a toe in oversold waters, but departed the range prior to the close.

Observed Technical Levels:

Long term:

Weekly resistance at $1.1473-1.1583 elbowing its way into the spotlight and the daily timeframe chalking up a bearish engulfing candle around trendline resistance, extended from the high $1.2254, promotes a bearish climate this week.

Short term:

The higher timeframe’s bearish opinion, and some elbow room on the H4 to support at $1.1382 and the decision point at $1.1354-1.1379, $1.14 bids are fragile early week on the H1. On this account, two potential scenarios are seen:

  • A short-term dip through $1.14 to H1 demand at $1.1363-1.1375 (shares space with the H4 decision point at $1.1354-1.1379).
  • Continuation bidding off $1.14 to test H1 resistance at $1.1452 to bring in sellers.

AUD/USD:

Weekly timeframe:

Prime support at $0.6968-0.7242 continues to play a crucial role on the weekly timeframe. Bulls, as you can see, embraced a modestly bullish stance into the close of 2021. 2022, on the other hand, has been undecided so far. Should buyers continue pressing higher, resistance is formed at $0.7501. Manoeuvring beneath $0.6968-0.7242 reveals support at $0.6673 and a 50.0% retracement at $0.6756.

Since mid-Feb 2021, a modest downside bias has been seen. This followed higher prices since pandemic lows of $0.5506 (March 2020). However, it is important to note that from the monthly timeframe the unit has been entrenched within a large-scale downtrend from mid-2011.

Daily timeframe:

Resistance—made up of a 61.8% Fibonacci retracement at $0.7340, a 100% Fibonacci projection at $0.7315, an ascending resistance, drawn from the low $0.7106, trendline resistance, drawn from the high $0.7891, and the 200-day simple moving average at $0.7423—came within a pip of making an entrance on Thursday and finished by way of a shooting star candle (bearish configuration). Friday answered with a near-full-bodied bearish candle, erasing 1.0 percent.

Aside from the $0.7130 low (7th January) and the $0.7082 (20th December [2021]) low, obvious support at $0.7021 calls for attention.

The relative strength index (RSI) continues to circle the 50.00 centreline. $0.7423-0.7315 sellers, therefore, will likely be watching for the indicator to secure position beneath the 50.00 neighbourhood this week, movement that informs market participants that average losses exceed average gains.

H4 timeframe:

Prime resistance drawn from $0.7323-0.7308 was a highlighted area in recent analysis, receiving price action on Thursday.

Thursday’s response and Friday’s additional softness manoeuvred through support at $0.7250 (now a marked resistance level). The $0.7169-0.7187 demand is next in the line of fire for sellers, with Quasimodo support residing a touch below at $0.7146.

H1 timeframe:

Following a whipsaw north of $0.73 (into H4 prime resistance at $0.7323-0.7308) and a subsequent head and shoulders top pattern forming ($0.7293, $0.7314, $0.7294), the euro plunged against the buck on Friday—taking out $0.7273 support—and eventually butted heads with $0.72.

South of the psychological base, Quasimodo support is visible at $0.7168, accompanied by a nearby demand at $0.7126-0.7141.

Supporting the modest $0.72 ‘bounce’ is the relative strength index (RSI) poking oversold space. A decisive exit from this range informs short-term traders that average gains are beginning to outweigh average losses on this timeframe: positive momentum. Indicator support rests nearby at 19.17.

Observed Technical Levels:

Long term:

The near-test of daily resistance between $0.7423 and $0.7315 commanded the attention of bearish players in the second half of last week. Although weekly price remains within prime support at $0.6968-0.7242, daily flow may take aim at lows around $0.7130 and $0.7082, followed by support forged from $0.7021.

Short term:

Having noted space for sellers to zero in on H4 demand at $0.7169-0.7187, dipping under $0.72 to test H1 Quasimodo support at $0.7168 (plotted just beneath H4 demand) is a possible situation this week. Alternatively, H1 bids may remain off $0.72, looking at a potential run back to H1 resistance at $0.7273. Holding $0.72 is also bolstered by the RSI testing oversold and (from a higher timeframe perspective) weekly price inhabiting prime support.

USD/JPY:

Weekly timeframe:

After touching gloves with a 1.272% Fibonacci projection from ¥116.09 and refreshing multi-year pinnacles, movement probed resistance-turned support from ¥114.38 last week. Assuming sellers secure position south of the latter, support at ¥112.16 warrants attention.

In terms of trend, the unit has been advancing since the beginning of 2021, welcoming a descending resistance breach, drawn from the high ¥118.61. In consideration of the trend, a dip-buying theme forming between ¥112.16 and ¥114.38 is a reasonable assumption.

Daily timeframe:

Technically aiding bearish action last week was Quasimodo resistance at ¥116.33 on the daily timeframe, seated above the weekly timeframe’s 1.272% Fibonacci projection from ¥116.09. Following two decisive bearish days, Friday pencilled in a hammer pattern, void of an obvious technical floor. Note that the real body colour of hammer formations (and shooting stars) are irrelevant.

Despite the technical candle, added bearish pressure developing this week guides attention towards demand at ¥112.66-112.07, tailed closely by a decision point from ¥111.18-111.79 and the 200-day simple moving average at ¥111.32.

In terms of the relative strength index (RSI), support between 40.00 and 50.00 (a ‘temporary’ oversold range since 10th May) remains active.

H4 timeframe:

Shortly after clipping the lower edge of another decision point at ¥113.54-113.78 (leaving Quasimodo support at ¥113.22 unchallenged), resistance is featured at ¥114.50, joined by trendline support-turned resistance, extended from the low ¥112.56, a decision point from ¥114.72-114.51 and additional trendline resistance nearby, taken from the high at ¥116.35.

H1 timeframe:

Downside momentum slowing (showed through bullish divergence on the relative strength index) in the second half of the week, in spite of breaching (and retesting as resistance) the ¥114 psychological figure, EUR/USD bulls consequently adopted an offensive phase off support at ¥113.56 and finished the week settling above ¥114 in the form of a shooting star bearish candle pattern.

Resistance is seen above at ¥114.32; subsequent bullish moves target Quasimodo support-turned resistance at ¥114.83 and the ¥115 figure.

Further RSI analysis shows the indicator’s value crossed above the 50.00 centreline: positive momentum until either re-entering -50.00 territory or testing overbought space.

Observed Technical Levels:

Long term:

Weekly price modestly stabbing through resistance-turned support from ¥114.38 and open space to journey lower on the daily timeframe to demand at ¥112.66-112.07 submits a potential bearish play this week.

Should lower prices take form, a dip-buying phase remains on the table between the said daily demand and a decision point from ¥111.18-111.79 (joined by weekly support at ¥112.16).

Short term:

In line with the bearish perspective on the bigger picture, the H4 decision point from ¥114.72-114.51 and associated H4 technical levels is a possible target area for sellers early week. In order to reach the above area, nevertheless, a H1 resistance breach at ¥114.32 must come about.

GBP/USD:

Weekly timeframe:

The current 4-week bid—initiated ahead of the double-top pattern’s ($1.4241) profit objective around $1.3093 (red boxes)—continues to echo a muscular tone, in line with the weekly timeframe’s current uptrend since early 2020. However, it’s important to recognise that while the trend on the weekly timeframe demonstrates an upside bias, the monthly timeframe’s long-term trend has been lower since late 2007.

Nevertheless, ‘consumed supply’ (blue area) is nearby between $1.4001 and $1.3830. Considering this, candle action may be guided as far north as resistance from $1.4371-1.4156 in the coming weeks.

Daily timeframe:

Counter to the weekly timeframe is the daily timeframe bonding with the lower side of the 200-day simple moving average at $1.3733 last week. Thursday assembled a shooting star candle formation (bearish signal) and Friday sailed to a low of $1.3653.

Observed support falls in at $1.3602, aided by neighbouring trendline resistance-turned support, taken from the high $1.4250. Conquering the SMA this week, on the other hand, sets the technical stage to as far north as Quasimodo resistance at $1.3892.

The relative strength index (RSI) recorded overbought conditions in line with price testing the noted SMA and exited the area into the week’s close. This is considered by many technicians a sign upside momentum is beginning to slow and bears could take the wheel.

H4 timeframe:

Following the near-test of supply from $1.3782-1.3758 and a deep 88.6% Fibonacci retracement at $1.3758, the unit retested a merging steep trendline support, drawn from the low $1.3173, and Quasimodo resistance-turned support at $1.3668. You will note the aforesaid supports are toughened by a nearby decision point at $1.3622-1.3646.

Below the decision point, aside from a number of local lows, demand is seen at $1.3428-1.3444.

H1 timeframe:

Quasimodo resistance-turned support at $1.3667 embraced price action in the final hours of trade Friday, backed by the relative strength index (RSI) dropping in on oversold terrain to a low of 25.09. This followed a decisive decline from Quasimodo support-turned resistance at $1.3739 earlier in the session.

Demand at $1.3628-1.3643 warrants attention this week, rooted just ahead of support at $1.3627, followed by $1.36 and additional demand from $1.3580-1.3600.

Observed Technical Levels: 

Long term:

The daily timeframe connecting with the 200-day simple moving average at $1.3733 brings light to support at $1.3602 this week, and trendline resistance-turned support, taken from the high $1.4250.

Short term:

The higher timeframe stance places a bearish cloud over H4 trendline support, drawn from the low $1.3173, and Quasimodo resistance-turned support at $1.3668, as well as the decision point at $1.3622-1.3646. With the daily timeframe perhaps targeting support at $1.3602, driving through the above noted H4 structure (and H1 demand at $1.3628-1.3643 and H1 support from $1.3627) could take shape to the $1.36ish neighbourhood on the H1.

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.

 

European Equities: A Week in Review – 14/01/22

The Majors

It was a bearish week for the European majors in the week ending 14th January.

The DAX30 slipped by 0.40%, with both the CAC40 and EuroStoxx600 the ending the week down by 1.05% respectively.

It was a choppy week for the global equity markets, with market sentiment towards FED monetary policy the key driver in the week.

Early in the week, FED Chair Powell testimony had pointed to just 3 rate hikes for the year to curb inflationary pressure. December inflation figures from the U.S on Wednesday, however, left FOMC hawks to take a more hawkish stance later in the week.

A number of FOMC members talked of the need for 4 rate hikes, leading to a tech sell-off late in the U.S session on Thursday. The negative sentiment filtered through to the European majors on Friday, leaving the majors in the red for the week.

Economic data from the Eurozone largely took a back seat in the week.

The Stats

Key stats included Eurozone unemployment, industrial production, and trade data for November.

The stats were skewed to the positive. The Eurozone’s unemployment rate fell from 7.3% to 7.2%, with industrial production up 2.3% in the month. Production had fallen by 1.3% in October.

Trade data was market negative, however, while finalized inflation figures for France and Spain had a muted impact on the majors. The Eurozone’s trade balance narrowed from a €3.3bn surplus to a €1.5bn deficit in November. It was the Eurozone’s first goods trade deficit since January 2014.

From the ECB, the Economic Bulletin sent mixed signals, while suggesting that inflation was more than just transitory.

From the U.S

It was a big week for the Dollar. In the first half of the week, FED Chair Powell testimony and December inflation figures were key drivers.

While the FED Chair talked of the need to hike rates, there was no mention of the need for more than 3 this year. This was taken as a positive for the riskier assets and negative for the Dollar.

On Wednesday, another spike in inflation failed to spook the markets. This was in spite of the U.S annual rate of inflation at its highest since 1982. An easing in energy prices for the first time since the uptrend was taken as a sign of a possible topping out.

Jobless claims failed to impress on Thursday, with initial jobless claims increasing from 207k to 230k in the week ending 7th January.

Retail sales figures for December wrapped things up on Friday. In December, retail sales fell by 1.9% versus a forecasted 0.1% decline. Core retail sales tumbled by 2.3% versus a forecasted 0.2% rise.

The Market Movers

From the DAX, it was a mixed week for the auto sector. BMW and Volkswagen rallied by 3.89% and by 2.86% respectively to lead the way, with Daimler rising by 1.67%. Continental bucked the trend, however, with a 0.04% loss.

It was a bearish week for the banking sector. Deutsche Bank and Commerzbank slid by 3.33% and by 5.47% respectively.

From the CAC, it was a bullish week for the banks. Soc Gen rallied by 3.13%, with BNP Paribas and Credit Agricole ending the week with gains of 2.79% and 2.38% respectively.

The French auto sector also had a bullish week. Stellantis NV and Renault rallied by 5.43% and by 4.03% respectively.

Air France-KLM ended the week down by 1.65%, with Airbus falling by 0.31%.

On the VIX Index

It was a 2nd consecutive week the green for the VIX in the week ending 14th January, marking a 6th rise in 9-weeks.

Following an 8.94% gain from the previous week, the VIX rose by 2.29% to end the week at 19.18.

2-days in the green from 5 sessions, which included a FOMC member driven 15.28% jump on Thursday, delivered the upside.

For the week, the Dow fell by 0.88%, with the NASDAQ and the S&P500 ending the week down by 0.28% and by 0.30% respectively.

VIX 150122 Weekly Chart

The Week Ahead

It’s quieter week ahead on the Eurozone economic calendar. Early in the week, ZEW Economic Sentiment figures for Germany and the Eurozone will be in focus. We’ve seen plenty of sensitivity to the numbers of late.

The focus will then shift to finalized inflation figures for member states and the Eurozone and Eurozone consumer confidence figures.

On the monetary policy front, the ECB monetary policy meeting minutes will also draw plenty of interest. The markets are expecting to see a shift in stance on interest rates to curb inflation.

From the U.S, Philly FED Manufacturing and weekly jobless claims figures will be the key stats of the week. Expect another jump in jobless claims to test support for riskier assets…

Ahead of the European open on Monday, economic data from China will set the tone, however, 4th Quarter GDP numbers, along with industrial production and retail sales figures for December will be key.

Away from the Economic Calendar

News updates on COVID-19 will need continued monitoring. While the markets have accepted the less severe Omicron strain, any news of a new strain would weigh on the majors. There are also corporate earnings to draw attention in the week.

The Weekly Wrap – U.S Inflation and FED Commentary Delivered a Choppy Week for the Markets

The Stats

It was a quieter week on the economic calendar, in the week ending 14th January.

A total of 44 stats were monitored, which was down from 63 stats in the week prior.

Of the 44 stats, 19 came in ahead forecasts, with 19 economic indicators coming up short of forecasts. 6 stats were in line with forecasts in the week.

Looking at the numbers, 19 of the stats reflected an upward trend from previous figures. Of the remaining 25 stats, 23 reflected a deterioration from previous.

For the Greenback, it was back into the red. In the week ending 14th January, the Dollar Spot Index fell by 0.58% to end the week at 95.167. A 0.65% slide on Wednesday did most of the damage as the markets responded to U.S inflation figures. In the week prior, the Index had risen by 0.07% to 95.739.

Out of the U.S

It was a big week for the Dollar. In the first half of the week, FED Chair Powell testimony and December inflation figures were key drivers.

While the FED Chair talked of the need to hike rates, there was no mention of the need for more than 3 this year. This was taken as a positive for the riskier assets and negative for the Dollar.

On Wednesday, another spike in inflation failed to spook the markets. This was in spite of the U.S annual rate of inflation at its highest since 1982. An easing in energy prices for the first time since the uptrend was taken as a sign of a possible topping out.

Jobless claims failed to impress on Thursday, with initial jobless claims increasing from 207k to 230k in the week ending 7th January.

Retail sales figures for December wrapped things up on Friday. In December, retail sales fell by 1.9% versus a forecasted 0.1% decline. Core retail sales tumbled by 2.3% versus a forecasted 0.2% rise.

Out of the UK

Retail sales were in focus early in the week. In December, the BRC Retail Sales Monitor was up 0.6% year-on-year versus a forecasted 0.3% increase. In November, retail sales had been up by 1.8%.

More significantly, however, were manufacturing production and GDP numbers at the end of the week.

The stats were skewed to the positive, supporting the more hawkish outlook on BoE monetary policy.

Manufacturing production rose by 1.1% in November versus a forecasted 0.2%. In October, manufacturing production had risen by 0.1%.

Month-on-month, the economy grew by 0.9% in November, following 0.2% growth in October, which was also Pound positive.

In the week, the Pound rose by 0.64% to end the week at $1.3675 In the week prior, the Pound had risen by 0.41% to $1.3588.

The FTSE100 ended the week up by 0.77% following a 1.36% gain from the previous week.

Out of the Eurozone

Key stats included Eurozone unemployment, industrial production, and trade data for November.

The stats were skewed to the positive. The Eurozone’s unemployment rate fell from 7.3% to 7.2%, with industrial production up 2.3% in the month. Production had fallen by 1.3% in October.

Trade data was EUR negative, however, while finalized inflation figures for France and Spain had a muted impact on the EUR. The Eurozone’s trade balance narrowed from a €3.3bn surplus to a €1.5bn deficit in November. It was the Eurozone’s first goods trade deficit since January 2014.

From the ECB, the Economic Bulletin sent mixed signals, while suggesting that inflation was more than just transitory.

For the week, the EUR rose by 0.44% to $1.1411. In the week prior, the EUR had fallen by 0.08% to $1.1361.

The DAX30 slipped by 0.40%, with both the CAC40 and the EuroStoxx600 ending the week down by 1.05% respectively.

For the Loonie

There were no material stats for the markets to consider. The lack of stats left market sentiment towards BoC monetary policy to influence, with the markets expectations of an imminent move delivering support.

An upswing in crude oil prices in the week was also Loonie positive.

In the week ending 14th January, the Loonie rallied by 0.72% to C$1.2552 against the Greenback. In the week prior, the Loonie had fallen by 0.05% to C$1.2643.

Elsewhere

It was a bullish week for the Aussie Dollar and the Kiwi Dollar.

The Aussie Dollar rose by 0.36% to $0.7207, with the Kiwi Dollar gaining 0.37% to end the week at $0.6804. A Friday sell-off limited the upside for the week.

For the Aussie Dollar

Retail sales and trade data were in focus, which delivered mixed results.

Key, however, was a 7.3% jump in retail sales in November versus a forecasted 3.9% increase. In October, retail sales had risen by 4.9%.

Australia’s trade surplus narrowed from A$11.22bn to A$9.423bn in November. Economists had forecasted a surplus of A$10.60bn.

For the Kiwi Dollar

Economic data was limited to building consents, which had a muted impact on the Kiwi Dollar in the week.

For the Japanese Yen

There were no material stats to provide the Yen with direction in the week.

The Japanese Yen rallied by 1.19% to ¥114.190 against the U.S Dollar. In the week prior, the Yen had fallen by 0.42% to ¥115.560.

Out of China

It was a relatively busy week on the economic data front. Inflation and trade data were in focus in the week.

In December, inflationary pressures eased, with China’s annual rate of inflation softening from 2.3% to 1.5%. China’s annual wholesale rate of inflation softened from 12.9% to 10.3%. These were positive for riskier assets, however.

Trade data was upbeat for December. China’s USD trade surplus widened from $71.72bn to $94.46bn. Exports were up 20.9% year-on-year, while imports increased by 19.5%. Exports been up by 22.0% and imports up by 31.7% in November.

In the week ending 14th January, the Chinese Yuan rose by 0.39% to CNY6.3528. In the week prior, the Yuan had ended the week down by 0.34% to CNY6.3778.

The Hang Seng Index ended the week up by 3.79%, while the CSI300 slid by 1.98%.

US Federal Reserve – Playing With Fire Part II

Throughout the last few weeks of 2021 and early 2022, these comments and posturing by the US Fed have created some very big downside price moves in the US major indexes. As a result, the US markets’ volatility levels (VIX) have moved to a recent average between 17~21 – nearly 3x historical normal levels.

US Fed Likely To Move Very Slowly On Rates

One thing that I believe has become evident to many people is that we have moved past the COVID stimulus conversations of the past 24+ months. Inflation, rising prices, constricted supply-chains, and an excess of capital throughout many global markets appear to have shifted how the US Fed interprets future risks. The Fed is telegraphing these concerns to investors very clearly right now, which means traders/investors are shifting their focus away from high-flying Growth stocks.

Even though traders are attempting to shift capital away from certain risky sectors in the US and global markets, I still believe we have about 60 to 120+ days before the bigger market shift takes place.

The US Federal Reserve will likely start addressing inflationary concerns by reducing their balance sheet assets – not by aggressively raising interest rates. I feel the US Fed will navigate Q1:2022 and Q2:2022 by reducing balance sheet assets while allowing the global supply-chain issues to attempt to resolve themselves. By June/July 2022, or later, I believe the Fed may start to consider rate increases as a means to slow inflation.

Fed Comments Shift Investor Sentiment – Metals In Focus For Later 2022

This move away from Dovish/easy-money policies will push traders to consider more traditional hedge investments – like Gold and Silver. I’m sure you’ve read some comments over the past 24+ months about Gold being an extremely undervalued asset as the US Fed poured trillions of stimulus dollars into the economy? These comments were made concerning the fact that Gold rallied from $1450 in 2019 to almost $2100 in 2020 – over 12 months (over +43%). Could a big move in Gold/Silver happen again in 2022 or 2023?

My research suggests a Double Pennant/Flag formation in Gold suggests the $1675 support level becomes critical soon. It also indicates a Breakout/Breakdown move may start to happen before March or April 2022 – near the APEX of the current Pennant/Flag formation.

The key APEX range is currently between $1785 and $1830. This represents a very tight price range where Gold may attempt to consolidate as we move towards the March/April Apex. My research suggests a move to levels near $1740 to $1750 may happen just before the Apex Breakout/Breakdown initiates. So, watch for a bit of downside price volatility in Gold before the end of February 2022.

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Junior Gold Miners May Rally +45%, Or More, On A Gold Price Rally

The Junior Gold Miners (GDXJ) Weekly Chart shows a firm support level near $37.35 that should act as a floor for price. My research suggests the next 45+ days will see GDXJ prices stay below $44 to $45 – trading in a reasonably tight range before starting to rally higher near the end of February 2022.

I believe Metals and Miners are aligning for a late February 2022 or Q2:2022 rally. The reason is that I believe the positioning by the US Fed, and expectations related to later 2022 (a mid-term election year), may prompt quite a bit of concern for the US and global equities. This will likely push investors and traders into “old-school” hedge instruments – like Gold and Silver.

That means Junior Gold and Silver Miners maybe about 55+ days away from an explosive upside price trend.

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SILJ May Rally +70% to +100%, Or More, On Fed Actions

Near the end of 2022, I published a research article highlighting the incredible opportunity in Silver – focusing on how the Gold/Silver ratio had recently reached another peak level and had started to decline: Fear May Drive Silver More Than 60% Higher In 2022. This move suggests the disparity between the price of Gold to the price of Silver shows Gold is appreciated (and holding greater value) than Silver over the past few years.

The COVID virus event, and the subsequent Fed/Government stimulus, shifted investors/traders focus away from precious metals and into the equities market speculative rally. Now that the US Fed is starting to warn of more aggressive rate increases and other actions, precious metals are suddenly much more important as a hedge against future risks.

This SILJ Weekly Chart highlights the incredible base level, near $12, that continues to offer traders a fantastic hedge against a sudden Fed move. Using a simple Fibonacci Price Extension, we can see a $20 target level (+61%) and a $25.64 target level (100%). If the $12 level holds as a base/support, SILJ may be one of the easiest and best hedges against a sudden Fed move right now.

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The US Federal Reserve is, in my opinion, playing with fire

The COVID Virus Event pushed global debt levels higher by more than $19.5 Trillion Dollars (Source: Bloomberg ). The rush to attempt to save the global economy has created a massive surge in global debt levels – pushing the global debt to GDP level to well above 356% (Source: Axios).

Why is this so important right now? Because the US Federal Reserve is talking about an attempt to move interest rates and Fed decision-making back to near-normal levels. In my opinion, this was the one fault of Alan Greenspan in 2006-07. The thought that we can raise rates to “near normal level” at any time when we have grown debt levels excessively throughout the world is failed thinking and ignorant, in my opinion.

The US Federal Reserve is trapped and almost backed into a corner. I believe the US Fed will find any rate increases above 1.00 before the end of 2023 will significantly disrupt the global speculative bubble. Any attempt to move rates to levels near or above 2.00 would represent a nearly +2000% rate increase in less than 12 to 24 months. If you want to see a shock to the global markets where global debt to GDP is closing in on 400%, try raising the FFR by more than 2000% over a short period of time. That is what I call “playing with FIRE.”.

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(Source: Axios)

2022 and 2023 will be filled with significant market trends and increased volatility. Right now, traders and investors need to understand the global markets are attempting to quickly transition away from a speculative/growth phase as the US Federal Reserve attempts to telegraph future rate increases. So it’s time to start thinking about how to prepare for unknowns and how to protect your capital more efficiently.

Growth sectors and US major indexes may continue to move higher for the next 30 to 60+ days, but my research suggests Q2:2022 may represent a “change in thinking” related to a late-2022 Fed shift. We are starting to see the markets move away from the speculative bubble-type trending we saw in 2020 and early 2021. Keep your eyes open and learn how to prepare for the big trends over the next 3+ years. The Fed is playing with fire right now. One wrong move and the markets could start a drastic price correction/reversion.

Finding The Right Trading Strategies

If you have struggled with finding opportunities over the past year or so and want to know which are the hottest sectors, or how to protect and grow your capital, then please take a minute to review my Total ETF Portfolio – Triple-Strategy Trading Plan to help you profit from these big market transitions.

Learn how I use specific tools to help me understand price cycles, set-ups, and price target levels in various sectors to identify strategic entry and exit points for trades. Over the next 12 to 24+ months, I expect very large price swings in the US stock market and other asset classes across the globe. I believe the markets are starting to transition away from the continued central bank support rally phase and may start a revaluation phase as global traders attempt to identify the next big trends. Precious Metals will likely start to act as a proper hedge as caution and concern start to drive traders/investors into Metals.

I invite you to learn more about how my three Technical Trading Strategies can help you protect and grow your wealth in any type of market condition by clicking the following link:   www.TheTechnicalTraders.com

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

Chris Vermeulen
Founder and Chief Market Strategist of The Technical Traders Ltd.

 

S&P 500 Trying to Hang On for The Week

The S&P 500 has gone back and forth during the course of the week as we continue to hang on to a major uptrend line. The uptrend line of course is something that a lot of traders will be paying attention to, and it is obvious that we have bounced from there during the course of the week. The neutral candlestick that we have formed, with a slightly negative body, does not necessarily mean anything one way or the other at the moment. Having said that, the market looks as if it is trying to continue grinding higher, and as long as we can stay above that uptrend line it is very likely that we will eventually go looking towards the highs. The 4800 level above has been significant resistance.

S&P 500 Video 17.01.22

A breakdown below the bottom of the weekly candlestick would of course be very negative, and that could open up fresh selling to reach down towards the 4500 level. That being said, the market is likely to continue to see a lot of volatility, as traders are trying to assess whether or not the Federal Reserve tightening monetary policy is going to continue to cause problems. At this point, it looks like we are hanging on by our bigger nails, so there is at least hope at this point in time. I would not be surprised to see more consolidation than anything else over the next couple of weeks, as we try to figure out what it is we are going to do. If we do break down, I would be a buyer of puts but I would not get aggressively short of this market. I would also probably pay close attention to the 4500 level.

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

Crude Oil Markets Exploded to the Upside for the Week

WTI Crude Oil

The West Texas Intermediate Crude Oil market has rallied during the course of the week to break above the $83 level. We are well above the $80 level as well and breaking above there during the course of the week is a very bullish sign. At this point in time, markets are more than likely going to get a little bit of a pullback, but that pullback should end up being a buying opportunity. After all, crude oil continues to strengthen due to the fact that omicron is not as serious as people had been concerned, and now it looks like OPEC+ continues to struggle to pump out enough oil. With this being the case, every time we get a bit of a pullback it more than likely will not be in a nice buying opportunity.

WTI Oil Video 17.01.22

Brent

Brent markets have a course rallied as well, reaching towards the $86 level. We are a little bit overextended at this point, so what am hoping to see is some type of pullback that I can take advantage of. It is possible that I may have to wait for a little bit of value. The $80 level should be supportive, but if we break to a fresh, new high, then you cannot argue with that, and it is likely that the market could go higher to reach towards the $90 level above. Furthermore, you should also pay attention to the US dollar, because if it continues to fall then it is likely that oil will probably continue to get a bit of a boost due to that as well.

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

Silver Markets Bounce to Carve Out Potential Range

Silver markets have rallied a bit during the course of the week to show signs of strength again as we continue to see a lot of noisy behavior. Quite frankly, this is a market that I think given enough time will have to make up its mind but right now it does not seem to be necessarily concerned about it. Because of this, I think it is probably a situation where we could be trying to carve out a range for shorter-term traders, with the $22 level underneath kicking off significant support that extends all the way down to the $21.50 level.

SILVER Video 17.01.22

On the other hand, the $23.50 level above offers significant resistance, which we have seen tested three times in a row on the weekly chart. Once we break out of one of these ranges, then we can get some type of situation where we can decide whether or not we are going to have a bigger move, which to the upside could be as high as $25. To the downside, if we break down it is very likely we could go looking towards the $20 level.

All things being equal, this is a market that I think continues to see a lot of volatility, and of course negative correlation to the US dollar. Because of this, you need to pay close attention to the US Dollar Index, and what it is doing. Quite frankly, it just trades in the opposite direction most of the time and that something you need to keep in the back of your mind.

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

Natural Gas Markets Give Up Gains to Form Ugly Candlestick

Natural gas markets initially gapped higher to kick off the week, and then shot towards the bottom of the massive descending triangle that we had previously formed. By doing so, the market is very likely to see plenty of selling pressure, and if we break down below the 50 week EMA, it is very likely that the market goes looking towards the $3.50 level, possibly down to the $3.00 level underneath, as it is the so-called “measured move” of the descending triangle that is sitting above.

NATGAS Video 17.01.22

All things being equal, if we do rally it is likely that we will see plenty of sellers above due to the fact that the natural gas markets have suggested that there are plenty of reasons to see this market drop. Quite frankly, the natural gas markets are oversupplied from a longer-term standpoint, so although it does tend to trade on the short-term weather patterns of the northeastern United States, the reality is that we are already trading the February contract and will soon start to focus on the month of March. That is when temperatures warm up in the US, so thereby it drives down the demand for natural gas going forward.

The only way I would be a buyer of this market is if we were to break above the top of the massive shooting star for the week, something that I just do not see happening anytime soon. All things been equal, this is a market that is a “fade the rallies” situation.

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

Gold Markets Carving Out a Consolidation

Gold markets have rallied during the course of the weekend as you can see the market has seen a lot of noisy behavior. That being said, this is a market that is trying to figure out where to go next, and quite frankly I think what we have here is a situation where we are simply spinning our wheels and try to figure out where to go next. If we can break above the $1835 level, then I think the market really starts to take off and it goes looking towards the $1875 level. Alternately, if we break down below the $1780 level, that would be extraordinarily negative for gold.

Gold Price Predictions Video 17.01.22

Either way, it looks as if we are simply going sideways in the short term, so I think that it this is a short-term trader type of environment at this point. However, if we break out of this box that I have drawn on the chart, it is a longer-term trading opportunity. If we break down, I could see a $50 drop right away, perhaps followed by a move down to the $1700 level. All things been equal, this is a market that seems as if it is just killing time, just as it has been doing for the last several months. In fact, you could even say that the volatility is shrinking, which if you are a trader of something like the Bollinger Band indicator, you probably see quite a bit of compression, which suggests that we will eventually take off, but right now we just do not seem to be that interested.

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

Gold Wars: Revenge of Supply and Inflation

If George Lucas were to make a movie about 2021 instead of Jedi knights, he would probably call it Revenge of the Supply. After all, last year will be remembered as the period of semiconductor shortages, production bottlenecks, disrupted value chains, delayed deliveries, surging job vacancies, rising inflation, and skyrocketing energy prices. It could be a shocking discovery for Keynesian economists, who focus on aggregate demand and believe that there is always slack in the economy, but it turned out that supply matters too!

As a reminder, state governments couldn’t deal with the pandemic more smartly and introduced lockdowns. Then, it turned out – what a surprise! – that the shutdown of the economy, well, shut down the economy, so the Fed and the banking system boosted the money supply, while Congress passed a mammoth fiscal stimulus, including sending checks to just about every American.

In other words, 2021 showed us that one cannot close and reopen the economy without any negative consequences, as the economy doesn’t simply return to the status quo. After the reopening of the economy, people started to spend all the money that was “printed” and given to them. Hence, demand increased sharply, and supply couldn’t keep up with the boosted spending.

It turned out that economic problems are not always related to the demand side that has to be “stimulated”. We’ve also learned that there are supply constraints and that production and delivery don’t always go smoothly. The contemporary economy is truly global, complex, and interconnected – and the proper working of this mechanism depends on the adequate functioning of its zillion elements. Thus, shit happens from time to time. This is why it’s smart to have some gold as a portfolio insurance against tail risks.

Evergiven, the ship that blocked the Suez Canal, disrupting international trade, was the perfect illustration. However, the importance of supply factors goes beyond logistics and is related to regulations, taxes, incentives, etc. Instead of calls for injecting liquidity during each crisis, efficiency, reducing the disincentives to work and invest, and unlocking the supply shackles imposed by the government should become the top economic priority.

Another negative surprise for mainstream economists in 2021 was the revenge of inflation. For years, central bankers and analysts have dismissed the threat of inflation, considering it a phenomenon of the past. In the 1970s, the Fed was still learning how to conduct monetary policy. It made a few mistakes, but is much smarter today, so stagflation won’t repeat. Additionally, we live in a globalized economy with strong product competition and weak labor unions, so inflation won’t get out of control.

Indeed, inflation was stubbornly low for years, despite all the easy monetary policy, and didn’t want to reach the Fed’s target of 2%, so the US central bank changed its regime to be more flexible and tolerant of inflation. It was in 2020, just one year before the outbreak of inflation. The Fed completely didn’t expect that – which shows the intellectual poverty of this institution – and called it “transitory”.

Initially, inflation was supposed to be short-lived because of the “base effects”, then because of the “supply bottlenecks”. Only in November, the Fed admitted that inflation was more broad-based and would be more persistent than it previously thought. Well, better late than never!

What does the revenge of supply and inflation imply for the gold market? One could expect that gold would perform better last year amid all the supply problems and a surge in inflation. We’ve learned that gold doesn’t always shine during inflationary times. The reason was that supply shortages didn’t translate into a full-blown economic crisis. On the contrary, they were caused by a strong rebound in demand; and they contributed mainly to higher inflation, which strengthened the Fed’s hawkish rhetoric and expectations of higher interest rates, creating downward pressure on gold prices.

On the other hand, we could say as well that gold prices were supported by elevated inflation and didn’t drop more thanks to all the supply disruptions and inflationary threats. After all, during the economic expansion of 2011-2015 that followed the Great Recession, gold plunged about 45%, while between the 2020 peak and the end of 2021, the yellow metal lost only about 13%, as the chart below shows.

Hence, the worst might be yet to come. I don’t expect a similarly deep decline as in the past, especially given that the Fed’s tightening cycle seems to be mostly priced in, but the real interest rates could normalize somewhat. Thus, I have bad news for the gold bulls. The supply crunch is expected to moderate in the second half of 2022, which would also ease inflationary pressure. To be clear, inflation won’t disappear, but it may reach a peak this year. The combination of improvement on the supply side of the economy, with inflation reaching its peak, and with a more hawkish Fed doesn’t bode well for gold.

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Arkadiusz Sieron, PhD
Sunshine Profits: Effective Investment through Diligence & Care.

 

US Dollar Gets Hammered Against Japanese Yen in Safety Bid

The US dollar has fallen rather hard during the trading week, to break through the ¥115 level handily, and then go looking towards the ¥113.50 level at the time of writing. That being said, this is a nasty candlestick and quite frankly it is probably the beginning of something kind of ugly. With that in mind, I will be looking for signs of exhaustion on any rally to start shorting, and if we break down below the ¥112.50 level, I will become much more aggressive. At that point in time, I believe it is probably only a matter of time before we would drop towards the ¥110 level and beyond. Keep in mind that although the US dollar is doing well against most currencies, the Japanese yen is considered to be the “safer” than the greenback, and that is how we are playing this out.

USD/JPY Video 17.01.22

When you look at the size of this candlestick, it is essentially wiping out the previous three weeks, and that is not a good look. It typically means trouble and most of the time you get to candlesticks like this you will get a certain amount of follow-through. With that in mind, I do not have any interest in trying to catch this market to the upside unless of course we get some type of weekly supportive candlestick like a hammer. It would be ideal to see it near the ¥112.50 level, but if it does not hold, look out below as people will be running for the exits.

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British Pound Slams Into Resistance

This pound has rallied rather significantly during the course of the trading week to slam into the 1.37 level. This is an area where I would anticipate a lot of noise based upon all of that choppy behavior in this general vicinity, so it is not a huge surprise to see how this has played out. Ultimately, it is also worth noting that perhaps there is more of a “risk off attitude” out there, so I do not know whether or not we can continue this move to the upside. Keep in mind that the Thursday candlestick was a shooting star, while the Friday candlestick seems to be mirroring that behavior.

GBP/USD Video 17.01.22

When I look at this chart, I recognize that we have seen a strong rally, and it is not a huge surprise to think that there could be a desire to buy this market, but at this point I think we need to clear the weekly candlestick to the upside, as we have so much in the way of noise at the moment, and especially fear. With this being the case, I do think that it is probably a situation where we need to be cautious, but I think a pullback makes the most sense. The 1.35 level would obviously be an area that probably causes a bit of attention. With that being said, it will be interesting to see if we can hold that area. If we cannot, then this market almost certainly will fall apart at that point.

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British Pound Pulls Back Against Yen Toward Support

The British pound has initially tried to rally during the course of the week but found resistance at the familiar ¥157.50 level to pull back against the Japanese yen. It should be kept in the back of your mind that the Japanese yen is considered to be a major safety currency, so therefore if there is a run towards safety, this pair will fall. Furthermore, you can make a strong argument that the British pound itself is a little overbought, not only against the Japanese yen, but against almost all other currencies. Because of this, it is not a huge surprise to see how this market is behaving. If we continue to see the fear out there that we have seen over the last several sessions, this pair will almost certainly slice through the ¥155 level and then go much lower.

GBP/JPY Video 17.01.22

To the upside, if we can take out the ¥157.50 level to the upside, that would be an extraordinarily bullish sign and have this market looking towards the ¥160 level given enough time. I do not necessarily think that is going to be easy to do, but it is a very real possibility that you need to keep in the back of your mind. I think the most important thing you can do with this pair right now is keep your position size small, because quite frankly it is going to get thrown around like a ragdoll in this type of environment. The pair used to be known as the “Dragon”, and I think we may see more Dragon like behavior going forward, so it is probably worth being as cautious as possible.

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Euro Makes Attempt at 1.15

The Euro has shown itself to be very noisy during the course of the trading week, as we initially fell rather hard, only to turn back around and test the 1.15 level. That being said, there is a lot of confusion and fear out there due to the Federal Reserve looking to tighten monetary policy. This should in theory help the US dollar overall, but it will be interesting to see how this plays out. After all, the market has been rather shocked by the absolute turnaround in the Federal Reserve policy, but at the same time it looks like Europe is trying to pick up its economy again.

EUR/USD Video 17.01.22

If it does, then it is very likely that we could see this pair continue to go higher. If we can break the 1.15 handle, then I believe that the market goes looking towards 1.16 level where a significant selloff began. It will be interesting to see how this plays out but if we do get the opportunity to test the 1.16 level, I think that is where the “rubber meets the road.”

One thing is for sure, I think that the volatility is going to continue to be a major issue in this pair, and other ones involving the US dollar. The bond market is a mess right now, as it is pricing in the idea of the Federal Reserve making a major mistake, so therefore the dollar will probably continue to be all over the place. Because of this, the EUR/USD pair is probably going to be extraordinarily noisy more than anything else.

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Australian Dollar Gives Up Half the Week’s Gains

The Australian dollar has spent most of the week gaining ground against the greenback, as the US dollar has sold off against most currencies. That being said, the market is likely to continue to be very noisy, and I do think that it is probably quite likely that we get choppy behavior over the next couple of weeks. With this being the case, I think the market is one that you need to be somewhat cautious with, because quite frankly it is going to be difficult to hang on to the volatility.

AUD/USD Video 17.01.22

That being said, if we can take out the top of the weekly candlestick, then it is a good sign and I think we go looking much higher, perhaps towards the 0.75 level. On the other hand, if we break down below the bottom of the weekly candlestick, then a return to the 0.71 level, followed by the 0.70 level makes a lot of sense. Keep in mind that this is being thrown around more by the US dollar than anything else at the moment, so it is worth paying close attention to the US Dollar Index.

The Chinese economic numbers have started to creep back up, showing signs of life again, certainly helps the Australian dollar in general, so I do think that it is probably only a matter of time before this could come into play as well. It will be interesting to see how this plays out, but I do think that it is probably only a matter of time before we get moving.

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